As of mid-November 2024, average battery energy storage revenues in ERCOT were around 70% lower than they were at the same time last year. But what were the key trends that drove this drop-off in earnings?
Head to the ME BESS ERCOT indices to learn more about battery revenues.
Ultimately, declining volatility, stagnant demand growth, the continuation of the battery buildout, and saturating Ancillary Service markets have all contributed to fewer big revenue opportunities for batteries in ERCOT.
1. Battery energy storage buildout continues to accelerate
From January through the end of October 2024, 3.1 GW of new battery capacity became commercially operational in ERCOT.
Around 2 GW of this growth happened between August and October alone.
2. Buildout is happening faster because batteries are getting bigger
Prior to April 2024, no battery energy storage projects larger than 200 MW were operational in ERCOT.
However, there’s been a step change in average project size in ERCOT this year. By the end of October, eight BESS larger than 200 MW had become commercially operational.
At the start of 2024, the average battery energy storage system had a rated power of around 45 MW. By the start of November, that had grown to 54 MW - a 20% increase in average battery size, in just ten months.
3. It’s not just rated power (MW) that’s increasing - average duration is growing, too
Through the end of October, the average duration of battery energy storage projects in ERCOT had reached 1.46 hours.
This is up from 1.31 hours to start 2023, and 1.15 to start 2021.
If duration continues to increase at a linear rate, BESS in ERCOT will approach an average duration of two hours sometime in 2027.
4. Batteries are being built everywhere in Texas - following solar generation buildout
The buildout of battery energy storage in ERCOT has historically been primarily focused on the West Load Zone. While development in the West has continued in 2024, the buildout of batteries in ERCOT’s other regions has begun to catch up.
At the start of 2023, 41% of BESS capacity in ERCOT - by rated power (MW) - was located in the West Load Zone. Additionally, 46% - or 30 out of 65 - of individual projects were located in the West.
While developers have continued to complete projects in West Texas, 2024 has seen substantial growth in BESS capacity across the state.
Installed capacity in the West Load Zone has grown by 50% in 2024. However, growth in ERCOT’s other regions - the North, South, and Houston - has exceeded 90% through the end of October.
5. More market participants are getting involved in battery energy storage
The number of battery energy storage owners in ERCOT is growing - and established players continue to expand their portfolios.
Additionally, the composition of these portfolios varies substantially.
Plus Power, Jupiter Power, Enel Green Power, and Key Capture Energy - four of the five largest owners, by installed capacity - each have portfolios largely comprised of big (50+ MW), two-hour batteries.
Others, like Hunt Energy Network and SMT Energy, exclusively own batteries with a rated power of less than 10 MW - or Distributed Generation Resources (DGRs). This is to take advantage of shorter development timelines, and to diversify project locations.
Diversity among BESS operators - or Qualified Scheduling Entities (QSEs) - also stands out.
Some battery energy storage owners - such as ENGIE, Enel, or Hunt Energy Network (HEN) - operate their own batteries.
A number of QSEs, including Tenaska, Shell, and Luminant, have historically been associated with operating traditional generation technologies - and are now optimizing battery operations.
Alternatively, some third-party specialist battery operators - such as Habitat Energy and Equilibrium Energy (listed above as Zephyr Asset Management) - entered the market in 2024.
As more participants enter the market, the level of variance seen in both the characteristics of battery energy storage projects and their operational strategies continues to increase.
6. With more batteries on the system, Ancillary Service markets are saturating
With more participants in the market and more battery energy storage systems online, Ancillary Service markets have become much more competitive in 2024.
In 2024, Ancillary Service clearing prices have reached all-time lows - at least, since battery energy storage entered the market.
Low natural gas prices and milder weather conditions - which have contributed to the underlying lack of volatility in the wider Energy markets - have also been key reasons for this, especially relative to 2022 and 2023.
However, 2020 was a year with similarly mild weather conditions and low natural gas prices. Despite this, Ancillary Service clearing prices were more than 20% higher than in 2024 - on average.
Additionally, five months in 2024 saw monthly average clearing prices for Ancillary Services below $5/MW/h. Outside of two months in January and December of 2023, this hadn’t happened previously in at least four years. This highlights the impact that increased battery energy storage capacity is having on Ancillary Service markets.
7. With Ancillary Services saturating, battery energy storage systems have shifted focus to Energy arbitrage
As Ancillary Service prices have declined, batteries have started earning a larger proportion of revenue from Energy arbitrage.
Since 2022, the proportion of revenues earned in Day-Ahead or Real-Time Energy markets has roughly doubled year over year.
In August 2024, 45% of BESS revenues were earned in the Energy markets, an all-time monthly record.
8. As a result, batteries are being dispatched at a higher rate
As battery energy storage systems have sought to replace revenue from the Ancillary Service markets with Energy arbitrage revenue, they have begun to offer capacity more competitively in the Day-Ahead and Real-Time Energy markets.
More batteries online plus more capacity participating in the Energy markets translates to greater physical dispatch of batteries.
In fact, the average peak daily output of batteries increased nearly fourfold in the summer of 2024 - compared to 2023.
9. Solar generation has also grown substantially year-over-year - while demand growth has been stagnant
Battery energy storage isn’t the only technology type experiencing rapid growth in ERCOT.
From summer 2023 to summer 2024, the average daily peak solar generation increased from around 12 GW to over 17 GW. This exerted downward pressure on Energy prices in the middle of the afternoon - when demand was at its highest.
While solar and battery capacity grew substantially from 2023 to 2024, milder weather conditions (compared to the previous two summers) meant demand stayed relatively stagnant in 2024.
In fact, average demand in 2024’s hottest month - August - was two percent lower than in the hottest month of 2023 - also August.
10. More solar and storage - alongside a lack of demand growth - meant prices were flattened in 2024
As a result of this, average Real-Time Energy prices in the summer of 2024 were around 70% lower than in 2022 and 2023.
Additionally, daily average peak prices were more than four times lower in summer 2024 than in 2023.
The peak in Energy prices also completed its shift - from the middle of the afternoon, to the early evening. This is a product of increased solar generation in ERCOT. With five more gigawatts of solar generation in the middle of the day, prices remained below $30/MWh in the afternoon on most days this summer - despite demand consistently surpassing 80 GW.
In previous summers, this often resulted in prices rising above $100/MWh - in both Energy and Ancillary Service markets.