Battery storage is one of the most underwritten infrastructure asset classes of the last five years and one of the most over-promised. The revenue stack for a utility-scale battery is a combination of tolling agreements, capacity payments, ancillary services, and merchant energy arbitrage. The relative weight of those four lines is the difference between a project that pays for itself in seven years and a project that never does.
We underwrite the first two lines: long-term tolling agreements and capacity payments. We model ancillary services at a fifty percent discount to current clearing prices and we model merchant energy arbitrage at zero. We are aware that this makes us look conservative. We are also aware that merchant arbitrage is the line that disappears first when markets tighten.
The Granite Peak Storage portfolio, which reached commercial operation in 2024, is contracted under twenty-year tolling agreements with two investment-grade utilities. The tolling structure means the utility pays a fixed monthly capacity payment in exchange for the right to dispatch the battery. We own the asset, the utility operates it, and the revenue is contractual.
This structure is not the highest-return structure available. Merchant-first batteries in the same market have produced higher year-one revenue than our tolling-contracted batteries. The difference is what happens in year three. The tolling battery has the same revenue in year three as year one. The merchant battery does not.
We will keep financing tolling-contracted batteries. We will keep passing on merchant-first batteries. When the merchant arbitrage opportunity is real, we will model it at a discount. We will not model it at face value.