ERCOT's RTC+B Market Reform and Energy Storage Valuation: A New Era for Battery Economics

The implementation of ERCOT's Real-Time Co-optimization Plus Batteries (RTC+B) market reform on December 5, 2025, marks a pivotal shift in the Texas electricity landscape. This overhaul, the most significant enhancement to the Real-Time Nodal market design since its inception in 2010, integrates battery energy storage systems as unified assets with state-of-charge modeling, enabling co-optimization of energy and ancillary services in real time. For investors, the reform raises critical questions: How does this market modernization reshape battery valuation metrics like Levelized Cost of Storage (LCOS) and Internal Rate of Return (IRR)? And what does it mean for the future of energy storage investment in ERCOT?

Market Design and Operational Efficiency

RTC+B replaces the traditional Operating Reserve Demand Curve (ORDC) with Ancillary Service Demand Curves (ASDCs), allowing for more precise pricing of ancillary services and simultaneous dispatch of energy and flexibility resources. By modeling batteries as single devices rather than separate generators and loads, the reform enhances grid visibility and operational efficiency. According to ERCOT's Independent Market Monitor, this change is projected to reduce annual wholesale market costs by $2.5–$6.4 billion through optimized resource utilization and faster response to renewable intermittency.

However, this efficiency comes with trade-offs. The integration of BESS into real-time markets has intensified competition, driving down ancillary service revenues. Data from Enverus shows that average annual BESS revenues in ERCOT plummeted from $149/kW in 2023 to $17/kW in 2025, a 90% decline, as market saturation and reduced scarcity pricing eroded margins. While energy arbitrage opportunities have grown by 19% year-over-year, the overall revenue stack for batteries now relies more heavily on energy markets than ancillary services (48% vs. 84% in 2023) according to PV Magazine.

Valuation Metrics: LCOS and IRR in a Post-RTC+B World

The economic viability of BESS projects in ERCOT hinges on two key metrics: LCOS and IRR. LCOS, which accounts for capital and operational costs over a project's lifetime, has remained constrained due to low revenue environments. As of Q3 2025, average BESS revenues in mature markets like ERCOT and CAISO were below $45/kW-year, reflecting saturated ancillary service markets and limited price volatility.

For IRR, the picture is more nuanced. Tolling agreements-long-term contracts that convert uncertain merchant revenues into predictable cash flows-are emerging as a critical tool for securing target returns. As of late 2025, five BESS projects in ERCOT operate under tolling agreements, with seven more expected by 2026. These agreements allow developers to hedge against market volatility while aligning with IRR hurdles, typically ranging between 10–15% in competitive markets according to ESS News. However, the reduced scarcity premiums under RTC+B may limit upside potential, particularly for projects relying on ancillary service arbitrage.

Investment Strategy: Navigating Uncertainty

The RTC+B reform has redefined the risk-return profile for BESS investments. Developers must now prioritize:
1. Operational Precision: Enhanced state-of-charge modeling requires accurate data submission and advanced optimization tools to maximize dispatch efficiency.
2. Diversified Revenue Streams: With ancillary service markets saturated, projects must leverage energy arbitrage and capacity payments to offset declining margins.
3. Policy Alignment: Regulatory shifts, such as the One Big Beautiful Bill Act (OBBBA), which accelerates tax credit sunsets, are forcing developers to accelerate timelines and secure financing before 2026.

Despite these challenges, the long-term outlook remains cautiously optimistic. The integration of BESS into real-time co-optimization is expected to enhance grid reliability and support renewable integration, creating indirect value for storage operators. For instance, Enverus's SCUC/ED modeling suggests that RTC+B could reduce total system costs by 2.7% by enabling BESS to shift energy from low locational marginal price (LMP) hours to high LMP hours.

Conclusion: A Balancing Act

ERCOT's RTC+B reform is a double-edged sword for energy storage investors. While it unlocks operational efficiencies and grid resilience, it also compresses revenue margins and introduces new operational complexities. For projects to thrive, developers must adopt agile strategies that balance cost optimization, revenue diversification, and policy foresight. As the market matures, the true impact of RTC+B on LCOS and IRR will depend on how quickly operators adapt to this new paradigm-and whether the grid's evolving needs justify the investment.