Growth of U.S. Energy Storage Sector Driven by Price Arbitrage

The U.S. energy storage sector is experiencing significant growth, primarily driven by the finalized federal policy on incentives and the increasing clarity regarding trade tariffs. A report from the law firm Troutman Pepper Locke highlights that while the One Big Beautiful Bill Act (OBBBA) enacted in July reduced federal tax credits for renewable resources, it maintained incentives for energy storage. This has allowed energy storage to become less dependent on the fortunes of wind and solar energy, according to Vaughn Morrison, a partner at Troutman Pepper Locke.

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Price arbitrage has emerged as the leading application for utility-scale battery systems in the U.S. According to the U.S. Energy Information Administration (EIA), in 2024, 66% of all utility-scale battery capacity included arbitrage among its uses, with 41% primarily dedicated to this purpose. This involves purchasing electricity when prices are low and selling it when prices are high. The EIA's data shows that frequency regulation, which maintains the grid's stability, was the next most common use, accounting for 24% of battery capacity.

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The California Independent System Operator (CAISO) reported that by the end of 2024, 43% of its 11.7 gigawatts (GW) of battery capacity was primarily used for arbitrage, while the Electric Reliability Council of Texas (ERCOT) reported that half of its 8.1 GW capacity was similarly utilized.

Arbitrage remains leading use case for US grid-scale batteries

Despite the optimistic outlook, the Troutman Pepper Locke report warns of challenges ahead, particularly due to the Foreign Entities of Concern (FEOC) provisions in the OBBBA. These provisions restrict access to tax credits for storage projects that use components from adversarial nations, notably China. John Leonti, a partner at Troutman Pepper Locke, noted that the impact of OBBBA on energy storage is less severe than anticipated, but the FEOC rules pose significant supply chain challenges.

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Tom Cornell, CEO of Prevalon, expressed concerns that the industry lacks sufficient time to adapt its supply chain to meet these new requirements, particularly regarding battery cells.

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The growth of the energy storage sector is expected to continue, with projections indicating that U.S. battery capacity could more than triple by 2028. This expansion is fueled by increasing demand for energy storage solutions that can provide reliable and cost-effective alternatives to traditional power generation methods. As the market matures, operators are shifting from basic arbitrage strategies to more sophisticated, optimized approaches to maximize returns.

How are most utility-scale batteries actually being used?

• “Power prices are going to rise dramatically,” — Andrew Waranch, CEO of Spearmint Energy

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• “There’s just not enough time to move the supply chain that quickly, especially around the battery cells, so that’s really our big concern.” — Tom Cornell, CEO of Prevalon

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The U.S. energy storage sector is at a pivotal moment, with price arbitrage leading the way as the primary use case for utility-scale batteries. While federal incentives provide a favorable environment for growth, challenges related to supply chain management and regulatory provisions will require careful navigation as the industry evolves.

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