• Texas battery storage revenues have collapsed as the market has become saturated
• Operators increasingly turn to hedges, tolling agreements and energy arbitrage
• Developers look to data centers and continued population growth to create new demand

Despite exponential projected load growth from data centers and more in the Texas market, battery storage operators are struggling to find new ways to capture revenue as ancillary service returns have plummeted.

In the wake of Winter Storm Uri, Texas experienced a massive influx of battery storage projects, many being developed on a merchant basis to take advantage of lucrative ancillary service returns as grid operator ERCOT procured capacity at great lengths to avoid any future grid blackouts.

Peter Gardett, CEO of market data platform Noreva, says battery storage became an established financeable asset “capable of making money straight out of the gate without a super high barrier to entry.” Now, however, he says “that world no longer exists.”

As battery storage installations have ballooned in the state and capacity surpassed 18 GW, price spikes, which were once fairly common in the brutal Texas heat during July and August, evaporated, pushing down the value of additional capacity in the market.

A late 2025 report from Enverus indicated ancillary service and battery storage revenues had dropped nearly 90% from an average of USD 149/kW in 2023 to USD 17/kW in 2025 due to market saturation and fleet growth. Shortly after this report was published, ERCOT began under procuring ancillary services below what was laid out in its procurement plans by an average of 3.7 GW per day, which has persisted throughout the year.

When the grid operator noted the under purchase in August, it filed and received a good cause exception from the Public Utility Commission of Texas (PUCT) to avoid filling that hole and Gardett says it is unlikely ERCOT will go back to previous purchase levels going forward.

Storage and the new normal

Meanwhile, Texas experienced its fourth hottest summer on record and demand spiked to an all-time high of 91 GW, 6 GW above 2025 levels. Despite this, the grid never once approached emergency conditions. ERCOT has gone on record to attribute this largely to the amount of battery capacity on the grid and pointed to the stability as rationale behind its good cause exception filing to continue to under procure ancillary services.

It was an eye-opening summer for battery storage operators and financiers, many of whom discounted the weak 2024 and 2025 revenue years due to mild weather. Now, as the new normal starts to set in, Gardett says battery storage financing has become harder to pull off, noting a “significant” change to financing appetite this summer.

He also says he doubts ancillary service procurement will return to previous levels.

“Ancillary service purchase planning is annual and based on what happened in the previous year,” Gardett said. “Barring a change in methodology, there’s no logic by which [ERCOT] would include a higher requirement.”

Flexgen Senior VP of Business Development Jason Abiecunas says many battery storage operators in the state are now running projects on various types of hedges, tolls or structured contracts in the Texas market today in contrast to the merchant boom of 2022 and 2023. He also says the trend over the last two-to-three years has been for operators to move from heavy reliance on ancillary service revenue to an energy arbitrage model to try to capture revenue when prices fluctuate in the previously day-ahead and now real-time market paradigm following last year’s implementation of Real-Time Co-Optimization.

But Gardett questions the long-term viability of this move, calling energy arbitrage and ancillary service revenue models “the same story in many ways” without the pronounced peaks and valleys of energy pricing in ERCOT.

“One may be for frequency regulations, and one may be for actual energy deployment, but in physical reality they’re fundamentally responses to the same conditions,” Gardett said. “There will be variability in Texas power demand and I’m sure someone will be able to construct a business case on that basis, but that doesn’t seem to me a replacement for the ancillary boom that drove the first generation of ERCOT battery buildout.”

Despite the headwinds, Gardett notes battery storage projects are continuing to get built in the state, often in tandem with solar projects, as developers rush to get their safe harbored renewable projects completed before the end of the decade to capture federal tax credits before they are fully eliminated. Gardett says this will only further negatively push ancillary service returns.

Data center demand

However, battery storage operators are looking at data center demand as a potential panacea to this problem. Abiecunas says new projects are being designed to account for changes in revenue models and capture data center interest and notes that general population in the growth, which has been a trendline for many years in the state, should continue to push peak demand higher in subsequent years.

“The growth of all things in Texas remains strong, so whether it’s large loads or population growth, I think Texas will continue to be a strong market,” Abiecunas said.

Gardett agrees that if massive data center load does materialize in the state where ERCOT is currently studying hundreds of GW of load via the Batch Zero process, battery storage will be a necessary component for these loads even for those bringing their own gas supply. As a result, he says, “everything is predicated on your view of how real the data center buildout is over the next three or four years.”

Gardett notes Noreva is working with some companies with projects that have already passed through initial Batch Zero reviews and others that aren’t subject to the process as fully islanded installations. He also says the process as a whole is going to create some clarity on what interconnection schedules look like going forward.

However, he also says Governor Abbott’s audit requirement for all large loads, which has resulted in a pause in all interconnection requests until at least December, is pushing developers to “go back and revisit their models.”

The result, he says, may be cancelled [storage] projects in the coming months “unless we get an indication the data center buildout is really going to be there.”

Ultimately, Gardett predicts data center load will come in at about 25% of what’s in the queue today, based on a lack of underlying contracts and the transmission buildout that will be necessary for these projects to interconnect.

“It’s very easy to put out a press release and line up initial financing for a land acquisition, but there’s only so many companies that can get long-term project financing for a data center and its power source and only so many projects that can fit the window and sequencing process laid out by the state, even if Abbott’s audit clears them,” Gardett said.

Abiecunas agreed that the storage industry is currently “looking for a sense of consistency and predictability from a policy standpoint” in ERCOT, which led to frustration when ERCOT failed to procure even the ancillary services it had laid out for the year.

But Gardett predicts market uncertainty will continue to persist into next summer by which time he says market participants will have a better view of financing conditions and the state of regulatory affairs after the midterms and next year’s legislative session. Even then, while he says many decisions may get made that will crystalize the landscape for battery storage next year.

“This is a bumpy road to a new supply demand balance,” Gardett said. “We’re looking at a sequencing of bringing everything on into the early part of the next decade, 2032 and 2033, where pricing starts to reset around this new reality.”