As Texas faces increasing electricity demand and increasingly volatile weather, energy storage is emerging as a critical component of the state’s energy infrastructure. Battery energy storage systems (BESS) are becoming vital to ensuring grid reliability, balancing intermittent renewable sources, and enabling a flexible, modernized power system.
But while the opportunity is enormous, the rules governing energy storage in Texas can be complex. Unlike most states, Texas operates an independent grid managed by the Electric Reliability Council of Texas (ERCOT) and is only partially subject to federal oversight by the Federal Energy Regulatory Commission (FERC). For startups, developers, and investors, understanding how ERCOT and FERC rules intersect and diverge is essential.
What is Energy Storage and Why Does It Matter?
Energy storage systems, such as large-scale lithium-ion batteries, store excess electricity generated during periods of low demand or high renewable output. When demand rises or generation falters (for instance, during a winter storm), these systems can release stored power back into the grid. This load-shifting capability not only supports grid reliability but also presents revenue opportunities for market participants through energy arbitrage and ancillary services.
Key Regulatory Players in Texas
Three main entities regulate energy storage in Texas:
- ERCOT (Electric Reliability Council of Texas) operates about 90% of the state’s power grid and governs how electricity flows across it in real time. ERCOT sets market rules and technical standards for energy participants.
- PUCT (Public Utility Commission of Texas) oversees ERCOT and sets policy for Texas’s electricity market, ensuring reliability and fair access.
- FERC (Federal Energy Regulatory Commission) regulates interstate electricity markets. However, because ERCOT is largely disconnected from other regional grids, FERC’s jurisdiction is limited in Texas.
Despite ERCOT’s independence, FERC’s rules can still apply in certain limited situations, such as transmission projects that cross state lines or energy market participation involving interstate commerce.
Understanding FERC Order No. 841—And the ERCOT Exception
FERC’s landmark Order No. 841 requires regional transmission organizations (RTOs) and independent system operators (ISOs) to allow energy storage resources to participate in wholesale energy markets. This empowers storage systems to buy low and sell high, just like traditional generation assets.
However, ERCOT is exempt from Order No. 841 due to its grid isolation. As a result, Texas has developed its own rules for integrating battery energy storage.
ERCOT’s Rules for Battery Storage Projects
ERCOT has designated energy storage as a distinct resource class: Energy Storage Resources (ESRs). If you plan to develop a battery project in Texas, you must:
- Register the project with ERCOT
- Meet interconnection and technical standards
- Follow operational protocols set by ERCOT
Once registered and connected, storage projects can participate in energy markets, charging during off-peak hours and selling power during high-demand periods. Additionally, storage units can provide ancillary services such as frequency regulation and voltage support. These services help keep the grid stable and ERCOT pays providers for this support, creating valuable revenue streams for BESS projects.
Emerging Legal and Policy Trends: Permits, Safety, and Local Rules
Although Texas is known for its pro-business regulatory climate, the rapid expansion of energy storage is prompting closer scrutiny:
- Permitting Requirements
Historically, energy storage projects in Texas have not required extensive permitting. But that may change. House Bill 1343 proposes mandatory state-level permits for battery projects, citing fire and environmental safety concerns. Developers should monitor this legislation closely and prepare for a more regulated permitting environment.
- ERCOT Compliance
Regardless of permitting changes, compliance with ERCOT interconnection and operational rules is mandatory. Startups and developers should ensure they fully understand these technical requirements, which include data reporting, metering, and communication protocols.
- Environmental and Safety Regulations
Battery storage systems are subject to environmental laws relating to emissions, hazardous waste disposal, and chemical management. Safety standards are especially critical given high-profile incidents involving battery fires. Developers should conduct environmental assessments and implement robust fire suppression and emergency response protocols.
- Local Ordinances
In addition to state oversight, local governments in Texas are starting to enact their own rules. For instance, Kendall County now requires multiple permits and adherence to enhanced fire codes for BESS projects. Navigating a patchwork of local requirements is becoming increasingly important, particularly in fast-growing suburban areas.
Market Participation: Making Energy Storage Profitable in Texas
Texas offers several pathways for storage developers to generate revenue:
- Energy Arbitrage: Buy electricity when prices are low (typically when renewable output is high) and sell when prices spike.
- Ancillary Services: Provide rapid-response support for frequency, voltage, and reserve needs. ERCOT compensates these services through its Ancillary Services Market.
- Reliability Programs: Participate in grid resilience and emergency response programs, especially during peak load or weather events.
Strategic design and market participation planning are essential for maximizing return on investment.
Why Understanding the Regulatory Framework Matters
Texas’s unique regulatory environment presents both opportunities and challenges. While the state offers an independent grid and fast-growing market, navigating ERCOT protocols, evolving state legislation, and localized rules requires careful planning. Failure to comply can result in project delays, fines, or market exclusion.
Additionally, differences in how ERCOT and FERC govern market access, pricing, and interconnection mean that developers who are used to operating in other states may need to adapt their approach significantly in Texas.
Conclusion: Succeeding in Texas’s Energy Storage Market
With an estimated 6.4 GW of battery storage capacity projected to come online in Texas in 2024 alone, the Lone Star State is quickly becoming a national leader in storage deployment. But success here depends on more than technical know-how, it requires a deep understanding of the regulatory, legal, and market framework.
Whether you are a startup evaluating your first Texas project or a seasoned developer expanding operations, staying informed and compliant is key to profitability.
How We Can Help
At Romano Law, our team specializes in the intersection of energy, law, and regulation. We help clients navigate ERCOT registration, local permitting, and compliance strategies while advising on market entry and risk management. Reach out to a Romano Law attorney today to ensure your energy storage venture is positioned for long-term success in Texas’s evolving market.
Contributions to this blog by Kennedy Mckinney.
