In August 2023, battery storage operators in the Electric Reliability Council of Texas (ERCOT) celebrated a record-breaking combined revenue of $285 million in a single month. By 2024, annual revenues had declined 71% from 2023 levels, even as batteries were working harder than ever. Energy arbitrage accounted for a larger share of revenue, rising from 14% in early 2023 to 26% in early 2024, as batteries were used more frequently to store and release power when prices were high.
This wasn’t a temporary downturn or weather-related anomaly; it was a permanent structural shift in the market that resulted in the underperformance of some projects that were developed on 2023 assumptions. The rapid evolution of ERCOT’s battery revenue stack from ancillary services dominance to energy arbitrage primacy is a fundamental market restructuring that demands new technical specifications, operational strategies, and risk frameworks.
The Ancillary Services Era
Battery storage projects in ERCOT compete in two primary revenue streams: ancillary services and energy arbitrage.
- Ancillary services help maintain system frequency near 60 Hz and provide dispatchable capacity when needed. ERCOT procures these services in the day-ahead market, offering battery operators predictable, stable income with relatively gentle operating requirements.
- Energy arbitrage – charging batteries when electricity prices are low and discharging when prices are high – requires precise market timing and tolerance for volatility to capture price spreads.
Between 2022 and 2023, batteries in ERCOT earned 85% of their revenue from ancillary services, with average revenues exceeding $168,000 per megawatt-year in 2023. This level of return spurred a significant wave of new battery installations. Developers favored ancillary services for straightforward reasons: location-agnostic deployment, predictable day-ahead scheduling, limited cycling that reduced degradation, and baseline revenue certainty for debt service.
Operations were equally straightforward, with secure capacity awards, high-energy price caps set at $5,000 per megawatt-hour (MWh) to capture scarcity events, and limits designed to avoid excessive cycling during normal grid conditions.
The Saturation Point
More than 3.1 gigawatts (GW) of new battery capacity came online in 2024, including many projects exceeding 200 megawatts (MW), while ERCOT’s ancillary service procurement remained relatively flat. This created a fundamental supply-demand imbalance that drove prices to historic lows.
By September 2024, ancillary service clearing prices fell to an all-time low of $1.93 per MW/h, down from averages of $7-8 per MWh just months earlier. The market had shifted: in mid-2022, batteries displaced gas and coal units; by 2024, batteries were cannibalizing each other’s returns.
Market saturation is permanent. With approximately 160 GW of solar and 180 GW of storage in ERCOT’s interconnection queue as of August 2025, ancillary service oversupply will persist indefinitely, barring dramatic load growth or procurement requirement increases. Solar generation averaged 25% of midday power generation in the summer of 2024, fundamentally shifting grid flexibility requirements from frequency regulation to energy time-shifting.
The Arbitrage Pivot
As ancillary service revenues collapsed, batteries rapidly pivoted to energy arbitrage. In September 2024, energy arbitrage exceeded 50% of battery revenues for the first time, reaching 58% – a dramatic increase from roughly 6% in 2022.
Solar’s “duck curve” creates the market dynamics that now define profitability: cheap or negative prices during peak midday solar hours produce charging opportunities, while evening demand results in discharging windows. Yet top-bottom one-hour spreads averaged $98 per MWh in 2024, down 61% from 2023, making efficiency and response time critical to profitability. A top-bottom one-hour spread measures the difference between the highest and lowest hourly electricity prices on a given day, representing the maximum theoretical revenue from a single charge-discharge cycle for a one-hour battery.
The concentration of revenue opportunities has intensified dramatically. In 2023, 50% of all battery revenues were earned across just 13 days. Missing those critical windows due to poor optimization or technical unavailability significantly impacted annual returns.
Success in this new environment requires skillsets that were previously unnecessary when ancillary services provided stable returns: day-ahead market participation strategies, real-time price forecasting, nodal congestion analysis, and merchant risk management capabilities.
What This Means for Projects
The transition from ancillary services to energy arbitrage fundamentally changes how battery projects can be successful in Texas. Early ERCOT systems often featured one-hour durations; by late 2024, six of the top seven largest battery operators in ERCOT had average site durations exceeding 1.5 hours, reflecting a shift toward 2-4 hour systems that fully capture multi-hour spreads and bridge the solar-to-wind transition.
Developers face a strategic choice: accept full merchant exposure and optimize for volatility capture, pursue hybrid Power Purchase Agreements (PPAs) that blend capacity payments with merchant upside, or wait for demand growth to create new contracted opportunities. Regardless of structure, 2023-style returns are a thing of the past.
The Path to Profitability
Projects that adapt to this revenue stack transition will achieve target returns; those that don’t will join the growing list of underperforming Texas batteries financed based on outdated 2023 assumptions. Winning projects will have technical specifications optimized for arbitrage, operational strategies that maximize extreme event capture, and financial structures that acknowledge concentration risk while capitalizing on volatility.
The Texas market hasn’t become less lucrative; it has become more sophisticated and competitive. Success requires adapting to a market where energy arbitrage drives returns, efficiency determines margins, and a handful of critical days define annual performance.
Download the ebook, The Texas Energy Playbook: Strategic Development in ERCOT, for in-depth market intelligence, comparative case studies, and strategic guidance for developing projects in ERCOT's unique market environment.