infrastructureBattery energy storage in Texas

Utility-scale batteries emerge as key to stabilizing energy grid

November 2024 | By Nathan Gonzales

Texas leads the nation in both dispatchable natural gas-powered electricity generation and intermittent renewable energy production. But one of the challenges Texas faces is how to align renewable generation with demand, as these intermittent power sources often go offline while demand peaks. This misalignment can lead to extreme price volatility and can make maintaining grid reliability more complex and challenging. Renewable energy also adds more volatility to the grid because the power output from these resources fluctuates.

Enter battery energy storage systems (BESS).  

When intermittent energy sources like wind and solar go offline, batteries can release stored energy and provide greater reliability and stability to the Electric Reliability Council of Texas (ERCOT) system. Batteries also can be quickly deployed to shore up grid stability in tight conditions, like when a power plant suddenly trips offline. From September 2020 to September 2024, Texas’ total operational capacity of utility-scale batteries — large storage systems that plug directly into the grid or generation sources — increased more than 4,100 percent to 5,707 megawatts (MW) (Exhibit 1).  

Exhibit 1 data

BESS Capacity

Month	Nameplate capacity in MW
January, 2020	124.1
February, 2020	124.1
March, 2020	124.1
April, 2020	134.0
May, 2020	134.0
June, 2020	134.0
July, 2020	134.0
August, 2020	134.0
September, 2020	134.0
October, 2020	134.0
November, 2020	134.0
December, 2020	395.4
January, 2021	223.1
February, 2021	223.1
March, 2021	223.1
April, 2021	223.0
May, 2021	223.0
June, 2021	342.9
July, 2021	342.9
August, 2021	352.8
September, 2021	430.1
October, 2021	780.0
November, 2021	780.0
December, 2021	780.0
January, 2022	780.0
February, 2022	780.0
March, 2022	829.5
April, 2022	829.5
May, 2022	829.5
June, 2022	906.5
July, 2022	1,175.6
August, 2022	1,207.8
September, 2022	1,207.8
October, 2022	1,482.8
November, 2022	1,532.8
December, 2022	2,087.3
January, 2023	2,107.1
February, 2023	2,106.1
March, 2023	2,306.1
April, 2023	2,306.1
May, 2023	2,325.9
June, 2023	2,582.5
July, 2023	2,966.4
August, 2023	3,156.4
September, 2023	3,156.4
October, 2023	3,166.3
November, 2023	3,176.3
December, 2023	3,416.3
January, 2024	3,504.4
February, 2024	3,809.3
March, 2024	4,058.2
April, 2024	4,143.1
May, 2024	4,143.1
June, 2024	4,570.8
July, 2024	4,827.1
August, 2024	5,425.5
September, 2024	5,707.4
October, 2024*	6,319.1
November, 2024*	6,974.8
December, 2024*	9,403.1

* Projected.

Source: U.S. Energy Information Administration

Notes: Nameplate capacity in MW (the theoretical maximum amount of electricity a battery can store.)
Data for October through December 2024 are projected.

Texas — the fastest growing battery storage market — is projected to add the most capacity of any state this year, with an additional 6.4 gigawatts (GW) expected to come online in 2024. Texas is second to California in overall installed battery storage capacity (Exhibit 2). These rankings are unlikely to be challenged as Texas and California, the two largest states, will account for 82 percent of the new capacity added in the U.S. in 2024, according to the U.S. Energy Information Administration. Estimates of total installed battery capacity from ERCOT are even higher, at 9.3 GW as of Oct. 31, 2024. Excluding California, Texas has more battery storage than the rest of the United States combined, accounting for over 32 percent of all the capacity installed nationwide.

Exhibit 2 data

States with the Most Installed Battery Storage Capacity

State	Nameplate Capacity (MW)
California	10,813.00
Texas	5,707.40
Arizona	1,813.00
Nevada	1,125.00
Florida	575.70
Hawaii	434.40
Colorado	319.40
New Mexico	289.00
Massachusetts	279.20
New York	224.50

Source: U.S. Energy Information Administration; nameplate capacity.

Several factors contribute to this growth. Fast permitting processes and a vast amount of land — mainstays of Texas’ low regulation, business-friendly environment and the same features that have allowed wind and solar power to thrive in Texas — make it easier for developers to enter the battery storage market. Furthermore, the global price of lithium-ion batteries has plunged 82 percent over the past 10 years as raw material prices decreased and demand softened more than expected. And federal tax credits included in the Inflation Reduction Act of 2022 have driven new investments and aim to boost both the development of battery storage and domestic battery manufacturing.

Another factor is the modular nature of batteries, which makes building new installations relatively fast and allows for a quicker return on investment compared with other energy infrastructure. Joshua Rhodes, a research scientist at The University of Texas at Austin, compares energy storage batteries to Lego bricks that can be transported by truck, assembled on location and connected to the grid. He notes, “It doesn’t require a whole lot of building and bringing fuel to a site. All you need is one connection.”

A promising technology faces growing pains

Not that there aren’t challenges associated with battery storage. The power stored in these batteries can’t be directly connected to the grid to supply electricity. The direct current (DC) generated by lithium-ion batteries must first be converted to alternating current (AC) using a device called an inverter (Exhibit 3). This may present challenges to the grid as more inverter-based resources (IBRs) like batteries, wind turbines and solar panels come online. These resources typically carry a higher risk of frequency swings outside of the grid standard of 60 Hertz (Hz) due to the absence of rotating mass, which leads to lower inertia and makes power systems more prone to instabilities. Additionally, the grid-following behavior of most IBRs leads to more frequency fluctuations, as power output is passively adjusted in response to grid frequency and voltage.

One solution is to connect inverters with “grid-forming” capabilities, which help mitigate this risk by limiting fluctuations outside of 60 Hz, increasing grid stability. Experts see utility-scale batteries as a prime opportunity to deploy grid-forming inverters to the grid, as grid-forming integration with batteries is cheaper and faster than building new transmission.

Note: Battery packs and the inverter are components of a BESS unit.

The facilities themselves also have some residents concerned about disruptive construction noise and damage to property as well as fire risks, such as what happened in California in May 2024. Experts note, however, that fires and explosions at battery storage facilities are rare due to strict safety precautions. Rhodes argues that battery storage facilities don’t pose a greater risk than facilities in other Texas industries.

How BESS technology helps power the grid

Utility-scale batteries primarily provide energy to the ERCOT grid in two ways: ancillary services and energy arbitrage. Ancillary services ensure the grid is stable by providing additional dispatchable capacity when needed. Despite the challenges facing IBRs on the grid, batteries are uniquely suited to these tasks thanks to their controllability, fast response times and ability to provide short durations of electricity.

Ancillary services are a proactive set of tools that can be quickly deployed to help the grid meet demand and maintain stability. Rhodes compares ancillary services with an insurance policy for the grid: “You want to have them, but you don’t actually want to ever use them because if you’re using them, that means you’re in a tight position.” As an ancillary service, short-duration batteries can be utilized briefly, sometimes for only minutes or seconds, such as when a transmission line fails, or a power station trips offline. In these instances, batteries can be deployed rapidly to reinforce grid operations.

Energy arbitrage, on the other hand, refers to buying electricity when prices are low and selling electricity when prices are high, with the goal of profiting from price differentials — not unlike the logic behind stock trading. This strategy is one that is often employed by battery operators seeking to maximize profits from price fluctuations. A closely linked strategy known as load shifting involves moving consumption from high-demand periods to low-demand periods (Exhibit 4).

With BESS, these strategies can work in tandem. For example, a battery can charge at midday when solar generation is high and electricity prices are low, then discharge that stored energy in the evening when solar output declines, demand increases and prices rise. In this scenario, batteries are engaged in energy arbitrage and peak-load shifting. The strategy of peak-load shifting not only smooths out peak demand periods and lowers grid strain, it also reduces energy costs.

While the available supply of battery storage in Texas is around 3 percent of total capacity, BESS can have a large impact on stabilizing grid operations and lowering costs for developers and consumers alike (Exhibit 5). For example, when Winter Storm Heather impacted Texas in January 2024, BESS units generated $750 million in market savings by delivering ancillary services and freeing up to 3 GW of gas generation to meet demand and lower prices. And when record hot temperatures strained the grid in September 2023, energy stored by BESS supplied electricity to approximately 434,000 homes and helped avoid grid failure.

Exhibit 5 data

Time	Nuclear	Hydro­electric	Coal and Lignite	Natural Gas	Wind	Battery Storage	Solar	Other
12:00 AM	5.1256	0.0000	11.8289	33.6511	21.4602	0.0104	0.0000	0.1049
12:30 AM	5.1235	0.0000	12.0552	34.3043	19.8653	0.0469	0.0000	0.1050
1:00 AM	5.1218	0.0000	12.1009	35.0966	18.7073	0.1330	0.0000	0.1050
1:30 AM	5.1232	0.0000	11.9683	36.8895	17.0858	0.0023	0.0000	0.1053
2:00 AM	5.1240	0.0000	11.9993	38.0549	16.2067	0.0228	0.0000	0.1050
2:30 AM	5.1228	0.0176	11.9484	39.1220	15.2903	0.0296	0.0000	0.1054
3:00 AM	5.1234	0.0183	11.9911	40.2921	14.0186	0.1037	0.0002	0.1053
3:30 AM	5.1260	0.0000	11.9248	40.8747	13.3630	0.1312	0.0002	0.1053
4:00 AM	5.1223	0.0000	11.9417	42.3648	12.5726	0.0132	0.0003	0.1056
4:30 AM	5.1229	0.0000	11.8877	43.7574	11.9028	0.0108	0.0003	0.1056
5:00 AM	5.1218	0.0159	12.0903	44.4566	11.3166	0.0199	0.0003	0.1053
5:30 AM	5.1230	0.0177	12.2067	45.5791	11.0492	0.0222	0.0003	0.1054
6:00 AM	5.1237	0.0180	12.2430	47.0314	10.5246	0.1010	0.0003	0.1055
6:30 AM	5.1223	0.0359	12.2189	48.6317	9.9567	0.2150	0.0002	0.0647
7:00 AM	5.1233	0.0358	12.3136	49.0796	9.3957	0.6936	0.0003	0.0006
7:30 AM	5.1235	0.0363	12.3108	49.2975	9.3280	1.2336	0.0418	0.0007
8:00 AM	5.1249	0.0349	12.2517	49.0697	8.7585	1.0271	1.0103	0.0004
8:30 AM	5.1231	0.0350	12.0135	46.5327	8.3067	0.2683	5.1978	0.0004
9:00 AM	5.1236	0.0362	11.7410	41.4043	8.5549	0.2171	10.1486	0.0004
9:30 AM	5.1234	0.0186	11.7870	38.5475	8.6612	0.1290	12.9169	0.0004
10:00 AM	5.1259	0.0184	11.7893	37.0167	8.1291	0.1637	13.8108	0.0004
10:30 AM	5.1258	0.0181	11.8489	36.7950	7.0662	0.1765	14.0848	0.0003
11:00 AM	5.1320	0.0181	11.6656	36.4925	6.4649	0.1165	14.1330	0.0163
11:30 AM	5.1306	0.0000	11.8699	36.1343	5.8164	0.0493	13.9485	0.0323
12:00 PM	5.1290	0.0000	11.8487	35.6779	5.2894	0.0590	13.8575	0.0489
12:30 PM	5.1308	0.0042	11.8566	35.5230	4.7902	0.0937	13.6865	0.0496
1:00 PM	5.1282	0.0042	11.8008	34.3472	4.3678	0.0102	13.8879	0.0503
1:30 PM	5.1289	0.0043	11.5383	33.5610	3.8497	0.0050	13.9451	0.0508
2:00 PM	5.1284	0.0043	11.0885	33.3246	3.4829	0.0187	14.1300	0.0509
2:30 PM	5.1266	0.0043	10.5410	32.8541	3.1787	0.0069	14.4680	0.0504
3:00 PM	5.1234	0.0494	9.3757	32.9130	3.0109	0.0374	14.6861	0.0505
3:30 PM	5.1231	0.0493	8.5840	32.7951	2.9878	0.0087	14.7617	0.0503
4:00 PM	5.1245	0.0043	8.9153	32.9935	2.6956	0.0653	13.9477	0.0504
4:30 PM	5.1248	0.0240	10.3062	34.2681	2.5218	0.1955	11.3819	0.0660
5:00 PM	5.1254	0.0833	11.1389	39.1357	2.2190	0.1778	6.5878	0.0799
5:30 PM	5.1241	0.0856	11.3205	44.5258	1.9922	0.8568	1.8479	0.0945
6:00 PM	5.1247	0.1275	11.3539	47.8436	2.0067	0.9272	0.0377	0.1048
6:30 PM	5.1252	0.1273	11.5398	48.8222	2.0715	1.0782	0.0002	0.1048
7:00 PM	5.1238	0.1284	11.5631	49.4428	2.5549	0.6754	0.0003	0.1050
7:30 PM	5.1247	0.1530	11.6687	49.5361	3.2012	0.4286	0.0003	0.1050
8:00 PM	5.1258	0.0737	11.7018	49.1036	3.9851	0.4905	0.0003	0.1050
8:30 PM	5.1246	0.0216	11.6974	48.8833	5.0045	0.1809	0.0004	0.1050
9:00 PM	5.1257	0.0044	11.5934	48.0044	6.2920	0.1168	0.0003	0.1050
9:30 PM	5.1248	0.0049	11.6358	46.6459	7.0651	0.0992	0.0003	0.1050
10:00 PM	5.1239	0.0050	11.5250	44.8442	8.5002	0.1006	0.0002	0.1050
10:30 PM	5.1243	0.0048	11.5534	43.1648	9.3366	0.0068	0.0003	0.1050
11:00 PM	5.1246	0.0049	11.4828	41.7677	10.6734	0.0061	0.0002	0.1053
11:30 PM	5.1254	0.0048	11.3715	40.1200	12.0742	0.0037	0.0002	0.1058
11:55 PM	5.1238	0.0048	11.4585	38.7891	13.5548	0.0046	0.0002	0.1059

Source: GridStatus.io

Note: 1 GW is equivalent to 1,000 MW

The growth of variable renewable energy sources in ERCOT’s portfolio and the rapid rise in both residential and industrial demand have led to increasingly volatile prices, allowing battery storage to take advantage of tight conditions on the grid, employing both ancillary services and energy arbitrage.

Grid strain can be particularly lucrative for battery storage operators. During Winter Storm Heather, battery storage earned 74 percent of its January and February revenue in just three days, with 85 percent of the revenue for those months coming from ancillary services. Similarly, 51 percent of battery storage revenue from January to August 2023 came from 10 days during record-setting heat and high demand. Between 2021 and 2023, the majority of battery storage revenue in ERCOT came from ancillary services versus energy arbitrage.

But batteries engaged in ancillary services can reduce real-time energy market prices. For example, in August 2023, during record-setting heat and high demand, power prices surged to the maximum amount permitted of $5,000 per kilowatt-hour. Batteries were quickly deployed and released 1.8 GW of power on the grid, reducing energy prices by almost 50 percent.

As the buildout of grid-scale storage continues in Texas, prices for ancillary services will continue to decline, and energy arbitrage will likely become the primary revenue stream, according to Brandt Vermillion, ERCOT Market Lead at Modo Energy. He argues that energy arbitrage and the design of the ERCOT market are “tailored to the flexibility of battery energy storage.” This change is already taking place as revenue from ancillary services has decreased in 2024 compared with last year, due to a milder summer and more competition in ancillary services.

In addition to earning a larger proportion of their revenue from energy arbitrage, as batteries continue to become a larger component of the Texas power system and the wholesale power markets, battery owners will likely seek to take some of the year-to-year revenue volatility out of the equation. They could do this by entering into tolling agreements, which allow a third party to operate their battery — and collect whatever revenues they can earn in the process — in exchange for a fixed fee.

The future of BESS in Texas looks bright. Texas has more battery storage projects planned than any other state, with 19.7 GW worth of additional capacity expected to come online in the next couple years. Battery storage systems have proven their value to the Texas market by increasing reliability and reducing costs while allowing for greater stability in the integration of renewable resources. However, important considerations, such as the regulatory framework for batteries and the growing number of IBRs on the grid, will need to be addressed as the Texas energy landscape continues to rapidly evolve.