EIR ISO RTO battery storage diagram
Graph provided by Enverus Intelligence Research.

What is the most economical energy storage asset size and grid operating strategy? It is based on the region according to a series of reports from Enverus Intelligence Research (EIR).

EIR has studied the main economic drivers of storage assets in different markets, estimating the economic returns of different operating strategies for more than 5,000 storage projects in its energy and renewable energy tracking database.

The economic returns to storage assets are due to several factors including location (arbitrage margins realized, prices for additional services and capacity payments), operating strategy, power capacity, and capital and operating costs.

In this final report, EIR has identified the best opportunities for investment within the Electrical Reliability Council of Texas (ERCOT).

Enverus’ analysis shows that the economic model for grid storage assets in Texas is rapidly evolving as storage becomes a larger part of the energy mix. “We continue to expect strong double-digit returns for warehousing projects, although annual profitability is expected to decline as competition increases,” said Ryan Luther, report author and senior vice president at Enverus Intelligence Research.

Some takeaway

• Short-lived batteries yield stronger returns than add-on strategies as these batteries can receive more daily payments per megawatt of capacity. The impact of the term on project economics is amplified in markets with additional service prices such as PJM and SPP.

• PJM and SPP have provided the highest reserve and regulation rates over the past 12 months, prompting Enverus to estimate the strongest returns on additional services strategies in these regions. Enverus expects additional services prices and expected warehousing returns to decline once these markets are saturated with warehousing assets.

• MISO, SPP and PJM are the most attractive areas for arbitrage strategies, but all ISOs contain certain areas with strong enough volatility for positional marginal pricing (LMP) to generate double-digit returns.

• The strongest combo strategy returns are in SPP and PJM, again driven by strong reserve prices. MISO, ISON, and ERCOT also offer attractive returns with an average of 40% IRR. CAISO offers the lowest returns, which Enverus attributes to increased competition between storage assets resulting in lower prices for additional services and LMP spreads during the day, despite an increasing non-distributable generation mix.

• Double-digit returns driven by the Investment Tax Credit (ITC) provide a compelling case for accelerating private equity-backed competition in the coming months. All markets are expected to see rapid uptake of warehousing projects, and the sector is expected to develop rapidly through mergers and acquisitions or IPOs.

The impressive returns that these projects can generate should continue to attract the attention of private equity sponsors, and ultimately lead to the rapid growth of warehousing assets. We value the largest well-funded storage developers in the billions of dollars, and the assessment of storage developers should move at a higher speed as projects are launched in the coming years,” Luther said.

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