How do companies make money on ERCOT grid?

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

Clean energy proponents tout the importance of utility-scale batteries in decarbonizing electricity generation, the second-largest source of emissions nationwide, leading climate-forward states such as 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.

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

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These businesses generated $532 million in revenue in 2023 by selling power into the grid operated by the Electric Reliability Council of Texas — $285 million of that in August alone as record-breaking heat baked the state — according to analyses by Modo Energy, a battery storage data startup. 

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

The ERCOT wholesale electricity market is energy-only, which means generators are only paid for the electricity they provide to the grid, with very few exceptions. In other U.S. markets, generators are paid for being available even if they aren’t used. The energy-only market construct leads to significant price volatility when there’s power scarcity. 

Price volatility lays the groundwork for a growing revenue stream for battery storage developers. In the ERCOT market, prices can shoot up to $5,000 per megawatt-hour when there’s scarcity, from about $30 per megawatt-hour typically. These price spikes tend to happen on unusually hot or cold days, when Texans demand more power for cooling or heating. 

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“You make all your money in an entire year in like six or seven days in Texas. You find these 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 for 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 atypical weather becomes more frequent and extreme with climate change, and with unprecedented growth in power demand forecast in Texas, companies see even greater potential to make money this way in the future. 

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When battery storage companies first enter a market, they typically earn most of their revenue through bidding to provide what are known as ancillary services. These services are purchased by ERCOT in the wholesale electricity market the day prior to help it balance the next day’s power supply and demand. 

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

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As power demand grows, ERCOT is spending more than ever on ancillary services to stave off blackouts during atypical weather events. Battery storage operators in Texas, meanwhile, are reaping the gains, earning more than 80% of their revenues in 2023 by providing ancillary services, according to Modo Energy data.