Developers around the country are increasingly taking note of the vast benefits offered to batteries in two of the largest wholesale markets in the United States: the California Independent System Operator (CAISO) and the Electric Reliability Council of Texas, also known as ERCOT. Still, the uptick in interest is pushing both markets closer toward saturation and raises the question of whether battery developers will be able to capitalize on ancillary service revenues in the months and years to come.
According to Evelyne Ruiz-Olivo, a market analyst at Amperon, the impact of that saturation looks quite different in both markets, though the differences stem less from technology or battery behavior and more from the market structures themselves. In ERCOT, she explained, the energy-only market means that while there are fewer overlapping revenue streams, development timelines are faster and payouts depend heavily on the market.
“Batteries rely more heavily on arbitrage and ancillary products,” she told pv magazine USA. “Without resource adequacy payments, revenues are more exposed to volatility.”
That speed has helped ERCOT attract rapid storage buildout to the tune of an operational battery capacity that clocks in just under 20,000 MWh, per Q3 data from Modo Energy. But it’s also caused saturation in ancillary service markets to kick into next gear. Since 2023, ancillary revenues in Texas have declined approximately 90% in an “after the gold rush” situation that’s pushed projects deeper into merchant exposure and increased their sensitivity to short-term price signals.
While CAISO’s more regulated structure has long been considered more insulated compared to ERCOT’s, Ruiz-Olivo pointed out that the market is starting to show indications of similar pressure.
“There are early signs of ancillary service revenue compression in California,” she explained. Per CAISO monthly performance data, regulation-down prices fell nearly 50% between April and November 2025, while regulation-up declined more than 60% in the same time period. This points toward growing battery participation and competition like in ERCOT, Ruiz-Olivo pointed out, but CAISO’s market design reshaped the impacts.
“Batteries can redirect their flexibility toward energy arbitrage during solar-driven price swings, secure stable revenue through resource adequacy contracts and capture reliability-driven value during evening peaks,” she said, noting that storage developers experience less downside risks, given that they have contracted capacity revenues thanks to the ISO’s Resource Adequacy program. That said, “it does not eliminate merchant exposure” from ancillary services, congestion and dispatch risks.
“While ancillary revenues are compressing, the overall economics for batteries [in CAISO] remain more resilient than in energy-only markets,” she added. Succeeding in CAISO requires what Ruiz-Olivo called a more nuanced approach that allows batteries to operationalize and optimize their revenue across multiple value streams.
In ERCOT, on the other hand, there’s no such safety net. The lack of a capacity construct results in a very market-driven, volatile revenue profile. In practice, that means that volatility becomes increasingly pronounced as the ancillary market grows more saturated, particularly for projects with high leverage or limited flexibility in their balance sheets.
Ruiz-Olivo explained that risk during development is also a key differentiating feature between the two markets. Projects based in California can have higher project costs than those in Texas due to longer development timelines caused by more intense permitting and interconnection regulations. These dynamics can disproportionately affect smaller players, she said.
California may disadvantage small and midsize developers “due to challenges such as high capital requirements, long timelines and regulatory complexity,” while Texas instead tests their ability to manage merchant risk and revenue volatility.
“Ultimately, which market is more challenging depends on balance sheet strength and risk tolerance,” she said.
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