What moves the profitability of battery energy storage in the Pennsylvania-New Jersey-Maryland interconnection of the United States?

Applying a two-part methodology to a sample of daily observations in 2016–2024, we answer the question of what moves the profitability of battery energy storage (BES) in the Pennsylvania-New Jersey-Maryland Interconnection (PJM) - the largest regional transmission organization of the United States. This question is real-world relevant and policy important because BES accelerates deep decarbonization by aiding an electric grid's reliability management under rising market penetration of variable renewable energy (VRE) generated by solar systems and wind farms. We find that when its capacity cost is $300 per kWh, a 50-MW lithium-ion system has a missing problem of insufficient investment incentive, as its annual operating profits from daily arbitraging of PJM's real-time energy price spreads are well below its annualized costs. When the capacity cost is $100 per kWh, the missing money problem still exists but greatly diminishes. As large-scale VRE development's merit order effect reduces PJM's real-time energy prices, solving the system's missing money problem requires revenues in addition to those from the system's daily discharge and cost reductions made possible by investment tax credits. However, the additional revenues may invite allegations of double paying BES owners because the hours of profit-maximizing discharge tend to coincide with the hours of high energy prices caused by PJM's dwindling operating reserves. Further, investment tax credits may be considered unnecessary because the BES market is highly competitive. We consider such allegations misguided, as electricity reliability and clean energy are public goods in an economy's quest for a sustainable future.