Over the last year, through consulting work and speaking to people at conferences, the momentum behind developing battery storage in Texas has been palpable. With so much money flowing into the battery storage space, Texas looked like a great opportunity compared to other regions. While there is demand in CAISO, the interconnection process takes so long and securing “deliverability” is a multi-year process. The rest of the WECC is buying batteries, but those plays develop slowly and result in either a toll or sale of a project to the host utility. Margins in SPP are starting to look more attractive, but that market has limited wholesale trading players which means you are waiting for a utility RFP. In the rest of the country, there are few places that sit at the intersection of attractive margins and speedy deployment. So, if you want to jump into the battery storage pool, ERCOT seemed like the place to do so.

The bullish ERCOT battery story was on full display in March at the Infocast - Solar+Wind Finance and Investment Summit in Phoenix. Every third person I spoke with was developing an ERCOT battery portfolio. People were riding the tailwinds of strong results in August and September of 2023 and unprecedented load growth. The pioneers in ERCOT battery deployment had made tons of money, paid for their projects, and were now playing with the house’s money. ERCOT’s energy-only wholesale market design with specific policies which boost volatility coupled with essentially full retail access makes ERCOT batteries largely a wholesale play. Stated another way, there are few 10+ year contracts available with credit worthy counterparties. BESS projects either must access the limited depth of off-take provided by your friendly neighborhood wholesale trader or they must get comfortable with merchant exposure.

So far, 2024 has proven to be a challenging year for batteries in Texas. The table below shows the energy and ancillary service prices that are relevant to BESS margins in Texas for 2023 and 2024.

Table 1 | Energy Arb for TB2 and Ancillary Service Prices for ERCOT North