Texas energy storage dash brings 1 GW batteries within sight

Developers are installing larger batteries in Texas, with or without solar, capitalising on cost savings to maximise power revenues.

Texas has quickly become the largest U.S. market for utility-scale energy storage following a surge in solar power deployment and rising power demand across the state.

Texas is expected to install 6.5 GW of utility-scale batteries in 2024, bringing the total installed capacity to around 10 GW, data from the U.S. Energy Information Administration (EIA) shows.

Solar deployment is soaring and an increasing number of developers are coupling their projects with battery storage to maximise income. Meanwhile, new tax credits in the 2022 Inflation Reduction Act have spurred deployment of stand-alone batteries.

"Developers expect to bring more than 300 utility-scale battery storage projects on line in the United States by 2025, and around 50% of the planned capacity installations will be in Texas," EIA said in January.

  Planned US power plant installations in 2024

                                  (Click image to enlarge)

Source: U.S. Energy Information Administration (EIA), February 2024

Rising clean power and battery storage capacity in Texas is reducing the use of fossil fuel plants during peak evening demand periods.

Developers are installing larger batteries to gain economies of scale and maximise revenue opportunities. Texas will host some of the largest batteries in the U.S., including Solar Proponent's 621 Lunis Creek and 600 MW Clear Fork Creek projects and Hecate Energy's 600 MW Ramsey Storage project, all of which are set to be co-located with large solar farms in the south.

“Storage assets have been steadily getting bigger over time. Five years ago, a 50 MW operating battery was considered a large utility-scale asset,” Xiaoyu Gu, managing director at investment group AB CarVal, told Reuters Events.

“I believe market changes will drive an imperative need for larger [battery storage] facilities,” Hanson Wood, Senior Vice President of Utility-Scale Development at RWE Clean Energy, said.

“I am optimistic that we will see a handful of 1 GW facilities by 2030,” Wood said.

Thinking big

For the first time, the 2022 Inflation Reduction Act introduced a 30% tax credit for standalone energy storage, while extending tax credits for solar and wind for a further 10 years.

A number of solar developers are using the storage tax credits to retrofit batteries to existing solar facilities or add them to projects under development. Meanwhile, separate stand-alone facilities can be located closer to demand centers, avoiding lengthy grid connection processes faced by solar developers in more remote areas.

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The batteries planned at Lunis Creek, Clear Fork Creek and Ramsey are of similar capacity to co-located solar farms, showing how developers are keen to maximise storage capacity at a given site to capture more power revenues.

Large battery projects can provide significant economies of scale in soft costs and fixed costs, such as "interconnection, development expenditures, and site construction and mobilization," Wood said.

The boom in energy storage deployment has provided installation companies with additional revenue streams.

"For projects under 75 MW we see waning interest from large [installation companies],” Wood noted.

Battery capex costs are also falling on the back of rising production capacity and global competition. Market intelligence group Clean Energy Associates (CEA) predict the cost of U.S. lithium-ion battery storage will drop by 18% in 2024 as Chinese suppliers seek customers. Suppliers continue to improve technology and manufacturing processes and costs will continue to fall over the next two decades, the National Renewable Energy Laboratory (NREL) said in a 2023 report.

                        Forecast cost of US utility-scale battery storage

                                                                (Click image to enlarge)

Cost applies to 4-hour lithium-ion battery systems

Source: NREL report Cost Projections for Utility-Scale Battery Storage (2023).

Peak profits

Batteries can provide owners with multiple revenue streams. Solar operators usually charge batteries during high solar periods and dispatch during evening peak demand periods when solar power wanes and prices are typically highest. Last summer, peak prices in Texas hit the market price cap of $5,000/MWh as heat waves drove up conditioning demand.

Owners of stand-alone batteries typically follow a similar "energy arbitrage" approach, charging when power market prices are lower and dispatching when prices are higher.

In addition, Texas grid operator ERCOT pays battery operators for ancillary grid services that improve grid reliability and stabilise power flows.

As a result, developers in Texas are favouring storage durations of around two hours, compared with around one hour just a few years ago.

Market regulation is a key driver of storage durations. Resource adequacy rules in California's CAISO market incentivise four-hour batteries, for example.

“However, in alternative markets such as ERCOT, RWE has tended to install 2-hour [battery storage] solutions which are more optimal for a purely energy arbitrage business model," Wood said.

Chasing demand

Grid congestion and curtailment risks are an increasing challenge for clean power developers in Texas and other high growth markets.

Wind power deployment has been concentrated in West Texas and many solar developers have headed east and south to avoid grid connection delays and minimise congestion risks.

The proposed Lunis Creek, Clear Fork Creek and Ramsey solar and storage projects are all located in South Texas near major demand centers.

“Market data suggest that the South Texas and Houston hub are where there is the biggest need because of electricity congestion issues,” Vibhu Kaushik, Senior Vice President and Global Head of Energy, Utilities, and Storage at Prologis, a commercial real estate and utilities investor.

ERCOT prices show higher volatility in southern Texas and the Houston hub, Kaushik said.

“Where there is congestion and revenue, supply will come in,” Kaushik said. “We are doing a  lot of distributed assets today and rooftop solar.”

Developers have called for Texas grid operator ERCOT to plan ahead and expand transmission capacity to send power from high development areas to the larger load centers. New power lines from West to East would be one way to ease the congestion but these would take many years to be completed.

Going forward, rising solar and storage capacity is likely to soften wholesale price swings, reducing the revenue potential for operators.

Developers will also be wary of future falls in battery prices as electric vehicles and battery storage is deployed globally, making existing storage assets less competitive.

Factors that will influence battery costs include "market demand, supply chain expansions or constraints, interplay with other sectors such as electric vehicles, and material costs and availability," NREL said in its report.

Reporting by Mark Shenk

Editing by Robin Sayles