How Texas became the hottest grid battery market in the country

Battery developers love the freewheeling ERCOT system, and all the new energy storage is helping to bolster the grid. But will the good times last?
By Julian Spector

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(Binh Nguyen/Canary Media)

On the warm spring night of April 28, Houston had a problem.

Denizens of the most populous region in Texas were cranking up air conditioning to beat the early burst of summery heat. Texas’ nation-leading solar fleet had wound down for the night, passing the baton to the nation’s largest fleet of fossil-fuel-burning plants to keep all those air conditioners going. Gas and coal plants were pumping out 40 gigawatts of power — but another 27 gigawatts of thermal plants were offline, undergoing maintenance ahead of the bustling summer season.

That scheduled maintenance exposed a vulnerability in the gas fleet, which politicians in Texas and elsewhere frequently tout as being unfailingly dependable. They’re reliable when they’re on and they have fuel, which is not always the case,” noted Joshua Rhodes, an energy researcher at the University of Texas at Austin.

That unlucky mix of unseasonable warmth and power plant maintenance threatened the supply of power for the 26 million customers hooked up to the state’s uniquely isolated grid, which is run by the Electric Reliability Council of Texas, or ERCOT.

Fortunately, the grid operator had a new tool it could fire off in an instant.

Enormous, digitally controlled batteries across the Lone Star State rapidly injected 2 gigawatts of power into ERCOT’s wires just before 8 p.m., staving off potential power shortfalls and lowering electricity costs for customers.

Aaron Zubaty, CEO of Eolian Power, was watching these events closely. His company owns and operates some of the biggest batteries in Texas, and he saw April 28 as a test for the ascendant Texas energy storage industry.

This was the largest instantaneous amount of energy storage deployed to date in the Texas market, but nevertheless is a record that will be substantially exceeded this summer as more energy storage capacity is commissioned in the coming months,” he noted at the time.

It didn’t take long for that prediction to come true. On May 8, evening demand was climbing and conventional power plants totaling nearly 22 gigawatts of capacity were offline. Just before 8 p.m., the batteries surged more than 3 gigawatts onto the wires, beating the April 28 record by 50 percent.

Just before 8 p.m. on May 8, ERCOT batteries delivered a record 3 gigawatts of power to the grid, helping manage the evening demand as solar generation waned. (Grid Status)

These two recent record-setting events represent a quiet victory for both Texas’ brashly free-market energy system and battery storage, a rapidly growing technology seen as the key to unlocking a clean, decarbonized energy system.

Over the last decade, solar photovoltaics have ascended from a power industry sideshow to the biggest source of new generation in the U.S. The technology’s stunning success created an opening for energy storage technologies that make solar power available outside of sunny hours — most notably, lithium-ion batteries, the workhorse behind the smartphone and electric vehicle revolutions, which are packaged in metal containers and hooked up to the grid.

States like California, New York, and Massachusetts have passed climate policies specifically intended to jump-start this battery industry. But this year, for the first time ever, the fastest-growing energy storage market appears to be Texas, a free-market-affirming red state that officially cares little about solving climate change. Nonetheless, the state’s low-regulation, business-friendly landscape has created ideal conditions to build batteries quickly and at scale, just like it previously incubated thriving wind and solar markets.

Pioneering developers started inaugurating battery plants in 2021, making use of the state’s cheap and abundant land and rapid permitting, and the power market’s low barriers to entry. The first cohort of batteries made a lot of money for their owners, companies like Broad Reach Power, Eolian, Jupiter Power, and Plus Power. These original venturers doubled down with bigger, longer-lasting storage projects, and a wave of followers charged in close behind.

That brings us to today. Texas rolled into 2024 with some 5.1 gigawatts of energy storage online, second only to mighty California. But the U.S. Energy Information Administration (EIA) predicts Texas will complete another 6.4 gigawatts this year, outstripping California’s 5.2 gigawatts of new construction. ERCOT expects to end the year with approximately 11 gigawatts online. Analyst firm BloombergNEF, by contrast, predicts Texas will build a more modest 4.3 gigawatts, somewhat less than the company’s expectation for California’s new battery construction. But even that more modest forecast would nearly double Texas’ existing battery fleet.

When you suddenly get 10 gigawatts of storage on a system, there’s really no market in the world other than California that’s anywhere close to that,” Zubaty said. And Texas was a situation with no market mandates. This was pure Wild West investment based on the growing need for fast-ramping and flexible generation in relatively short but predictable bursts to be the glue for the grid.”

Understanding how the most bustling storage market materialized is vital to replicating its success elsewhere, which is what needs to happen for the U.S. to successfully decarbonize the power system and fulfill its Paris Agreement commitments. Indeed, the rapid evolution of the Texas storage market contains a blueprint for how technology can take off when regulators and gatekeeping electric monopolies get out of the way.

What comes to Texas will come to your local market too,” said Ryan Hanley, founder and CEO of Equilibrium Energy, a software startup that runs bidding strategies for battery assets in ERCOT. It’s not just a Texas thing — it’s a power industry dynamic. Where renewables lead, storage follows.”

Why energy storage is bigger in Texas

Texas offers comparative advantages for power plant construction and for making money on batteries.

The wide-open landscape provides plenty of cheap real estate. Permitting is relatively easy to navigate there, especially compared to states that have used policy mandates to drive energy storage adoption, like California and New York. Crucially, developers can bank on a swift interconnection, the process by which the grid operator clears a project to hook up to the electrical system.

Interconnection within two or three years is reasonable in Texas, said storage policy expert Jason Burwen, vice president at developer GridStor; in California and elsewhere, it can take five to seven years. GridStor plans to begin construction this summer on a 450-megawatt/900-megawatt-hour battery project it acquired in Galveston County.

Ease of building only matters if there’s something to do with the asset, and Texas excels there too. ERCOT is famously the freest of U.S. energy markets. In many states, the only way to get energy storage on the grid is for the local monopoly utility company to run its own tests on the technology for years on end, regardless of how long that exact tool has been running, daily, elsewhere in the country. In ERCOT, a company just has to want to spend its money on batteries and it’s allowed to compete.

This dynamic has worked incredibly well for renewables already: Texas has long produced more wind power than any other state, and last year its utility-scale solar construction outpaced reigning champion California for the first time. Texas generated 35% more solar electricity in 2023 than the year before, per the EIA. ERCOT now contains nearly 23 gigawatts of solar. The EIA expects Texas will add another 24 gigawatts of solar across 2024 and 2025.

For context, the most instantaneous power ever consumed in ERCOT was 85.5 gigawatts, during a heat wave last summer. As solar muscles into the market, it’s pushing out more expensive options — meaning any plant that pays for gas or coal to burn — while the sun shines. This depresses power prices during the daytime, cutting into revenues at fossil-fueled plants. But then it creates difficulties for grid operations when the solar fleet shuts down for the night and the remaining plants have to pick up the slack. These periods when renewable generators ramp down and thermal generators ramp up cause fluctuations in the grid’s frequency, which has to stay within a narrow band to keep the sprawling electrical system healthy.

That turbulence, plus the predictable swings from solar surplus to evening power deficit, produces ripe conditions for batteries to thrive.

It’s a sequential reality of development right now: We expect that in every market that deploys a lot of wind and solar, storage comes right behind it,” Hanley said. You need shock absorbers, and storage is the shock absorber.”

ERCOT storage evolving from grid maintenance to solar shifting

Thanks to ERCOT’s policy of releasing dispatch data after the fact, it’s possible to see just what these batteries do from day to day, in more granular detail than anywhere else. It turns out most Texas batteries first made money by offering little-known support services for the grid but are now taking on more of the bulk energy-shifting role seen in action on those warm spring nights.

As recently as last year, that energy arbitrage, or solar shifting, made up just 15 percent of the revenue that Texas battery developers pocketed, per analysis by data firm Modo Energy. The bulk of earnings came from a handful of different tasks known as ancillary services, an umbrella term for interventions that keep the grid humming along at a healthy 60 hertz frequency amid the constant fluctuations of supply and demand. In ERCOT these options include frequency regulation, spinning reserve, the ERCOT Contingency Reserve Service, and a few other alphabet-soup acronyms.

Analysts at Modo Energy showed that only 15 percent of ERCOT battery revenue came from energy shifting in 2023; the bulk came from ancillary services. (Modo Energy)

Though generally a mystery to anyone outside the grid operations industry, ancillary services gave the storage industry a foothold in ERCOT. They don’t require much throughput, since they are such quick and short-lived operations. This means developers can deliver them with lean, short-duration batteries, which keeps construction costs down. And ancillary services do complement the growth of renewables, because the fluctuations of solar and wind generation cause frequency volatility that ancillary services address.

Ancillary services are like an insurance policy on your electric grid,” Rhodes of UT Austin explained. Batteries have been providing a large portion of our insurance policy, but you only need so much insurance.”

In other words, ancillary service markets don’t run deep, so once storage developers rush in, the returns start to crumble.

This has happened elsewhere: The mid-Atlantic PJM market created the modern battery storage market a decade ago with a fast-acting frequency service. But a bust followed the boom; once a crowd of profit-seeking developers rushed in, there wasn’t enough profit to go around. California avoided that fate by giving battery developers another way to make money — letting them win utility contracts to deliver power over four-hour chunks of time; this required bigger batteries but made storage a more central player in the solar-heavy California grid.

Texas is already evolving in that direction, just without the utility contracts. The early Texas market featured batteries that could discharge their full power for only about an hour, meaning they were geared for ancillary services. Increasingly, developers are calculating that it’s worth the upfront cost to build batteries capable of discharging their full capacity for more hours.

Today you’re seeing a lot of value from the ancillary services,” said Ken McIntyre, vice president for asset operations and performance at Plus Power, which operates 775 megawatt-hours of storage in ERCOT and is adding another 800 megawatt-hours this year. But as more and more batteries come online, the natural outcome of market competition will move that value to energy arbitrage.”

Modo Energy found that the share of battery revenue from energy more than doubled last year, from just 6 percent in 2022 to 15 percent. Not coincidentally, the specific batteries earning the most money from energy shifting belong to Jupiter Power, which built two-hour batteries from the get-go, providing the firepower to inject more energy into the grid at high-demand times.

We’ve always wanted to make a case for the longest duration we could get financed,” said Caitlin Smith, vice president of policy and corporate communications at Jupiter. 

Batteries coming online in 2025 or 2026 may need to pack a four-hour duration to keep up with shifts in ERCOT rules, noted Zubaty of Eolian Power.

Building longer-duration batteries initially entailed risk: They cost more up front, and nobody had proved the market returns for longer-lasting systems. But the move paid off as ERCOT’s intense need for dependable capacity has made itself clear. Between extreme weather driving record electricity demand and newer concerns about unexpectedly large demand growth from AI computing and manufacturing, Texas needs more power plants capable of pumping out electricity for hours on end.

As this shift unfolds, the batteries will play a role that more obviously serves the transition to clean energy: shifting cheap wind and solar generation from times of abundance to times of scarcity. We’re starting to see the necessary incentives and market signals to value this capability,” McIntyre said.

Can the ERCOT storage bubble keep growing, or is it about to pop?

The history of Texas has unfolded in a series of energy booms and busts. Now energy storage is soaring so high, so quickly, that its progenitors can’t help wondering if the wings are about to melt off.

Texas jumped to about 5 gigawatts of storage capacity last year. It’s set to double that this year, per federal projections. When markets double in a year, strange things can happen, and the conditions that motivated the fast followers might be gone by the time they finish building.

There are two schools of thought on this, said Wesley Fuller, North America head of sales for Powin Energy, one of the leading suppliers of battery storage systems to developers in Texas and elsewhere. One camp says that the gold rush is over, all the volatility will be gone by the end of 25,” he explained. The other school of thought is, as long as there’s volatility, there’s money to be made.” Fuller finds the latter persuasive, which is good news for someone selling the core equipment for battery storage projects.

It’s a state with a growing population, growing energy demand,” he said, as well as stunning solar growth. It seems like volatility is here to stay.”

Others, like Zubaty, expect to see some carnage as the Texas storage market doubles almost overnight.

A lot of new energy storage capacity may flood in chasing last year’s results and end up getting hammered if their thesis is to hope that history repeats itself every year,” Zubaty said.

The ancillary service markets have already turned from cash machines into a feast or famine” situation, he added. To survive, you need to have the gut of an anaconda and make sure to catch the high prices when they show up, because you may starve for a couple of months before the next filling meal,” he said.

Hanley agrees that the ancillary service revenue available to battery plants is decreasing, but thinks this will drive a shift to other business models. We don’t see a cliff — we see the dynamics changing,” he said.

The diversity of how batteries are making revenues is so great that people will adapt and change the way they operate,” Smith said. Maybe more revenues come from energy, and that’s good and needed. Maybe it will come more from another ancillary service.”

New risk for storage: Texas politics 

Beyond the market risks inherent in a rapidly expanding competitive field, storage investors must now consider a new and uncertain set of political risks.

As much as 52 gigawatts of ERCOT’s generator fleet failed to show up at the height of Winter Storm Uri in February 2021 — millions of Texans lost power for days, and hundreds died. Since then, the state has frantically searched for ways to prevent a repeat of that catastrophe, at times injecting politics into its famously free energy market. In 2023, Texas legislators unleashed a slurry of proposals that used the urgency around preventing the next Uri to enact policies that would favor gas generators over renewable energy.

In the end, the most market-distortive plans failed to become law. The legislature did pass a $10 billion fund to loan state money to private gas-plant developers. It also ordered state utility regulators to establish new products like the Dispatchable Reliability Reserve Service and the Performance Credit Mechanism, to pay for power plants to show up in times of intense need. Critics deride these as a betrayal of the core principle of ERCOT’s energy market design, which trusts that scarcity causes prices to soar, thereby enticing new investors to show up with more capacity.

Despite these legislative pushes, some analysts think ERCOT’s free market will weather the political storm.

The political coalition fighting anti–clean energy policies includes not just the clean energy industry but also many large corporate power buyers, who don’t want to have to pay more to subsidize dirtier energy.

Political rhetoric has not turned into policy actions that truly stop this transition from happening,” said Burwen of GridStor. Large load interests are influential and have historically been averse to nonmarket approaches.”

The pro-renewables coalition also unites urban Democrats with many rural Republicans who value the economic development it brings to their districts, Rhodes noted.

But Zubaty struck a cautionary note. The legislature does not meet this year, so the next wave of post-Uri rule changes won’t become apparent until next spring. Those could have a chilling effect on investments in new storage, he said.

In the recent past, any market design construct in Texas seen as being helpful to anything other than building more gas is third-rail political kryptonite,” he noted. With these political and market risks now being increasingly apparent, it likely will drive up the effective cost of capital and become incrementally harder to finance and build further energy storage sites.”

If future policies make it harder for storage to get built, Texas could lose out on a valuable resource to respond to the next Uri. Batteries discharging for an hour or two clearly won’t save a grid struggling through a multiday crisis. But the power plant outages during Uri wreaked havoc on the grid’s frequency, and instantly correcting frequency is where grid batteries are most effective. Timely intervention to fix grid frequency can prevent other power plants from automatically tripping offline to prevent mechanical damage, which leads to cascading problems.

Moreover, Texas needs ever more capacity, and storage is delivering it, fast. This year, storage developers could equip Texas with a battery fleet equivalent to 13 percent of ERCOT’s record-setting peak demand. As they push into longer energy durations, batteries will become even more useful for bolstering the grid in times of crisis.

The Texas storage boom lays a foundation for the ongoing rise of clean energy in ERCOT. But it also makes the current system run more smoothly and efficiently. As Powin’s Fuller put it, A smarter, more powerful grid is good for everybody.”

Julian Spector is a senior reporter at Canary Media. He reports on batteries, long-duration energy storage, low-carbon hydrogen and clean energy breakthroughs around the world.