In 2023, battery energy storage systems in ERCOT earned an average of $196k/MW across the year. This was 33% higher than in 2022.
And overall revenues for batteries were actually up 184% - from $187 million in 2022, to $532 million in 2023. This was due to a combination of increased volatility, and new capacity.
In fact, the total commercial operating capacity of battery energy storage doubled - from 1.96 GW to 3.89 GW. This shows no signs of slowing, with capacity expected to double again in 2024.
So, which revenue streams were most lucrative last year? When did battery energy storage systems earn most of their revenues? And which systems made the most money in 2023?
Huge volatility in ERCOT led to massive price spikes (and revenues) in 2023
Prices in ERCOT were extremely volatile in 2023. This was down to a combination of factors, including:
- Rapid buildout of new solar generation.
- Record-setting summer temperatures.
- A significant growth in demand
This led to increased revenue opportunities for battery energy storage systems.
And this meant that the average battery energy storage system earned nearly $50k/MW more in 2023 than in 2022 - a 33% increase.
Battery revenues in ERCOT were disproportionately earned on a very small number of days
Because of this volatility in prices, some days proved far more lucrative than others.
In fact, 50% of all battery energy storage revenues in 2023 were made across just 13 days.
Therefore, it was hugely important that systems were available during peak periods. Missing out on just one of those high-revenue days would have greatly impacted overall revenues for the year.
Battery energy storage systems are providing more Ancillary Services than ever before
Over the past few years, the proportion of ERCOT’s Ancillary Services provided by battery energy storage systems has increased.
Across the Regulation and the Responsive Reserve (RRS) services - the two Ancillary Services most suited to batteries, due to required response times - batteries have gone from providing 26% of the required capacity in 2021, to providing 65% in 2023.
Batteries also carried 14% of ECRS responsibility in 2023 - despite the service being ostensibly more suited to longer-duration assets with slower ramp times.
As more batteries enter the market, these services will start to saturate - which will lead to more batteries earning an even larger proportion of their revenues from Energy arbitrage.
Revenues mostly came from Ancillary Services - but Energy arbitrage revenues are increasing
The addition of a new Ancillary Service - ERCOT’s Contingency Reserve Service (ECRS) - proved lucrative for battery energy storage systems. ECRS provided 26% of annual battery revenues - despite only being active from June 10th onward.
And, overall, Ancillary Services (including ECRS) made up 85% of battery revenues in 2023.
However, Energy arbitrage revenues grew from just 6% in 2022 - to 15% in 2023. This upward trend will likely continue - as more battery energy storage capacity comes online, and Ancillary Services begin to saturate.
Which battery energy storage systems earned the most money in 2023?
A number of different operational strategies proved effective for battery energy storage systems in 2023 - relative to Modo’s ERCOT BESS Index.
ECRS clearing prices were high during its first few months
Larger and/or longer-duration resources like Flower Valley 2, Endurance Park and the Madero units, took advantage of high ECRS prices during its initial rollout.
(These high prices for ECRS are likely to stabilize in 2024, as more resources become qualified to carry the service.)
Some two-hour resources earned $100k+/MW from Energy arbitrage alone
Some longer-duration (2+ hours) resources relied heavily on Energy arbitrage - e.g. Triple Butte and Swoose 2. These resources were able to earn more than $100k/MW over the course of the year from Energy alone.
This helps prove that Energy arbitrage can and will be a successful strategy moving forward, particularly for longer-duration resources.
Providing Regulation Up was a successful strategy for smaller and/or shorter-duration resources
Some smaller capacity and/or shorter-duration resources - like Blue Summit, Alvin, and Angelton - pursued Regulation-focused strategies (and, in particular, Regulation Up).
However, Regulation is one of the Ancillary Services likely to saturate earliest (along with RRS). Therefore, these resources may need to consider alternative revenue strategies in the future.
RRS became more competitive - and regular providers struggled to match the Modo Benchmark
Battery energy storage participation in the Responsive Reserve Service (Primary Frequency Response) increased last year - from 45% in 2022 to 66% in 2023. And it’s likely that this number will continue to increase as more battery energy storage capacity makes its way online.
However, if ECRS prices stabilize (as more resources qualify), and a milder summer brings fewer periods of extreme Energy prices, providing RRS could still turn out to be an effective strategy in 2024 - if the service avoids total saturation.
Some battery energy storage systems missed out on high-revenue periods in 2023
Some resources that struggled to produce revenues in line with Modo’s BESS Index were resources that came online during 2023.
In some cases, resources likely struggled to qualify for participation in Ancillary Services either before or shortly after becoming fully commercially operational. This would have meant missed revenue opportunities (e.g. high ECRS prices).
Will 2024 revenues match those seen last year?
2023 was particularly lucrative for the reasons outlined above. As a result, it will be difficult for battery energy storage revenues in 2024 to keep pace - if conditions are even mildly less extreme, or if saturation hits Ancillary Service clearing prices earlier than expected.
With that being said, the revenues earned in 2023 set an extremely high bar. Even a significant decrease back to the levels of 2022 would still represent a very healthy return for batteries. And, there is reason to believe that there will be plenty of opportunities for batteries to take advantage of high prices in various markets as the grid continues to evolve.
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