close
close

How do companies make money off the ERCOT network?

Danny Lynch, construction manager, walks through a battery storage yard at Blue Jay's solar and storage facility in Iola.  In Texas, the rapid growth of battery storage is driven by the ease of building energy projects and making money in the state's business-friendly environment.

Danny Lynch, construction manager, walks through a battery storage yard at Blue Jay’s solar and storage facility in Iola. In Texas, the rapid growth of battery storage is driven by the ease of building energy projects and making money in the state’s business-friendly environment.

Jon Shapley/Staff Photographer

It’s a gold rush for battery storage companies eager to cash in on support for Texas’ notoriously strained power grid.

Clean energy advocates tout the importance of large-scale batteries in decarbonizing electricity generation, the second-largest source of emissions nationally, prompting climate states like California to push for their adoption. But in Texas, as with other energy resources that have found a foothold here, the rapid growth of battery storage is driven by the ease of building energy projects and making money in the state’s business-friendly environment.

Energy, for the most part, must be generated as it is consumed. Grid-scale battery systems are valuable because they are capable of storing energy, which they monetize by providing a set of grid support services. Battery storage companies also make money by buying power when it is plentiful and cheap and selling it when prices rise, typically when the sun sets and solar power generation declines while demand for electricity remains strong.

Article continues below this advertisement.

HOUSTON BATTERY STORAGE: New technology could stabilize Texas grid. But Houston-area residents are wary of its expansion.

These companies generated $532 million in revenue in 2023 by selling power to the grid operated by the Electric Reliability Council of Texas ($285 million of that in August alone when record heat swept through the state), according to analysis by Modo Energy, a battery storage company. data start.

By comparison, battery storage earned about $390 million in 2022 in California, the leading state in installed capacity, according to the state’s grid operator, the California Independent System Operator.

How does the market work for battery storage companies?

ERCOT’s wholesale electricity market is power-only, meaning generators are only paid for the electricity they supply to the grid, with very few exceptions. In other US markets, generators are paid to be available even if they are not used. The construction of the energy-only market leads to significant price volatility when there are energy shortages.

Article continues below this advertisement.

Price volatility sets the stage for a growing revenue stream for battery storage developers. In the ERCOT market, prices can skyrocket to $5,000 per megawatt-hour when there are shortages, from about $30 per megawatt-hour normally. These price increases tend to occur on unusually hot or cold days, when Texans demand more energy for cooling or heating.

SAFETY CONCERNS: Although Houston’s grid-scale battery storage stokes fears of some residents, failures are rare

“In Texas, you make a whole year’s worth of money in six or seven days. We’re in some really crazy, turbulent times where demand is extremely high, capacity can’t meet that demand… and sell into that market situation,” said Wes Fuller, head of sales at battery storage supplier Powin. .

Battery storage operators earned 15% of their revenue in 2023 through this form of arbitrage, compared to just 6% in 2022. As outlier weather becomes more frequent and extreme with climate change, And with unprecedented growth in energy demand predicted in Texas, companies see even greater potential to make money this way in the future.

RAPID EXPANSION: Why are battery storage projects coming to Houston? Behind the rapid growth of new technology.

Article continues below this advertisement.

How do batteries participate in auxiliary services?

When battery storage companies first enter a market, they typically make most of their revenue through offerings to provide what are known as ancillary services. ERCOT purchases these services on the wholesale electricity market the day before to help balance power supply and demand the next day.

These resources increase or decrease the electricity supply in minutes or even seconds at the request of ERCOT. They can be provided by power generators or flexible-use large consumers, such as bitcoin miners.

FUEL ARRANGEMENT: Sign up to receive a roundup of oil and gas news from the energy capital of the world.

Article continues below this advertisement.

As energy demand grows, ERCOT is spending more than ever on ancillary services to avoid blackouts during unusual weather events. Meanwhile, battery storage operators in Texas are reaping profits and will make more than 80% of their revenue in 2023 providing ancillary services, according to data from Modo Energy.