ERCOT's RTC+B and Its Impact on Energy Storage Valuation

The implementation of ERCOT's Real-Time Co-Optimization Plus Batteries (RTC+B) on December 5, 2025, marks a seismic shift in the Texas electricity market, fundamentally altering the economics of energy storage and investor strategies. By integrating batteries into real-time co-optimization of energy and ancillary services, the new market structure has redefined how battery assets are valued, operated, and monetized. This analysis explores the implications of RTC+B for key metrics such as levelized cost of energy (LCOE) and internal rate of return (IRR), while highlighting the strategic adjustments required for investors navigating this transformed landscape.

Market Structure and Operational Implications

According to ERCOT's announcement, ERCOT's RTC+B replaces the static Operating Reserve Demand Curve (ORDC) with dynamic Ancillary Service Demand Curves (ASDCs), enabling real-time co-optimization of energy and ancillary services every five minutes. Batteries are now modeled as single devices with a state of charge (SoC), allowing full charging and discharging capabilities to be captured in market operations. This change enhances grid flexibility, particularly as renewable energy penetration grows, but it also introduces new complexities for operators. For instance, batteries must now submit up to ten bid pairs for energy and five for ancillary services per interval, demanding advanced forecasting and optimization tools.

The co-optimization framework also streamlines dispatch decisions, reducing system costs. Case studies illustrate its efficacy: during a "solar cliff" event, RTC+B enabled batteries to anticipate drops in solar generation and adjust dispatch to avoid regulation up shortfalls, preventing price spikes. Similarly, in a "mid-day soak and shift" scenario, surplus solar energy was stored efficiently, cutting system costs by 5.5%. These examples underscore how RTC+B improves grid reliability while unlocking new revenue streams for storage assets.

Valuation Metrics: LCOE, IRR, and Revenue Diversification

The economic impact of RTC+B on battery assets is profound. By tying battery revenues to real-time ancillary service demand, the market has shifted valuation dynamics. According to market analysis, ancillary services now account for a smaller share of battery revenue-48% in 2025 compared to 84% in 2023-forcing operators to diversify income sources. Energy arbitrage and strategic site selection have become critical, as operators seek to capitalize on price differentials and node-specific opportunities.

However, market saturation has driven down profitability. Average annual revenue per kilowatt plummeted from $149 in 2023 to $17 in 2025, a nearly 90% decline. This trend is exacerbated by the rapid growth of battery capacity-reaching 11 gigawatts by mid-2025-which has depressed ancillary service prices. For investors, this necessitates a reevaluation of LCOE and IRR projections. The levelized cost of energy, traditionally influenced by capital expenditures and operational efficiency, now hinges on the ability to capture real-time market opportunities. Similarly, IRR calculations must account for volatility of ancillary service markets and the need for tolling agreements to secure predictable cash flows.

Investor Strategies in the RTC+B Era

The complexity of RTC+B demands a paradigm shift in investor strategies. First, operators must adopt advanced optimization tools to manage SoC constraints and real-time dispatch requirements. Manual trading or outdated software risks under-optimization and compliance penalties. Second, the convergence of day-ahead and real-time prices has reduced arbitrage opportunities, prompting a shift toward multi-hour block products in the Day-Ahead Market to mitigate risk.

Tolling agreements are emerging as a key strategy to stabilize returns. Five operating battery projects are already under tolling agreements, with seven more expected by 2026. These contracts allow investors to replace uncertain merchant revenues with fixed payments, enhancing IRR predictability. Additionally, energy arbitrage strategies remain insufficient to offset broader profitability declines.

Conclusion: Navigating the New Normal

ERCOT's RTC+B represents a fundamental reimagining of the electricity market, with batteries now central to price formation and grid stability. According to market projections, the reforms promise annual wholesale market savings of up to $6.4 billion, but they also demand heightened operational sophistication and strategic adaptability from investors. The days of relying on ancillary service scarcity for profitability are waning; instead, success in the RTC+B era hinges on real-time optimization, diversified revenue streams, and innovative financial instruments like tolling agreements.

For investors, the message is clear: the economics of energy storage are no longer static. As ERCOT's market evolves, those who embrace dynamic valuation models and agile operational strategies will be best positioned to thrive in this new paradigm.