From January to August 2023, average battery energy storage revenues in ERCOT were up 62% on 2023 levels. This summer saw extremely volatile Energy prices, and the launch of a lucrative new Ancillary Service. So, how did batteries respond?
In August 2023, battery energy storage systems in the ERCOT market earned a combined $285 million in revenues. This was more than batteries had earned in the previous 13 months put together.
So, how has the market evolved? Which resources have made the most money in 2023? And how has all of this impacted battery energy storage revenues?
Battery energy storage capacity in ERCOT is growing at a rapid pace
The buildout of battery energy storage resources in ERCOT has been rapid. In the past three years, total installed capacity has grown by 12x. And, according to interconnection queue data, batteries should continue to come online at an accelerated pace in 2024.
So, is it simply the case that more batteries mean more overall revenues?
But it’s not just battery energy storage capacity that has been increasing. ERCOT’s combined wind and solar capacity has doubled since 2018 - meaning its traditional renewable resources now outnumber CAISO’s by 2:1.
More wind and solar has led to more volatile prices - and batteries have been able to take advantage
The buildout of intermittent renewable capacity has contributed to increasingly volatile prices - as has the rapid growth of demand in the state of Texas. ERCOT saw a 7% rise in peak demand this summer. This was in part due to an increase in industrial consumers (like large-scale data centers and bitcoin mines), alongside record-setting heat levels throughout the summer.
All of this created consistently tight conditions on the grid, leading to volatility in Energy and Ancillary Service prices. Batteries were able to take advantage, and earn huge sums (thousands of dollars per megawatt) on some days.
The summer months - particularly August - were especially lucrative for batteries. 51% of battery revenues from January to August (inclusive) were earned in just 10 days - with 9 of those happening in August. And, in August, batteries in ERCOT earned 15x more than the monthly average from January 2022 through July 2023.
Ancillary Services are still the main source of revenues for batteries - but arbitrage is becoming more important
The month of June saw the introduction of a new Ancillary Service - the ERCOT Contingency Reserve Service, or ECRS. This immediately started contributing to battery revenues in a big way.
Despite only launching on June 10th, ECRS accounted for 29% of battery energy storage revenues through the end of August 2023. This is also despite the fact that storage participation in ECRS has lagged behind other services (Regulation and Responsive Reserve).
From 2022 to 2023, the proportion of battery energy storage revenues from Energy arbitrage in the Day-Ahead and Real-Time Markets has doubled. This suggests more battery capacity is being set aside to take advantage of the volatility that exists day-to-day in Energy prices.
But, in line with this volatility, Ancillary Service clearing prices in summer were also high across the board.
For ECRS, this is partly because a lower number of resources initially qualified to provide the service in the day-ahead market.
But, in response to tighter conditions on the grid, all Ancillary Service clearing prices rose. Resources generally tend to structure offer curves in line with the opportunity cost of missing out on high Energy prices.
How much have individual battery energy storage systems earned in 2023?
All of this has led to 2023 being a very lucrative year for battery energy storage systems in ERCOT. In particular, among the top-performing resources, there seems to be a marked split between longer- and shorter-duration systems.
For example, seven of the top nine systems (by 2023 annualized revenue per MW) are >1.5 hours in duration. And the top five earners of Energy arbitrage revenues are among those seven systems.
Those five systems earned more than $100k/MW in annualized Energy arbitrage revenue (to the end of August), with Energy making up nearly one-third of their entire revenue. Many of the longer-duration systems made significant portions of their revenue via ECRS.
Shorter-duration systems tended to pursue completely different strategies, favoring shorter-deployment services such as Regulation and Responsive Reserve (RRS).
The top-performing shorter-duration systems tended to earn a larger share of their revenue from Regulation - particularly Regulation Up - rather than RRS. Part of the appeal of RRS, however, is its much lower cycling requirements - meaning more revenue per cycle.
What does the immediate future hold for battery energy storage systems in ERCOT?
Ultimately, year-end annualized revenues are likely to be lower than these end-of-August levels. Barring severe weather, power prices generally will be lower through winter than they were in the summer. However, year-end revenues should still be significantly higher than 2022 revenues.
Looking to 2024, as storage buildout continues, Ancillary Services will become saturated at some point next year. This means there will be more battery energy storage capacity in Texas than ERCOT’s Ancillary Services services actually need. This will increase competition for contracts and push prices down (as has happened in Britain, for example).
This is likely to coincide with ERCOT’s enforcement of the newly approved Nodal Protocol Revision Request (NPRR) 1186. This means batteries will need to provide real-time telemetry of their state of charge (or their current level of stored energy) in order to ensure that they can fulfill their obligations at any given time.
Taken together, this means the trend of battery energy storage systems earning a larger proportion of their revenues via Energy arbitrage is almost certain to continue.