Unlocking Capital for Energy Storage: A Scenario-Based Analysis of BESS Degradation Impacts on Project Economics in ERCOT

Abstract

Battery energy storage systems (BESS) are a crucial enabler of a successful energy transition, providing the flexibility needed to bring gigawatts of renewable energy onto the grid. The International Energy Agency (IEA) notes that achieving decarbonization targets outlined by COP28 hinges on battery deployment increasing six-fold by 2030 . However, rapidly scaling BESS is often held back by conservative financial modeling that may overstate project capital expenditures. This study investigates how the industry’s default use of “generic” degradation assumptions can lead to suboptimal internal rates of return (IRR), potentially stalling viable projects. Utilizing Storlytics’ proprietary software, we modeled seven unique ERCOT-based scenarios, varying the degradation assumptions between generic and project-specific cases. Our findings demonstrate a materially positive difference in IRR when employing project-specific degradation profiles, which incorporate location and operational assumptions, rather than generic industry benchmarks. These results suggest that employing site and use-case-specific degradation modeling when reviewing BESS economics is crucial for resolving capital inefficiencies and furthering deployment at scale.