Is Texas’ battery landscape really saturated?  

Texas was once hailed as one of the most lucrative battery markets in the United States. But a sharp decline in revenues from both energy arbitrage and ancillary services over the last year raises serious questions about whether the market has hit its saturation point, or if the slump is just the maturing market experiencing growing pains.  

Brandt Vermillion, the ERCOT market lead at battery storage analysis firm Modo Energy, explained that revenues declined significantly from 2023 to 2024 per megawatt.  

“Some of that is outside the scope of saturation,” he told ESS News. But, while a milder winter in 2024 and the loss of a new ancillary service in ERCOT that had boosted prices in 2023 are partly to blame, Vermillion pointed to more fundamental changes.  

“Total capacity offered has grown really rapidly,” he said, adding that batteries are now increasingly relying on energy arbitrage to earn the majority of their revenue, not ancillary services. “Offers into the market have grown at a higher rate and doubled last year.”  

In 2023, Modo Energy found that 85% of BESS revenues were from ancillary services; a year later, nearly 60% percent of revenues came from energy arbitration. Vermillion noted that the shift has come as battery operators try to adapt to an increasingly competitive ancillary market with a plateauing demand.   

And much of that supply is being offered at extremely low prices.  

“The average hourly [ancillary service] capacity offered for less than a dollar by BESS grew from near zero to over six GW on a regular basis over the course of the year,” Vermillion said, explaining that storage operators are now competing to discharge energy during the same narrow windows. 

“During the times of day when batteries want to discharge, the offers to provide the energy are more and more competitive,” he said, “because they want to actually get dispatched to provide that energy.”   

“If they don’t, they don’t actually get paid for that arbitrage,” he added.  

Still, Vermillion remains optimistic about what’s next for Texas. 

“There are reasons to believe that 2024 was a low watermark,” he said, as data center-fueled demand growth could soon shift the balance. “Even if that demand grows 20% in five years, that’s still massive growth that we really haven’t seen since the power system was first being developed 60 years ago. We’re going to need more solar and more storage.”  

But the uncertainty of the Texas market isn’t for everyone.  

“If someone is going to operate in ERCOT, they have to be comfortable operating with their merchant risk exposed,” Vermillion said, adding that most battery operators in Texas earn the bulk of their revenue during a handful of extreme weather days, so “there might be 15 days over the year that matter for capturing revenue.”. 

Looking ahead, Vermillion points to potential market stabilizers like offtake agreements and policy developments. He also expects real-time co-optimization of energy and ancillary services to grow in 2025, which “should ultimately make the ERCOT market more efficient and reduce costs in total.”