Battery energy storage systems (BESS) deliver a wide range of benefits, from enhancing grid reliability and supporting clean energy goals to providing operational flexibility and resilience. But no matter the motivation for deploying storage, the economics still have to work. Making BESS projects pencil out financially is essential to ensuring they get built and deliver lasting impact.
In this edition of The People Who Power Stem, we hear from Poorna Mujumdar, Principal of Power Markets, and Spencer Strandholt, Energy Services Associate, on the critical role market dynamics and revenue modeling plays in shaping successful energy storage projects.
What Clients Miss
“Developers and investors often ask what a project can earn,” Poorna explains, “but they don’t always ask how and why those revenues are achievable or sustainable.” Understanding the how and why of the revenue streams your project can participate in will be the first step in creating the strategies necessary to operate your assets. In addition, thinking of your batteries’ returns in this way enables owners to better understand the risks to your project’s returns if you don’t or can’t meet certain revenue-generating requirements.
“Decisions you make early in your project’s development will echo throughout the lifetime of the asset,” says Poorna who, with a background spanning both electrical engineering and finance, has seen how overlooking key questions early in a project’s lifecycle can create downstream risks.
She emphasizes that questions surrounding program competitiveness, dispatch constraints, market access, and especially project location often go unasked by developers.
“Developers sometimes choose sites without realizing the transmission capacity is already constrained,” Poorna adds. “If the grid can’t handle additional power at that location, the project’s ability to deliver and monetize its output is compromised. This can significantly reduce the value a project can capture later on.”
That kind of blind spot–focusing on the physical site without considering system-wide limitations–is just one of several early-stage pitfalls. Another, she says, is assuming that market behavior will stay consistent over time.
“A common misconception when modeling revenue streams,” Poorna remarks, ”is thinking that historical energy prices are reliable indicators of future value. “In dynamic markets like NYISO or CAISO, rules and supply mixes change rapidly. Past performance doesn’t guarantee future returns, so it’s important to be critical of data that suggests otherwise and prioritize working with experts who stay up to date on changes in the market.”
Inside the Revenue Model
A revenue model for a battery storage asset blends financial logic, like battery prices, with market insights, like state policies affecting renewable energy incentives, to forecast how a BESS project might perform in real-world market conditions.
“It’s essentially a simulation of how an asset earns across different markets and value streams over time,” Poorna says. “It helps inform design choices, like system sizing and dispatch strategy, while also showing what the project could earn under different scenarios.”
Spencer, who focuses on hands-on modeling using internal tools like Stem’s Merchant Analyzer, works directly with developers and clients to help tailor models to specific strategies.
“We use price curves from multiple industry-leading sources,” he explains. “Then we test various strategies against those forecasts–things like aggressive cycling, hardware choices, or prioritizing long-term battery health. Depending on the client’s priorities, we can adjust these strategies and see how these adjustments affect the project’s returns.”
The goal? Offer realistic projections that help clients make informed decisions.
“It’s about giving clients a full picture of risk and reward,” Spencer says, “and having knowledge about market trends and dynamics is the key piece to this. It’s not enough to just plug numbers into a tool; you have to be able to understand what those numbers are telling you and adjust certain levers to take advantage of what’s going on in the real world.”
Revenue Model Impact
So when should a developer or investor begin revenue modeling?
“Ideally, before finalizing project design,” says Poorna. “System sizing, interconnection strategy, use case–all of those should be shaped by how the asset plans to monetize. If you wait too long, you risk stranded designs or missed opportunities.”
Spencer agrees, noting that revenue models often spark strategic follow-up conversations. “Clients usually care most about the IRR,” he says. “If the returns aren’t strong enough on paper, it could mean adjusting your hardware choice or bidding strategy to boost value.”
That said, modeling later in the process can still be valuable. According to Poorna, even after design decisions are locked in, running updated models helps developers assess market shifts, qualify for financing, or reevaluate off-take strategies. “I can’t say this enough, but the market is always changing, and it can take years to get a project developed and operating. It’s best to run revenue models multiple times in the project development stage to ensure that the assumptions made at one point are still true later on.”
This becomes even more important as developers adopt more complex strategies to ensure asset longevity. For example, deciding whether to overbuild the system up front or plan for augmentation later are critical choices and are much easier to evaluate with the support of revenue modeling.
“Cycle count is a big lever,” Spencer explains. “Being aggressive upfront can maximize early returns, but if you’re looking to stretch the asset’s life, you may need to scale back cycling and explore long-term solutions like augmentation. There are so many factors that go into deciding whether to overbuild or augment, and it’s much easier to see the affect these individual choices have by using revenue models.”
Ultimately, what clients find most impactful are the scenarios that stress-test assumptions: the break-even cases, the worst-case projections, and the long-term IRR profiles.
“We help clients see what their downside looks like, not just the upside,” Poorna says. “That level of clarity gives them confidence to invest or to pivot.”
What to Look Out for in the Future
The market is moving quickly, and that means clients need to think ahead.
Poorna highlights two key trends that could reshape how storage assets earn revenue in the next 1 to 2 years:
- Capacity market reform: Many ISOs are revisiting how they value and compensate flexible, dispatchable resources like batteries. These changes could substantially alter project economics.
- Location and basis risk: As more batteries come online, nodal saturation becomes a real concern. That makes smart siting and understanding local constraints more important than ever.
Policy shifts around tax credits, such as ITC bonus adders, are also worth watching as these types of credits can have major impacts on project returns. “A project that was profitable with the ITC may not even pencil if it’s taken away,” Poorna says. A benefit of this, though, is that the emergence of new incentives in different markets can open entirely new doors and breed more opportunities to build.
For developers looking to establish a sustainable pipeline, Poorna offers one final piece of advice: diversify.
“There’s no single best market,” she says. “It’s like investing in the stock market. You need to spread your risk across markets and project types–that’s how you stay resilient in a fast-changing environment.”
What Powers You
It’s that time where we take a step back and ask our team members What Powers You.
“I believe in a world of energy abundance,” says Spencer. “Energy drives progress, quality of life, and opportunity. Batteries are a key part of making that future possible, and I want to help build it.”
“Energy markets are messy and fascinating,” says Poorna. “What drives me is helping clients make smarter, more viable decisions. Because when better decisions get made, more renewable projects actually get built.”
Final Thoughts and Where to Learn More
Revenue modeling isn’t just a technical exercise, it’s a strategic advantage. It’s given meaning by people like Poorna and Spencer, who bring deep insight, real-world experience, and a shared commitment to building a cleaner, smarter grid.
Do you want to hear more about the financial side of BESS projects?
Poorna will be speaking at Infocasts’ Energy Storage Finance & Investment Conference in San Diego, California on June 12th, 2025! Her session, Laying the Groundwork for Energy Storage Success: Early-Stage Development Strategies for Long-Term Impact, will explore how early-stage decisions, like financial modeling and technology selection, can significantly impact project success, mitigate risk, and optimize performance.
If you can’t make it to California, Poorna also be attending NYSIEA’s Solar and Storage Summit in New York City on June 18th, 2025!
Stay tuned for more stories from the people who power Stem.
