2025 Predictions: Evolving Energy Markets & Storage Participation Models

While political rhetoric may dominate headlines, the accelerating need to power our population and growing economy will supersede attempts to favor specific generating technologies, or alter cost structures through policy change. Demand growth from electrification, computation needs, and extreme weather is here to stay. As NERC has highlighted, this creates elevated reliability risk for the entire U.S. grid and means new generation capacity will be at a premium.

While we may see a new tariff here, or an altered tax credit there, the imperative to scale energy capacity will drive decision-making, and accelerate the deployment of all assets able to support our growing demand. This need will be met first by the fastest-to-build and cheapest sources of energy, which are renewables, energy storage, and natural gas plants.

The regulation of U.S. electricity markets is highly federalized, with a patchwork of grid operators (ISOs), states, and federal entities defining market frameworks. This results in each region developing a unique approach to handling the dual challenge of meeting reliability and demand needs while balancing a rapidly changing supply mix. The grid operators in California (CAISO) and Texas (ERCOT) have led the charge in integrating the most renewable energy and balancing load growth while others have observed and are now working to incorporate the learnings into their own price formation and market reform.

As individual regions grapple with these challenges, we expect further divergence.

For energy storage operators, this means success will hinge on the ability to adapt strategies to the nuances of each market. Customizable platforms that allow for rapid adjustments to bidding rules, incentive structures, and market participation will be critical in navigating this fragmented landscape.

Long and arduous interconnection processes are making interconnection capacity one of the most valuable resources. To avoid bottlenecks and maximize total project value, we anticipate an increase in the number of companies adding storage assets to existing facilities.

Co-located batteries with generation will allow operators to:

1. Avoid time and cost intensive interconnection

2. Mitigate curtailment during peak generation hours

3. Extend the value of their grid contributions into higher-priced evening hours

4. Extend the life of existing peaker/thermal resources

As more projects are hybridized, the ability to optimize a full facility – accounting for all assets and project nuance – will be a competitive differentiator in 2025 and beyond.

In markets with more energy storage, we anticipate lower average prices and volatility across energy and ancillary services products in the majority of hours, with the occasional significant price spike. This trend has emerged over the last few months, with a handful of short-lived price events that significantly rewarded well-timed discharge strategies.

We expect this trend to accelerate across maturing markets. Tight capacity and retiring peakers in NYISO, for example, signal an increase in volatility is soon to come. However, as more storage is added to stabilize the grid, it stands to reason that average prices will level off, and capturing the few, high priced moments will be similarly important.

As more revenue shifts to energy arbitrage, batteries will need to rely on increasingly agile and reactive forecasts to capture these opportunities. Price forecasts that factor in the probability of price spikes – and their corresponding price levels – will be essential tools for maximizing returns.