Resilience: Transforming Energy Sector – Navigating the Risks and Rewards of Battery Storage
In the newest episode of Resilience, Pillsbury’s Shellka Arora-Cox and guest Adam Hise, Managing Director of Storage Risk Solutions for Ascend Analytics, dive deep into the evolving world of battery storage, market volatility, and how companies are navigating risk in a dynamic energy landscape.
(Editor’s note: The following transcript has been edited for clarity. Shellka Arora Cox:
Welcome back to Resilience. This is the vodcast that explores the challenges and opportunities of the energy sector. Shellka Arora Cox is your host. She is a partner at Pillsbury Winthrop Shaw Pittman. Adam Hise is the Managing Director of Storage Risk Solutions for Ascend Analytics. He will be joining me today. Today, Adam and I will be plugging into the world of battery storage projects, discussing revenue streams, volatility, and the risks that keep the industry–and perhaps even Adam–on their toes.Adam, welcome.
Adam Hise:
Thank you for having me.Arora-Cox:
Before we dive into battery storage projects, could you tell us a little about what sparked your interest in energy analytics and how you came to assume your current role at Ascend?Hise:
Reflecting on how I ended up in this field, I’ll admit it’s tempting to think it was all by design, but honestly, that’s rarely been the case. I’ve had the good fortune to follow my heart at different times in my career. This has led me to where I find meaning in my job every day. This naturally led me to a desire to understand nature better, and how we can both take from it and give it back. I pursued studies in biological systems, which focused on using the processes of nature to create engineered answers to our problems. From there, I transitioned into the techno-economics of clean energy projects.After that, I worked for a wind developer in Colorado, specifically focusing on offtake solutions–long-term contracts to help de-risk wind projects. This work sparked an interest in battery storage. Around 2016-2017, I realized that the same issues faced by solar and wind in attracting low-cost capital to find offtake solutions would eventually affect energy storage. It didn’t seem urgent at the time because there were other obstacles to the growth in storage. I knew intuitively that this would be a major challenge. This led me to Ascend analytics. I was impressed with their ability to forecast market trends for power, understand how batteries can participate, and probabilistically estimate the future value of projects. Ascend’s capabilities and their established trust in the industry made me feel that they were in a prime position to solve this problem. Since then, I’ve worked on this project. It’s amazing how much we have accomplished in the past year, from concept to reality. Our solutions are helping us secure long-term revenue contracts in Texas. We have over 1.5 gigawatts of storage that is either operational or under construction. I’m excited about the opportunities that lie ahead in the next few years.
Arora-Cox:
That’s fascinating, and it seems your intuition really served you well, leading you into one of the most volatile and dynamic markets today. Battery storage projects can succeed or fail based on their ability to manage market risks. Could you share with our listeners how Ascend helps clients navigate these swings in the energy markets?
Hise: You’re absolutely right. Storage is so valuable because of the volatility in the power markets. Batteries wouldn’t be very valuable without this volatility. The nature of this volatility can vary significantly from one market to another and is closely tied to the dynamics of the market. In markets such as Texas or California where renewables are a large part of the supply mix and weather is a major factor, volatility can be a big issue. Weather and price volatility are not as significant in markets less advanced in energy transition, such as those in the Northeast. This includes ISO New England, New York or PJM. Ascend forecasts and underwrites risk based on our understanding of the impact of these fundamental drivers, such as weather patterns, renewables and natural gas availability. We take a long-term view of the value of battery-storage, taking into account how volatility will change as market conditions evolve. The interconnection queue, which can be slow moving, allows us to predict the future landscape of supply and demand. We can observe historical trends to see that price volatility increases as renewable penetration increases. This allows us to anticipate when certain dynamics will play out in specific markets.
Arora-Cox: Right, and that interconnection queue is certainly an understatement of how slow-moving it is!
Hise:
Exactly. It’s the result of stakeholder input. If this were a more top-down planning approach, things would move faster, but there are always trade-offs.
The point is, we can confidently predict that in the next two to three years, more renewables will enter markets that have traditionally had lower levels of renewable generation. We can also estimate retirement dates for coal and gas plants in the same markets based on techno-economics. We can observe from historical trends that the volatility of energy prices increases as renewables become more prevalent in a particular market. We can use this historical precedent to compare markets that have already reached these thresholds and experienced high levels of renewable penetration, as well as higher levels of volatility. This allows us to anticipate when similar dynamics will play out in other markets, like ISO New England or New York.Arora-Cox:
You touched on risk assessment and a whole host of risks. Take lithium-ion as an example. Prices have fallen significantly over the past few years. But there is another risk that has emerged: tariffs. Tariffs for lithium in the non EV sector will rise from 7% in 2026 to 25%. How do you model the unpredictable, which is no easy task? How do you model something that is unpredictable? It’s not an easy task. First, the market value. Does the market indicate that this asset is valuable? This includes the price of capacity, ancillary services and volatility in prices. The second is how to bid the asset using these prices. This includes predicting real-time changes in price and leveraging the state of charge of the battery efficiently to capture value. There’s also technical performance risk. If your battery is offline at a critical time, such as in August, when a price surge can account for up to a third of the revenue you generate, you may lose out on a significant amount of revenue, regardless of how well you predicted it. Although not perfect, these solutions are sufficient for most financing needs. We are also developing solutions for predictive maintenance with analytics companies to ensure that we can be available during high-value times. Our primary focus is on estimating the value these projects will generate over time and implementing effective dispatch strategies to realize that value.Arora-Cox:
And how exactly do you do that?
Hise: To predict the unpredictable, we think in terms of envelopes of potential outcomes. We look at historical trends, such as how low natural-gas prices and mild weather lead to low volatility. Or how high gas prices coupled with extreme weather creates high revenue opportunities for battery manufacturers. We then extrapolate the conditions to future markets. As I said earlier, market makeup shapes volatility. As an example, Texas in 2018 was different from 2024. There was more solar, wind, and battery storage and less thermal backup. Looking ahead, as grids like Texas in 2025 or NYISO/New England in 2030 evolve with more variable renewables, higher load and fewer thermal assets, the potential for very different outcomes increases.
Our market intelligence team provides expected revenue streams based on thermal retirements, renewable build-out, load growth and fuel prices. We show insurers that there is a 99% chance of earning more than 50% expected revenue and a 1% probability of earning over 250% expected revenue. This probabilistic approach takes into account techno-economic risks such as faster-than expected declines in battery price or new technologies like fusion that could drastically change the market and reduce volatility. We aim to account for these shifts in market conditions, ensuring that we anticipate future changes in the market makeup and how they might affect project trajectories.
Arora-Cox: You’ve touched on a number of factors, and I’d like to follow up on a few. First, predicting the unexpected. Are you surprised by the data? You seem to be extrapolating numbers from one market and predicting outcomes in different scenarios. Has the data ever surprised you?
Hise :
Absolutely. I believe that Ascend’s multifaceted and interrelated market participation is one of the reasons we experience fewer surprises than you might expect. We are not just observers or forecasters, we are actively dispatching multiple gigawatts across multiple ISOs with our smart bidder-optimization platform. We are in the market daily, forecasting conditions three days in advance, or even longer-term time horizons, such as monthly, annual, or even five to thirty years. This framework allows us to see how changes in market conditions and ancillary services products impact revenue generation. When we see Texas price spikes that are dramatically higher than our forecasts, it is less surprising to us than if we were merely market observers. Our active participation and understanding of the dynamic ways these assets engage with the market enables us to respond effectively to changes, rather than simply relying on static predictions tied to a single revenue stream.
Arora-Cox: That’s a great segue into the next topic I wanted to explore, which is the revenue streams. Could you tell us a little bit about the revenue streams that exist in some of the major markets, such as ERCOT? What revenue streams are you expecting to emerge in the near future? Are they changing, and do any new revenue streams appear in the near term? This is especially compelling from a storage perspective because we aren’t limited to only engaging in energy arbitrage, or focusing on one ancillary service. The introduction of new ancillary services has not resulted in a drastic reduction in opportunities. Instead, it’s about adapting our approach to capturing the new sources of value, as the pie has simply been split differently.
When people think about storage, energy arbitrage–buying low and selling high–is usually the first thing that comes to mind, whether that’s in the day-ahead or real-time energy markets. As renewable penetration increases, volatility in real-time tends to increase as well. This creates more storage opportunities. This relationship is not one-to-one. For example, adding one unit of renewables does not automatically create an additional unit of storage value. Storage capacity can actually mitigate the volatility caused by additional renewable capacity. For example, adding 10 megawatts of storage could counteract the volatility generated by new renewable generation.We’re forecasting that, over time, in markets like Texas, where energy prices have been supernormal, this has incentivized the deployment of more storage. As more storage is deployed, it will begin to counter the volatility that may have been caused by additional renewable generation. We take a more conservative approach to future value than others. We’re realistic in recognizing that the value of storage will not continue to increase indefinitely, as the expansion of storage itself will begin to counteract the volatility and market dynamics that initially created those opportunities.
This more cautious approach is part of the reason we’ve built strong relationships with our insurance and reinsurance partners. They trust our view of the market because we have a realistic outlook on the eventual stabilization and possible erosion in value, rather than assuming that the value will grow exponentially without limit.
Arora-Cox: We’ve discussed revenue streams, so I’d like to shift focus a bit. Could you elaborate on the products that Ascend offers to manage revenue risk, particularly when it comes to merchant projects?
Hise: Certainly. When we consider the future outcomes of assets in specific markets and locations over time, we try to understand the expected set conditions that will produce expected revenues for these projects as well as the range of possible scenarios around this expectation. We use a probabilistic forecasting approach to predict how different market conditions, such as weather, supply and demand dynamics, and fuel prices, can change revenues as they alter volatility in the market. We look at the revenue that can be captured by ancillary services and the energy price volatility. We then work with the insurance and reinsurance firms, who have spent four to five years evaluating our forecasts, evaluating our capabilities and conducting back-testing. They are then able to create revenue insurance products which help asset owners, tax equity investors, or banks manage risk. We can, for example, pay an insurance company to assume the risk when market conditions, such as low gas prices or mild weather, or changes in regulatory paradigm, cause revenues to be half what we expected. This allows asset owners to determine the minimum cash flow they require to make a reasonable profit. While they still hope for better outcomes, this revenue insurance ensures a guaranteed minimum, which allows them to secure the efficient debt and tax credit monetization they need without sacrificing all of the upside potential, which is often the primary reason for entering this sector in the first place.
Arora-Cox:
There’s been a lot of talk about whether a bubble is forming in ERCOT, so it’s interesting to hear your more conservative view on the market and the concept of self-cannibalization that the market might ultimately experience. You also mentioned optimization. I’m interested to hear more. How does Ascend guide clients on revenue optimization, rather than simply focusing on arbitrage? How does Ascend guide clients on revenue optimization, rather than simply focusing on arbitrage?Hise:
We’ve now successfully gained the confidence of our insuring partners by demonstrating hundreds of years of simulated performance using machine learning-based algorithms. These algorithms implement strategies created by humans and iterated on to ensure dispatch performance going forward. Insuring partners now assume the risk that the smart bidder dispatch platform’s performance will be as effective as the hundreds of simulated backcasts suggest. This is a simpler challenge than underwriting future performance of human traders, which involves efficacy risks. This isn’t to suggest that an algorithm will always outperform a human, but rather that, on average, it will.Arora-Cox:
That’s interesting. This brings up the topic of artificial intelligent, which is a little beyond the scope of the discussion today. How does Ascend assess technology risk? Specifically, how can it ensure that technology used today will not be obsolete tomorrow? This is particularly important when evaluating and valuing projects in emerging markets where battery storage remains a developing technology despite years of experience. Could you share some insights on how you approach this challenge?
Hise:
The problem statement isn’t about selecting a technology for its 20-year lifespan; it’s about making an investment decision today that guarantees a minimum return. In Texas, for example, building a battery with a capacity of two hours may be the most cost-effective option, but by leaving space to expand, I could later increase it to four hours, if market demands change. This approach includes hedging, either through physical options or by using financial solutions to adapt to market changes. The real challenge is to understand the trajectory of technological development and how it impacts on the market. If fusion technology is commercialized by 2028, for example, we must consider how this could affect the dynamics of energy supply. The problem is not just the falling price of lithium batteries. There’s a delay in how these shifts impact the supply stack and the volatility of the market. We must also take into account changes in the techno-economics of the market, regulatory conditions, and fuel prices. The learning curves for storage technology could be 20% lower, which means that the cost to deploy more storage could significantly be lower than anticipated. If long-duration solutions, such as multi-day storage or seasonal storage, enter the grid from the labs, they could change the value for your one-hour project. This also offers the opportunity to enhance existing projects with long-duration solutions and maintain their value. Asset owners can maximize value by using algorithmic dispatch strategies, while also leveraging market opportunities such as volatility exposure through financial contracts. This combination enables payback in just a few years rather than depending on a 20-year outlook.
Arora-Cox: You make it sound relatively straightforward–considering both the immediate term and future scenarios. What trends do you see in your crystal ball that will shape the market? Are there any emerging analytic trends, shifts in market behavior, or factors we haven’t yet considered that could significantly impact battery storage projects and markets?
Hise: You mentioned AI data centers, and this raises an important question regarding the extent to which load will materialize in these markets, particularly through new data center deployments, reshoring of manufacturing, and the increasing electrification of our economy. There is a lot of uncertainty in this area. Ultimately, there is a significant tension between all the generation–especially renewable generation–trying to enter competitive power markets in the U.S. and the load, as they are often competing for the same resources, including equipment and the attention of interconnecting utilities to facilitate connections. This is a dynamic we are closely monitoring.
We are also examining the potential impacts if ERCOT brings online all the data centers that the hyperscalers plan to deploy. This could lead to scarcity, affect supply-demand mismatches, and increase market exposure. This would have a significant impact on battery value. It is a challenging dynamic to forecast at this time.On the technology front, there are numerous innovations, including various chemistries for storage, both lithium and non-lithium, along with multi-day solutions.
From an analytics perspective, we are beginning to explore the role of distributed energy resources (DERs) and virtual power plants (VPPs), which hold great potential, particularly given the aforementioned challenges around interconnecting larger projects. This shift could recalibrate the value of small projects, which could be a compelling opportunity to financiers if they reorient their thinking. For financiers, this shift could help eliminate arbitrary minimum check size requirements and allow more efficient, experienced financiers to step into the space and scale the opportunity effectively.Arora-Cox:
It’s about making these assets more attractive and driving capital investment. This is very insightful. You’re passionate about reading, writing and discussing how we can collectively create a world where our children can thrive. With that in mind, and reflecting on today’s discussion, do you have any final thoughts or words of wisdom you’d like to share with our listeners?Hise:
I’m motivated by the idea that each of us has something uniquely valuable to contribute to the world. In my journey, I have been humbled by the chance to pursue something that feels authentic and intuitive to myself, and to create something in the world that could benefit more than just me. I’m excited to learn how the growth of renewables will not only allow more people to contribute, but also encourage greater involvement in expanding clean energy infrastructure. I will never have the same understanding of what is required to bring clean energy into India as someone who lives there. It is important to empower individuals to learn, grow, and contribute to their communities by bringing clean power to them. This will help identify limits and possible expansion. Decentralizing problem-solving and bringing in diverse perspectives are, in my opinion, the best path to a resilient future. In the past, the desire to dominate and conquer nature has led a lack in diversity, which undermines resilient. In contrast, getting more people involved and encouraging creativity from diverse minds, all empowered by the clean energy solutions we are working on, is the highest probability path toward a resilient and beautiful future for our children.Arora-Cox:
Yes, I completely agree. I don’t believe we can afford complacency. You mentioned that it is not enough to assume all challenges will resolve themselves. As a native of India, I can attest to the fact that our efforts in the clean energy sector have a profound effect. It’s more than just generating clean energy. It directly impacts people’s access education and touches almost every aspect of society. I’m grateful to have the opportunity to work on this project. Thank you so much for your time today.
Hise:
Thank you.Arora-Cox:
That’s it for today. Tune in next time for more Resilience.PREVIOUS EPISODES
Resilience: Transforming the Energy Sector – AI and the Energy Transition | Episode 1 (10.7.24)
Resilience: Transforming the Energy Sector – The Solar M&A Landscape | Episode 2 (10.23.24)
Resilience: Transforming the Energy Sector – Navigating Land Issues in Solar and Storage Projects | Episode 3 (11.14.24)
