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As renewable energy projects face tighter performance guarantees and volatile markets, BESS developers are considering installing extra capacity upfront, rather than augmenting capacity later. ‘Overbuilding’ like this typically adds 10-20% beyond immediate needs, thus combatting battery degradation, ensuring consistent revenue from stacked use cases, and avoiding costly mid-life expansions. But with battery prices fluctuating and revenue models evolving, the calculus isn’t universal. When does overbuilding pay off, and when does it strand capital best spent on later augmentation? We need to consider three main factors: degradation curves, contract structures, and the hidden costs of playing catch-up later.
Why overbuild?
Battery energy storage systems need to deliver precision performance sometimes decades into their operational life, which makes system sizing a significant decision. Rather than installing just enough capacity to meet initial needs, many are overbuilding systems that pay dividends throughout the project lifecycle. The practice attends to three operational/market realities:
Degradation buffer
Batteries, depending on their type, lose 1–3% capacity annually. Proper state-of-charge calibration and cell balancing can slow degradation, but even well-maintained systems lose capacity. Overbuilding ensures performance headroom regardless of calibration accuracy, maintaining performance as cells age. In many capacity markets, longer output guarantees, up to 25 years, are becoming standard, and so this approach prevents contract breaches when systems inevitably lose capacity.
Multiple revenue streams
Extra MW capacity supports stacked revenue streams. A 100 MWh system with 15% overbuild can simultaneously provide frequency regulation (fast-discharging 30 MW) and energy arbitrage (slow-discharging 70 MW) without performance trade-offs. This is valuable in markets where ancillary services and energy trading require distinct power-to-energy ratios. Excess capacity allows operators to pivot between use cases as market conditions shift, such as transitioning from peak shaving to black-start services during grid emergencies.
Cost certainty
Overbuilding avoids hidden costs of augmentation, like permitting, labour, and downtime. Projects with long-term contracts routinely overbuild 15–30%, locking in today’s pricing while hedging against future disruptions.
The calculus varies by project, but where certainty brings a premium value, overbuilding is a good option.
What about augmentation?
Augmentation is an alternative to overbuilding in scenarios where flexibility outweighs the benefits of upfront capacity, for example, merchant projects operating in volatile energy markets, where revenues fluctuate dramatically based on real-time pricing. Starting with a leaner system can test market conditions before committing to expansion, and capacity can be added later when revenue streams prove sustainable. The economics of augmentation also improve when battery prices are in steady decline. Sites designed with expansion space could potentially acquire more advanced technology later at lower prices. This approach could work well for projects anticipating new grid service opportunities that may emerge years after initial commissioning, and it allows projects to address capacity fade.
But augmentation isn’t operationally simple
The approach faces technology compatibility issues, and operational downtime during installation and permitting delays. The technical implementation alone requires careful planning. Augmentation can be done through DC blocks (adding battery enclosures to existing inverters) or AC blocks (requiring new inverters and switchgear). Each method carries different cost implications and technical considerations. Systems originally designed without augmentation in mind may face compatibility issues, particularly when mixing older and newer battery technologies.
Developers must consider updated permitting processes, potential shutdowns of operating systems during installation, and the complex integration of new components with existing energy management systems. Poor documentation of the original installation can complicate things further. Financially, augmentation makes the most sense for projects where revenue depends critically on maintaining discharge capacity – particularly those participating in capacity markets with strict performance requirements. But systems focused on frequency regulation or short-duration applications may find the costs outweigh the benefits, as these use cases are less sensitive to gradual capacity loss.
Successful augmentation is about foresight – preserving adequate space, electrical capacity, and maintaining thorough system documentation from day one.
Decision factors – overbuilding or augmentation?
Overbuilding makes sense when prices and costs are stable, revenue streams are predictable, and you want to avoid future hassles. Augmentation can work if you think future tech costs will reduce, or you need your upfront costs to stay low. Here are many of the factors to consider:
| Factor | Overbuilding (bigger from day 1) | Periodic augmentation (adding later) |
| TCO | ✅ Better per-kWh pricing + avoids future construction costs | ❌ Higher total cost (permits, labour, downtime, price volatility) |
| Stacked revenue potential | ✅ Enables multiple simultaneous uses (e.g., frequency regulation + energy arbitrage) | ❌ Limited by original system sizing |
| Upfront cost | ❌ Higher | ✅ Lower |
| Future proofing | ✅ Built-in degradation buffer and capacity needs | ❌ Requires later upgrades to compensate |
| Project complexity | ✅ Single installation with no mid-life disruptions | ❌ Complex multi-phase logistics with downtime risks |
| Regulatory/grid compliance | ✅ Meets long-term contracts more easily | ❌ May need re-certification |
| Obsolescence | ❌ Stuck with older tech | ✅ Can adopt newer/better batteries |
A middle-ground approach might default to modest overbuilding for a degradation buffer and operational simplicity, stay augmentation-ready for when future flexibility has measurable value, and remain scenario-aware for adjustments based on price forecasts and regulation changes.
