Earning in ERCOT: How to optimize grid-scale battery banks in Texas

Texas ERCOT electric grid battery banks

Optimizing ERCOT BESS revenue | Getting the most out of a grid-scale battery energy storage system (BESS) involves a sophisticated platform including artificial intelligence, algorithms, energy demand forecasting, weather forecasting, and historic data from thousands of substations around the country serving Independent System Operators (ISOs).

Using this proprietary combination of tools, Gridmatic reckons they could boost ERCOT BESS revenue performance by nearly one-third for the entire grid-scale battery fleet in the Texas ERCOT grid, according to David Miller, VP of business development for the Palo Alto, Calif.-based company, in an interview with SB. The Electric Reliability Council of Texas (ERCOT) serves about 90% of the load in that state.

Gridmatic trades in all seven of the U.S. ISOs that are deregulated markets, and it has a unique perspective on where the demand for new grid-scale battery banks might be most rewarding. “We don’t have a consulting arm of the company, but we talk to developers all the time,” Miller said.

Backtesting ERCOT batteries

The projected BESS revenue boost in ERCOT was based on the comparison of the actual performance of the more than four dozen battery banks in the region supporting the grid during 2023, with a backwards look — or “backtesting” — at what the Gridmatic platform would have done differently, were it operating the grid battery fleet. The findings were published in May in the company’s third annual ERCOT Storage Report 2023. The company expects to publish its first annual report on grid support in the California CAISO region soon.

Since it is difficult to anticipate load demand for the next day, one critical decision that BESS operators must make is whether to commit part or all of their energy to grid support services, or to offer it in the day-ahead, or real-time (spot) markets. Analyzing past load patterns over multiple years with a platform like Gridmatic’s helps reduce the risk of getting it wrong.

Getting it wrong can mean no energy is left to cover a commitment to the grid, resulting in a charge for failure to provide power (FTP). These charges can range from hundreds of dollars to tens of thousands, depending on the amount of energy involved, according to a 2022 ERCOT pricing table.

Gridmatic ERCOT BESS Report Takeaways

  • AI forecasting would have increased revenue by 32% across ERCOT’s fleet of BESS, according to Gridmatic backtesting.
  • Many systems operated too conservatively and missed revenue opportunities — while others operated too aggressively and failed to provide power (FTP) for many of the hours they had committed to the grid.
  • For one particularly aggressive system, Gridmatic’s backtesting found that AI forecasting could have increased their BESS revenue from around $27/kw-mo to around $30/kw-mo while still reducing their FTPs to a sixth of what they had actually achieved.
  • Gridmatic operates a 50 MW battery in ERCOT that was one of the highest performers in the state with zero FTPs. 

One note of interest in the report is that 2-hour battery banks presented less risk under ever-changing ERCOT rules than did 1-hour or 1.5-hour banks, as operators pursued various revenue stack strategies for providing services to the grid with — or instead of — next-day or real-time energy sales.

“It used to be that everyone was bidding 1-hour systems because they were focused on the RRS (Responsive Reserve Services to the grid) market, which requires one hour. Recently, we’ve seen more of the systems be 2-hour batteries because they’re focused on the ECRS (ERCOT Contingency Reserve Service) market,” Miller said. “That could change as longer duration batteries start to become more cost effective over time.”

ERCOT launched the ECRS on June 12, 2023. It is a daily procured ancillary service.

“As energy demand continues to grow in Texas, adding ECRS will support grid reliability and mitigate real-time operational issues to keep supply and demand balanced,” the ISO stated.

Real-time energy market revenue

ERCOT Texas real-time pricing

In terms of the ERCOT BESS bottom line, the Gridmatic report found that the real-time energy market was growing faster than other options in the revenue stack.

“Real time was 10% of the market in 2022 and 16% in 2023 in the most recent report. We expect that number to continue to go up so far in 2024; although we’re still early in the year,” said Miller.

The real-time market in Texas can pay up to $5,000 per MW, providing clear incentive for battery bank operators to get it right. In the California market, the maximum real-time payment ranges from $1,000 to $2,000/MW. “There still is an opportunity to optimize in the energy and ancillary service market in CAISO,” Miller noted.

ERCOT VPP potential?

Texas does not have a very vibrant virtual power plant (VPP) fleet of battery systems in terms of total MWs, but the concept is being tested.

“We are seeing some VPP pilot projects in Texas. They’re mostly driven by retailers that are working with customers and using the battery storage systems installed at the customer sites for bill savings in addition to providing some backup [grid] power,” said Miller.

Tesla is one such retail operator in the VPP market serving the grid. “While participating in the Virtual Power Plant, your Powerwall will be dispatched when the grid needs support. For your participation, you will earn $10 per Powerwall on your monthly electric bill, in exchange for your Powerwall’s contribution. This $10 per Powerwall is in addition to your monthly Sellback Credits earned for energy that you send back to the grid,” according to the Tesla website.

In August of last year, the Public Utility Commission of Texas (PUCT) announced plans for commissioning eight VPPs serving the grid with over 7 MW of power, of which Tesla is operating the first two.

$50 Million for BESS Management

In November, Gridmatic closed the second round of funding for BESS projects for a total of $50 million earmarked to oversee the management of up to 500 MW of battery capacity in the ERCOT and CAISO markets. The company manages the energy from battery banks under a tolling revenue model, which permits owners to avoid the financial risk of operation. Indeed, investing in the volatility of the energy market through managing platforms like Gridmatic has been called a new asset class.

“Today, the fund is targeted to ERCOT and CAISO because that’s where we’re seeing the market opportunity, but it’s not restricted to those markets,” Miller says. “To the extent we see opportunities in other markets, the fund certainly can be used to toll batteries in there as well.”

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