Key takeaways from the report include the following:
- Battery storage developers face volatility across wholesale energy, ancillary services, and capacity markets, incentivizing contracting to firm up revenues and enable debt financing. Key contract types include tolling agreements, financial hedges, capacity sales, and state subsidies.
- The fair price for a fixed-price tolling agreement must be high enough to provide sufficient return on investment to the battery developer but below the offtaker’s maximum willingness to pay based on the value of the battery’s gross margins. In ERCOT West, fair prices range from ~$8 to ~$11/kW-month for a 2-hour battery with an entry year of 2025.
- Offtake agreements can reduce the revenue risk for developers, thereby enabling additional debt financing and decreasing cost of capital. In ERCOT, a 7-year tolling agreement can help increase leverage by 30 p.p.
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