Battery Energy Storage Systems (BESS) are growing rapidly in ERCOT, driven by increasing energy demand and greater price volatility stemming from intermittent renewables like wind and solar. As of December 2024, ERCOT’s BESS capacity tripled from the previous year, reaching 9.1 GW.

The continued growth of BESS relies on developers being able to find quality offtakers willing to enter into tolling agreements. These contracts provide revenue stability for developers and potential revenue upside for offtakers.

Since the introduction of BESS onto the RenewaFi marketplace in January, 13 prospective offtakers have posted 69 bids for BESS tolls. What do these bids say about offtaker preferences for BESS?

Location, location, location

Because BESS offtakers stand to benefit from price fluctuation, the most important aspect for siting is volatility at the node. That said, projecting volatility is notoriously difficult, especially because adding a BESS asset will change the dynamics at the given node.

BESS projects on offer appear to be concentrated in North Zone, where many developers are looking to co-locate BESS with existing solar projects. But from an offtaker’s perspective, what makes a good site for solar has little in common with what makes a good site for BESS.

For a PPA, an offtaker wants, “low volatility and certainty at the node,” said Greg Hall, Director of Origination at Equilibrium, on a recent RenewaFi webinar. “In general, those are sort of like the opposite things you would look for in a storage project as an offtaker.”

RenewaFi’s marketplace data shows the disparity between where BESS projects are being offered and where offtakers are most interested in buying. Most bids were in West Hub, where price volatility has been greatest.

The sooner, the better

Offtakers were more interested in BESS tolls with near-term start dates. 80% of bids on RenewaFi were for tolls starting in 2024 or 2025. They were also willing to pay more for such contracts; on average, bids for tolls starting in 2024 were 15% higher than those for tolls starting in 2026.

Opportunity cost is one reason why offtakers shy away from contracts with later start dates. “If I deploy capital now for a 2026 asset,” said Greg, “I am potentially missing opportunities that will come to market from operational assets or newly constructed assets that no longer want to be merchant.”  

Other factors may be at play as well. Some offtakers are concerned about the cannibalization effect, that an increase in BESS capacity would decrease intraday volatility and devalue these assets.

Sharing is caring

About 10% of the BESS bids were for floor+share agreements, in which the offtaker agrees to split upside revenue in exchange for a discounted toll price. These were slightly more popular on the sell-side, representing about 17% of the BESS offers.

On average, bids for floor+share agreements included a 36% discount compared to bids for full tolls.

According to Greg, these floor+share agreements are a welcome development in the market because they align incentives.“It's really good to have some skin in the game on both sides,” he said.

At the same time, parties will likely need to be creative to make the floor+share structure more appealing to offtakers. “There probably needs to be a few more tradeoffs in terms of credit posting and evening-out of the overall exposure to make those contracts a little bit more buyer friendly,” he said.