Why TB2 Is a Bad Fit for Batteries
A battery quant's case against TB2 swaps, and why hour-specific forwards match how a BESS actually runs
Speaking with a battery owner in ERCOT recently, their head quant had a blunt take on TB2 — namely, why hourly contracts rather than more swaps are the better solution for a BESS.
TB2s are an increasingly bad fit for how batteries actually work. These swaps, almost always negotiated desk to desk as bilaterals and traded OTC with mile-wide spreads, simply don't reflect the economic reality of running a BESS. A few reasons why:
- There's no natural buyer on the other side. Load isn't a fit — it needs to procure power throughout the day, not sell off the bottom two hours. The only real counterparty is a merchant trading house, with no natural offset to net against.
- System-level state of charge is basically theta decay for real-time prices. As storage collectively drains through the day that decay accelerates, gamma compresses, and you get a pop in real-time prices right as batteries start running low: a post-peak discharge spike.
- Shorter-duration and poorly operated batteries feel it first. It gets worse in the shoulder months, when thermal resources go offline for maintenance and a BESS is the marginal unit.
- Worst of all, a TB2 you thought was hedging you can end up compounding the loss. Its payout spikes during the exact price events that system-wide battery depletion causes — the same moment your own battery is empty and can't capture any of it.
If external factors keep system energy tight and a BESS is marginal and doesn't charge back overnight, that dynamic can turn into an even bigger miss by morning. We saw exactly that in CAISO: a new battery discharge record on 23 June, followed by a real-time price hangover the next day as depleted batteries left the grid short on flexible capacity through the morning ramp.
The fix isn't a better swap. It's a liquid, hour-specific forward market. Being able to sell a specific hour and lock in a discharge price gives a battery the right incentive to charge while marginal at high prices — exactly when the system needs it.
This is where hourly, intraday products like ElectronX's Bounded Futures (BFUT) come in:
- Trade the exact hour you plan to discharge and lock the price directly.
- Stack the top two and bottom two hours and you've built a synthetic TB2. Stack four and four and it's a synthetic TB4.
- Floor and ceiling are set up front, the worst case is known when you put on the trade, and there's no variation margin to chase overnight.
Hourly. Bounded. Built around how the asset actually runs.