The Lowest-Cost Player Doesn’t Always Win — A Market Lesson From Batteries

If you stare at power markets long enough, you start seeing the same pattern show up again and again: someone can create obvious value, and someone else can capture a disproportionate amount of the surplus.

That’s why I like batteries as a leadership lesson. Solar and wind energy can be very cheap to produce, and they can also be subsidized. You look at that and it feels like the renewables operator “should” win. But a lot of the time, the battery operator is the one who ends up getting paid.

Once you see that dynamic in a market with explicit rules, it becomes hard to unsee it in business.

Renewables look like the winner, but batteries get paid

Here’s the basic setup.

Solar and wind are rigid. They can only produce power when the sun is out or the wind is active. That means there are hours when power is abundant and cheap, and hours when it is not.

California makes this intuitive because the system has a well-known “duck curve,” which is basically a picture of daytime solar pushing net load down, followed by a steep ramp as the sun goes down and demand spikes. 

If you deploy a battery, you get to buy cheap power when it’s abundant, and you get to sell it later when the system is leaning on more expensive generation. That spread is the battery operator’s profit.

And this is where the counterintuitive part shows up: even though renewables are the reason cheap power exists in the first place, the flexible actors are the ones to capture the surplus. 

Batteries can decide when to show up. They can decide when to buy and when to sell. Renewables can’t.

So “lowest cost” and “biggest beneficiary” are not the same thing. In market dynamics, flexibility can matter more than cost.

To make it even more concrete: this isn’t a niche edge case anymore. The U.S. is adding grid-scale batteries fast enough that the storage story is becoming part of the default grid narrative. 

Value creation and value capture are different jobs

This same idea shows up outside of power.

There can be a company that has a huge advantage, whether because of cost or because its product is better. But counterintuitively, it can be some other person who captures most of that surplus.

Large language models are a clean example of that. ChatGPT and Anthropic-style models require a ton of capital to make them. They can be very useful products. They can feel like one of the best businesses that’s ever existed.

Yet it’s not obvious they are the biggest beneficiaries. Sometimes the value shows up somewhere else: the GPU provider, or the layer of apps that sits on top of the model, or the distribution channel that owns the user relationship.

You can see the “input provider captures the surplus” story in how dramatically GPU demand has shown up in Nvidia’s results, where the data center line is doing the heavy lifting. 

And you can see the “this takes an insane amount of capital” side in how the foundational-model companies talk about compute spend and margins as the category scales. 

That sounds abstract, but it’s a concrete leadership problem. A lot of teams build something that is “better,” and they assume the value they created will automatically accrue to them. Markets don’t pay you for effort. Markets pay you for positioning.

Batteries are positioned at the gap between when supply is cheap and when supply is expensive. GPU providers are positioned at the input everything else requires. Apps are positioned at the layer where users actually touch the product.

So if you’re leading a company in a market that’s moving quickly, you want to keep two questions separate: who is creating the value, and who is positioned to capture the surplus?

Find the mismatch, then see who captures it

Traders have a simple habit that’s useful for operators: they look for the mismatch.

Where does supply not quite match demand? Is it timing? Is it geography? Is it some other constraint that makes one unit of supply not interchangeable with another?

That’s what batteries do. They’re positioned on timing. They take something that is cheap at one moment and sell it later when it’s expensive. If you can see the mismatch clearly, you can usually see where the surplus is going to show up, and you can see who is positioned to capture it.

Here’s a practical way to run that analysis without turning it into a giant strategy exercise:

• List the main players in your market.
• Get a rough sense of their unit economics.
• Identify where the mismatch is (timing, geography, workflow, distribution, trust).
• Ask the most important question: who has flexibility around that mismatch, and who gets paid for it?

You don’t need perfect numbers to do this. You just need to stop assuming that “we’re cheaper” or “we’re better” automatically means “we win.”

Flexibility is an advantage you can choose to build

If you remember one thing, make it this: the lowest-cost player is not automatically the biggest beneficiary.

Batteries are a huge beneficiary of renewables because they can buy cheap power and sell it later when the system is paying high prices. That flexibility is what captures the surplus.

And once you see that, you can apply it to your own market without overcomplicating it. Ask who the players are, what the unit economics look like, where supply doesn’t match demand, and who has flexibility around that mismatch. Then you can make an actual strategy decision about what you’re building: the cheap producer, the flexible dispatcher, the input provider, or the app layer that captures the value.

That’s the difference between creating value and capturing it.