A new billion-dollar program set to launch in ERCOT in 2026 offers a promising new revenue stream for BESS, but there’s a catch: most current and planned projects are unlikely to qualify.

The program, ERCOT’s Dispatchable Reliability Reserve Service (DRRS), was passed by the Texas legislature in 2023 in response to the devastating outages of Winter Storm Uri in February 2021. It provides a means to procure dispatchable power on a day-ahead and real-time basis to  respond to large fluctuations in wind and solar supplies that could strain the grid. According to a 2023 report by Bates White Economic Consulting, DRRS could provide annual revenue of about $1.7 billion to dispatchable generators, including BESS and gas-fired generators.  

But to qualify for the program, facilities must be able to inject power onto the grid within two hours of being dispatched and sustain maximum output for at least four hours. This four-hour duration requirement poses a major hurdle for BESS. At of the end of 2024, the average duration for BESS in ERCOT was just 1.6 hours. Furthermore, an analysis by Astrape Consulting shows that four-hour BESS may account for less than 10% of annual capacity additions of BESS through 2029.

This disconnect highlights a growing concern for grid planners.

“From an aggregate planning standpoint, significant solar and storage resources are being added over the next 5 years,” Astrape Consulting noted in a report in February. “However, the total reliability contribution of system resources is only rising modestly while load is projected to grow much faster.”

This missed opportunity comes at a critical time for the industry. In 2024, BESS revenues collapsed as heightened competition from a flood of new projects drove down margins, especially in the ancillary services market. The DRRS program could have offered a vital, diversified revenue stream, but most projects’ performance characteristics won’t meet the requirements.

Nevertheless, in ERCOT, BESS tolling contracts have been on the upswing. The fair market value for a composite 10-year BESS toll starting next year reached $8.20/MWh on Oct. 21, according to data from Pexapark. This is within striking distance of the 12-month high, and it represents a nearly 24% increase from the same time a year earlier.

However gradual the push by developers for longer-duration BESS may be, there are multiple market signals to incentivize the shift. Indeed, DRRS represents just the latest program that requires a minimum four-hour discharge capability, with another being ERCOT’s Non-Spinning Reserve Service (NSRS). Moreover, BESS operators are increasingly pivoting away from ancillary services to energy arbitrage, a revenue strategy that favors longer-duration discharge.

While developers aiming to deploy longer-duration BESS are benefiting from falling technology costs, several policy headwinds are undermining these gains. For instance, the Trump administration’s "One Big Beautiful Bill" Act (OBBBA) imposes sourcing requirements that limit components from China. Because China dominates the global supply chain, this will make it difficult for many projects to qualify for lucrative federal tax subsidies.

Adding to this pressure, the administration’s trade war has imposed higher tariffs on those same Chinese components. With few alternative suppliers, developers will likely have to absorb these tariff costs once their current stockpiles are depleted.