Batteries have begun setting electricity prices once controlled by gas peaker plants. Wholesale power now costs less during the hours it used to be most expensive.
On the hottest of summer days, a natural gas “peaker” usually kicks in to support the wave of air conditioning units turning on at once. It’s the electrical grid’s lifesaver, a turbine built only for the highest-demand hours of the year, and also one of the most expensive to run. It’s what made 7 p.m. electricity so expensive in different parts of the U.S in the first place.
But a shift is taking place. California and Texas are now turning to batteries to power their grids. Power units that were typically used simply to store energy are now being deployed as power sources themselves. California’s grid operator has at least 13,000 megawatts of battery capacity, enough to serve several million homes through evening peak hours, and Texas’ batteries already power up to 10% of the state’s grid at peak.
Electricity customers see the benefits. When batteries set the marginal price instead of gas turbines that cost two to three times as much to run, wholesale power gets cheaper during the hours it used to be most expensive. Gas peakers that already sat idle for more than 86% of the year will eventually lose the few remaining hours that kept them viable, and utilities will likely choose batteries over new gas plants long term.
Battery storage and the evening peak in two states
Unlike gas turbines, batteries don’t generate electricity on their own. They move it from the hours when it’s cheapest to the hours when it’s most valuable. Solar panels flood the grid with power in the middle of the day, pushing wholesale prices close to zero and sometimes below it. Batteries absorb that cheap surplus. When the sun sets and demand surges past what the remaining generation can deliver, they discharge into the gap that gas peakers once filled, offering to do it at a lower price.
In California, the cycle has run at a scale large enough to reshape the wholesale market. In 2024, across the California Independent System Operator’s territory, batteries provided an average of 8.6% of all electricity consumed during the highest-demand evening hours, keeping the lights on in roughly three million homes. By 2025, they were regularly delivering more than 6,000 megawatts at peak, six times the roughly 1,000 megawatts they managed three years earlier.
Each megawatt a battery delivers during those hours is one a gas turbine doesn’t get to sell, and when enough batteries discharge at once, they become the marginal resource, the one that sets the wholesale price.
Texas followed the same path on an even faster timeline. The state’s grid operator, the Electric Reliability Council of Texas, added more than 6,000 megawatts of battery capacity in a single year, and its battery fleet set a record of more than 8,000 megawatts of output in a single hour in October 2025, enough to power roughly six million homes. An ERCOT presentation to its technology committee noted that every megawatt batteries deliver at peak directly reduces what consumers pay for electricity.
The revenue shift from grid support to energy trading
Storage operators used to earn most of their income by keeping the grid balanced from moment to moment, responding to tiny fluctuations in supply and demand that conventional power plants are too slow to catch. Those payments were steady but small. As battery fleets grew beyond what those niche markets could absorb, operators started buying cheap midday electricity and selling it when evening demand pushed prices up.
The pivot happened quickly. By June 2025, energy trading accounted for about 90% of battery revenue in California’s wholesale market and 76% in Texas, according to storage analytics firm Modo Energy. Texas’ share tripled in 12 months, from 25% to 76%, as the state’s rapidly expanding battery fleet flooded into grid-balancing markets that couldn’t absorb it and found better returns buying and selling electricity directly.
When enough batteries discharge at once to become the price-setting resource, the clearing price drops for every generator on the system and for every customer whose bill reflects wholesale costs. Total wholesale power costs in California fell to $8.5 billion in 2025, about 6% less than the year before. Lower gas prices played a role, but so did batteries delivering cheap stored solar power during the hours that used to be most expensive.
Battery costs and the disappearing case for gas peakers
Those lower clearing prices hit gas peakers hardest. The plants ran only about 1,200 hours a year in 2024, and building new ones costs between $149 and $251 per megawatt-hour over their lifetime, according to Lazard’s 2025 analysis. A four-hour battery costs $78 per megawatt-hour, a 27% decline from the year before, according to BloombergNEF, and even combined-cycle gas plants saw costs rise 16% to a record $102 per megawatt-hour as data center developers competed for the same turbines.
Peakers are losing their backup income, too. Batteries now provide 53% of the grid-balancing services California’s operator procures and 62% of the fast-response capacity the system needs when supply or demand shifts suddenly, according to CAISO’s 2025 annual report. PacifiCorp, a utility serving six western states, has already built its 2025 draft resource plan around 1,818 megawatts of new battery storage for delivery by the end of 2027, with 7,668 megawatts planned through 2045, and classified its proposed hydrogen peaking plants as storage rather than conventional generation.
With PacifiCorp classifying even its future peakers as hydrogen storage rather than gas, the electricity families use at dinnertime is increasingly going to come from power stored earlier in the day, not fuel burned at the moment they need it.
Source: https://qz.com/batteries-set-electricity-prices-wholesale-markets-081726
