AI Summary
5 min readIn early 2023, a typical grid-scale battery in Texas could earn nearly $200 per kilowatt of installed capacity in a year. By mid-2025, that figure had collapsed to roughly $30. Over the same period, the fleet of batteries in the ERCOT market exploded from a few hundred megawatts to more than 16 gigawatts. This is the central puzzle of the Texas battery boom: a market that desperately needs more storage to handle coming waves of demand from data centers and retiring fossil plants, but where the economics for new projects have turned deeply unprofitable. The question is how long the gap lasts between today's low-revenue environment and the volatility that everyone expects to return—and who will still be standing when it does.
How merchant batteries make money—and why it stopped working
Texas is an energy-only market, meaning batteries earn revenue purely from selling power and services, not from capacity payments. In the early 2020s, the vast majority of that revenue—over 90%—came from ancillary services like frequency regulation. These are shallow markets, only a few hundred megawatts deep. As more batteries came online, they quickly saturated that pool. By 2025, the revenue mix had flipped: roughly 80% of earnings came from energy arbitrage—charging when prices are low and discharging when they spike.
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What you'll learn
- 1 (00:13) **The ERCOT Battery Paradox** - Shayle sets up the central tension: a 16.5 GW battery fleet whose average earnings collapsed 84% since 2023, yet Texas appears to need far more batteries to meet coming load growth from data centers and retiring thermal plants.
- 2 (02:41) **Guest Introduction: Brentan Fermilian** - Shayle brings on the US market lead at Modo Energy to walk through the timeline of the boom, bust, and potential rebound.
- 3 (04:25) **The Fleet's Explosive Growth** - Brentan confirms the fleet went from a couple hundred megawatts to 17-18 GW commercially operational, with over 20 GW having completed construction.
- 4 (05:12) **Revenue Model Shift: From Ancillary Services to Arbitrage** - Brentan explains how the revenue mix has flipped from 80-90% ancillary services in 2022-2023 to ~80% energy arbitrage today.
- 5 (07:16) **The Cannibalization Mechanism** - Brentan describes how the same saturation dynamic that hit ancillary services is now hitting energy arbitrage.
- 6 (09:15) **The Revenue Collapse by the Numbers** - Brentan provides the key financial data: revenues fell from ~$200 per installed kW in 2023 to ~$30 per installed kW in the last 12 months.
- 7 (10:36) **Signs of Market Stress (or Lack Thereof)** - Shayle asks if we've seen M&A or asset distress from the underwater fleet.
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Show Notes
It’s been a wild few years for grid-scale batteries in Texas. At the start of the decade, the Lone Star State was home to roughly 200 megawatts of battery capacity. Today, that number has skyrocketed to seventeen gigawatts…with at least five more gigawatts expected to come online by the end of 2026.
But this rapid buildout quickly led to market saturation. In the past year alone, revenues plummeted by more than 80%, far below the threshold needed for fleet operators to stay in the black.
The future of the battery market in Texas remains murky. Will the depression continue? Or will the imminent, enormous surge of data center load growth reset the state of play and bring volatility back into the mix?
In this episode, Shayle sits down with Brandt Vermillion, U.S. market lead at Modo Energy, to unpack the mechanics of the Texas battery storage market, and consider when the tide could turn back in developers’ favor. They cover topics like:
- The factors behind the recent cratering of the market
- How longer battery durations are able to capture secondary price spikes
- The degree to which weather patterns have contributed to battery demand
- Reconciling currently suppressed revenues with the hundreds of incoming gigawatts of proposed data center demand
- Whether on-site generation for hyperscaler data centers will blunt peak demand spikes and delay the return of grid volatility
- Why off-takers are considering tolling agreements to survive the market downturn
- Catalyst: 2026 trends: Gas turbines, Texas' load queue, and China electrifies
- Catalyst: Why C&I storage is finally taking off
- Catalyst: The rise of flexible data centers
- Open Circuit: Data centers have a Texas-sized energy problem
- Open Circuit: The off-grid data center fantasy
- Open Circuit: A global energy shock and the case for distributed power
- Open Circuit: Power is caught in AI’s doom loop
- Latitude Media: How the AI boom has impacted US battery storage
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