Investment boards evaluating battery energy storage projects face a fundamental credit decision between standalone and co-located configurations.

The two arrangements are on opposite ends of the risk-reward spectrum when it comes to merchant revenues. Since the beginning of 2024:

• Co-located batteries have shown 18% lower revenue volatility, with a standard deviation of $200/MW-day, compared to $245/MW-day for standalone assets.
• Standalone batteries have earned 23% higher average merchant revenues, averaging $193/MW-day versus $157/MW-day for co-located units.

For lenders, this creates a trade-off. Standalone batteries offer higher returns but come with greater uncertainty. Co-located configurations provide more predictable cash flows with lower upside.

The choice depends on how much revenue volatility a lender can accept, what contract terms require, and how the project fits within a broader portfolio — not simply which configuration generates higher revenues.

​Revenue volatility negatively impacts financing terms, both for project loans and off-take pricing.

Since the beginning of 2024, standalone batteries have earned over $350/MW on 14% of days, compared to just 7% for solar co-located batteries. The potential for high-revenue days can push up offtake contract prices for standalone units.

On the other hand, standalone batteries also see more negative-revenue days than co-located ones: 17% vs. 11%. This dampens demand from offtakers, and incentivizes lenders to set higher interest rates to compensate for default risk.

The difference in distribution matters for financing. Lenders care less about average revenues than about the frequency of low-revenue periods that could trigger contract term violations. That wider dispersion can lead lenders to price standalone batteries as higher-risk assets.

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Standalone batteries have earned 1.23x more since 2024

Grid-scale battery projects typically carry 15-20 year loan terms — roughly their expected operational lifetimes. For lenders, the critical question isn’t whether the 23% revenue uplift exists today — it’s whether the differential will persist through market cycles, revenue compression, and grid evolution.

Both battery configurations track seasonal patterns, but the premium persists

Over time, the revenues of standalone and co-located batteries behave similarly. Revenues peak in summer (e.g. July 2024), and have remained stable throughout 2025. (Read more about how market dynamics affect BESS merchant revenues in our benchmark articles for September, October, and November 2025.)

Both configurations respond to market conditions, but the standalone premium persists across quarters.

For lenders, this means cash flow projections don’t need large seasonal adjustments that could create recurring risk of contract violations during low-revenue times of the year.

Standalone battery revenues are consistently higher and more volatile

Since the beginning of 2024, standalone batteries have consistently earned more than co-located units. The ratio has ranged from 0.8x to 2.1x, with extreme values occurring in early 2024 when the co-located sample was small.

Since Q2 2024, the ratio has remained between 0.8x and 1.9x, with year-to-date 2025 readings never dipping below 1.1x. Over the whole sample, the revenue uplift averages 1.23x.

For lenders, this consistency allows the standalone revenue premium to be modeled directly into base-case cash flow assumptions. The relationship has proven stable across different market conditions throughout the past two years.

Standalone battery revenue volatility has consistently exceeded co-located volatility since December 2024. By April 2025, the volatility ratio reached 2.3x — standalone battery revenues were more than twice as volatile as co-located revenues.

This divergence has been rising consistently since Q3 2024, showing that the trend is structural and persistent

For lenders, this widening gap means standalone projects face increasing cashflow uncertainty from merchant sources, even as average revenues remain largely unchanged.

Why are the revenues outcomes different?

Co-located batteries optimize for site-wide returns, rather than just the merchant performance of the storage unit.

This means dispatching the battery in coordination with solar generation to maximize total revenues. It also can involve accepting lower battery-only returns when it improves project returns, or preserves Investment Tax Credit eligibility.

Standalone batteries, by contrast, can aim for pure merchant optimization (subject to contract constraints). They can charge and discharge whenever market conditions are most favorable. This flexibility naturally produces higher upside and higher volatility.

Co-located batteries earn more of their revenues from the Real-Time market

34% of co-located revenues since 2024 have been earned in CAISO's Real-Time Energy Market, compared to just 12% of standalone revenues. What does that mean for asset owners?

Battery operations are more intensive than for a standalone storage unit. Rather than just responding to market signals — i.e. prices — a co-located battery trades “around” the output of the solar generator. A co-located BESS unit holds back capacity from day-ahead Energy and Ancillary Service markets so it can be available to respond to real-time solar fluctuations.

That extra complexity means choosing an experienced and diligent optimizer or operator is especially important for the owners of co-located batteries, and for their lenders who expect the more-stable cash flows to lock in their debt payments.

​Standalone batteries earn more of their revenues from Ancillary Services than co-located units: 32% as opposed to 25%.

Because CAISO’s Ancillary Services are cleared grid-wide, standalone assets earn a smaller proportion of their revenues from location-specific price spreads. That is, their basis risk is lower.

That makes choosing the right operator even more important for co-located sites.

Co-located batteries sacrifice merchant revenues for site-wide benefits

Developers do not co-locate a battery with solar farms solely to maximize battery-level merchant revenues. Instead, they often use storage to improve the economics and reliability of the site as a whole.

In practice, a coupled battery can reduce the risk of curtailment that a solar farm faces. If a solar farm frequently experiences transmission constraints at its peak output hours, CAISO may reduce the Energy it transmits to the grid. Too much curtailment could lead to violations of Investment Tax Credit terms if the project does not generate the necessary volume of renewably-sourced Energy.

​By charging during periods of excess solar output and discharging when constraints ease, a co-located battery mitigates curtailment risk, unlocks additional merchant revenues for the solar asset, and preserves eligibility for tax incentives. At the same time, those operational choices provide the battery with consistently low charging prices.

Subscribers to Modo Energy’s CAISO Research can download the asset-level revenues data contained in this report below. Please reach out to logan@modoenergy.com or logan@modoenergy.com if you have any questions about CAISO or FERC EQR data.