BESS toll prices posted to RenewaFi – both bids to buy and offers to sell – fell by about 12% from June to October. Several factors likely drove the decline.

Weak Summer in 2024

Energy arbitrage is a key revenue stream for batteries. They can charge when power is relatively cheap and discharge when power is relatively expensive. This strategy relies on price volatility; the greater the fluctuation in price each day, the more batteries stand to make.

This past summer was much less volatile than the previous one. Moreover, the biggest delta between the two summers was in the afternoon hours (hours ending 15-21, 3pm to 9pm), when BESS assets typically look to discharge.

As a result, TB2 revenue – the revenue from charging and discharging during the two highest and lowest priced hours in a day, respectively – declined precipitously. An average BESS asset in ERCOT’s West Hub made more than $1,000/MWh less per day in August 2024 compared to August 2023.

Was the summer’s lackluster performance a return to normal or an aberration? The concern that future summers might mimic this summer put downward pressure on the price of BESS tolls.

“There are still some fundamentals that give you confidence in the forward value of BESS, but I think we are seeing a regression toward a baseline value of what storage can do over the course of any given day,” said Gregory Hall, VP of Origination at Equilibrium Energy.

Saturation of Ancillary Services

Ancillary services are the other key revenue stream for batteries. Ancillary services are support services necessary to maintain the reliability and stability of the electricity grid, ensuring the real-time balance of supply and demand.

ERCOT procures ancillary services through market mechanisms, where eligible participants bid to provide the services. Batteries are strong suppliers of ancillary services due to their fast response time and flexibility.

But the supply of ancillary services is starting to outstrip demand. “We are at the point where the total supply of batteries is at or above the total demand for those intraday balances services,” said Jacob Steubing, Chief Commercial Officer at Linea Energy. “We are not going back to the days of projects getting 80% or more of their revenue from ancillary services.”

Long-Term BESS Cannibalization

In the long-term, BESS could cannibalize its energy arbitrage opportunity by stabilizing intraday pricing. Since BESS adds demand when prices are low and adds supply when prices are high, the technology naturally flattens the intraday price curve.

If 48 GW of BESS were to be added by 2030, for example, the current value of a 7-Year BESS TB2 would be $1.10/kW-month less compared to if no additional BESS were to be added by 2030.

While the full impact of this cannibalization might not materialize for several years, the expectation that it is coming is likely to push down the current value of toll prices.  

Taken together, these factors - a weak summer in 2024, a more saturated ancillaries market, and a concern about the cannibalization of BESS’s energy value – all likely contributed to lower BESS toll pricing in Q3.  

‍

‍