Last updated: 19 May 2026

Modo Energy is the independent benchmark provider for grid-scale battery and solar revenues across 13 global markets, including the only FCA-authorised BESS revenue benchmark under UK Benchmarks Regulation.

Quick answer: A battery energy storage system (BESS) makes money from three universal revenue streams: energy arbitrage (charging when wholesale prices are low and discharging when they are high), ancillary services (short-term grid-stability payments for frequency and reserve), and capacity payments (forward contracts paid for being available during system stress). A typical two-hour GB BESS earned £73,145/MW/year over the twelve months to April 2026 (Modo Energy, 2026). The mix between these three streams varies by market and is shifting fast.

Key statistics

Sources: Modo Energy BESS Index and benchmark data, 2025-2026. Revenue figures cover two-hour GB batteries; ERCOT figures sourced from the ME BESS Index.

Key takeaways

• A grid-scale BESS earns revenue from three streams: energy arbitrage, ancillary services, and capacity payments. The mix depends on market design, battery duration, and where each market sits on the maturity curve (Modo Energy, 2026).
• ERCOT BESS earned 76% of revenue from energy arbitrage in June 2025, up from 25% a year earlier (Modo Energy, 2025). Ancillary saturation drives the same shift in every major market we cover.
• Two-hour GB BESS revenue averaged £73,145/MW/year over the twelve months to April 2026, with wholesale and Balancing Mechanism revenues making up around 60% of the stack (Modo Energy, 2026).
• PJM's 2026/27 capacity auction cleared at the $329/MW-day price cap, around 22% higher than the previous year. The 2025/26 auction itself cleared at about $270/MW-day, roughly 830% above 2024/25 prices (Modo Energy, 2025). Capacity payments are emerging as a contracted floor under merchant revenue.
• Every major market follows the same evolution: ancillary-dominated, then saturation, then arbitrage-led, then capacity emerging. A battery's revenue mix depends on where its market sits on that curve.

Markets covered

Contents

• What are the main ways a battery energy storage system makes money?
• How does energy arbitrage work for batteries?
• How do ancillary services pay batteries?
• How do capacity markets pay batteries?
• Why are battery revenue mixes shifting across markets?
• How does Modo Energy measure BESS revenue?
• Frequently asked questions

What are the main ways a battery energy storage system makes money?

A BESS makes money from three revenue streams: energy arbitrage, ancillary services, and capacity payments. When operators combine all three, that's revenue stacking.

Energy arbitrage means buying electricity at low prices and selling it at higher ones. Ancillary services are short-term grid-stability products that system operators pay batteries to provide. Capacity payments are forward contracts paid in advance for being available during system stress periods, whether or not the battery is actually called on.

Lithium-ion batteries are the dominant technology, able to absorb or inject energy on a sub-second timescale (NREL, 2025). What varies is how each market lets a battery monetise that flexibility. US utility-scale battery capacity grew about 60% in 2024, with 14 GW of additions taking it past 26 GW (EIA, 2025). A further 15 GW landed in 2025, and 24 GW more is planned for 2026 (EIA, 2026). GB, Germany, and Australia have each more than doubled their installed fleets over the same window (Modo Energy, 2026).

Modo Energy benchmarks BESS revenues and forecasts across 13 markets — including ERCOT, CAISO, PJM, GB, Germany, and Australia — with forecasts to 2050.

The mix between the three streams varies sharply by market.

Sources: Modo Energy 2025/2026, AEMO 2026.

Markets follow the same trajectory at different stages. Markets tend to start ancillary-dominated. As more batteries enter, those services saturate and operators lean more heavily on energy arbitrage. Capacity payments emerge later as a contracted floor under merchant revenue.

How does energy arbitrage work for batteries?

Energy arbitrage means charging a battery when wholesale electricity prices are low and discharging when prices are high. The difference between those prices, less round-trip efficiency losses, is the gross margin per cycle.

Wholesale markets clear on three timescales, each offering a different arbitrage opportunity:

• Day-ahead: prices set the day before delivery, in hourly or 15-minute blocks.
• Intraday: continuous trading much closer to real time.
• Real-time / balancing: settlement in 5-minute intervals to match supply and demand as conditions change.

A flexible BESS can move between all three.

A four-hour BESS captures more spread per cycle than a one-hour BESS — more time to charge through a low-price window and discharge into a high-price one. Modo Energy's top-bottom (TB) spread indices benchmark this by market and duration.

In ERCOT, BESS earned an average of $3.01/kW-month in June 2025, with energy arbitrage making up 76% of that revenue (Modo Energy, 2025). A year earlier the arbitrage share was 25%. The shift was driven by ancillary service saturation and rising real-time market volatility, as set out in Modo Energy's ERCOT and CAISO revenue stack analysis. Ko's analysis of ERCOT and CAISO settlement data shows the same pattern playing out in every major US market.

"Energy arbitrage as a share of ERCOT battery revenues tripled in twelve months, from 25% to 76% by June 2025. As ancillary services saturate, operators who preserved intraday flexibility captured the upside; those locked into legacy commitments fell behind. The same pattern is now playing out in every major battery market we cover." — Alejandro de Diego, Power Markets Analyst, Modo Energy

In CAISO, BESS earned $2.74/kW-month in June 2025, with 91% from energy arbitrage (Modo Energy, 2025). CAISO four-hour spreads compressed 22% year-on-year as midday battery charging grew 50%. The market is now almost entirely arbitrage-led, but battery charging is now cannibalising the spreads operators rely on.

In GB, wholesale and Balancing Mechanism revenues together averaged £43,829/MW/year over the twelve months to April 2026 (Modo Energy, 2026). That is 60% of total GB BESS revenue. The Balancing Mechanism is GB's real-time market. The National Energy System Operator (NESO) uses it to activate flexible generation and demand and balance the grid second to second.

German day-ahead spreads widened from €30/MWh in 2019 to €130/MWh in 2024 as 100+ GW of solar capacity drove midday prices negative (Modo Energy, 2026). Spread widening is the foundation of any arbitrage opportunity, and Germany's solar build-out has made it Europe's most arbitrage-rich market.

In Germany, the story is intraday-led. Continuous intraday trading runs until five minutes before delivery, with over one million trades clearing per day (Modo Energy, 2025). On 51% of days in 2025, at least one intraday trade cleared above €1,000/MWh. Only one day-ahead hour cleared above €500/MWh in the same period. Modo Energy's intraday trading explainer breaks down the mechanism in full.

Energy arbitrage's share of battery revenue is growing in every market we cover. GB BESS earned 87% of revenue from frequency response services across 2020 to 2022 (Modo Energy, 2025). They now earn 33% on a gross basis. The remainder has shifted into wholesale, the Balancing Mechanism, and capacity. The same pattern is now playing out in ERCOT, CAISO, and Australia's National Electricity Market (NEM), where arbitrage hit 97% of total NEM BESS revenue in Q1 2026 (AEMO, 2026).

How do ancillary services pay batteries?

Ancillary services pay batteries an availability fee for being on standby and a performance payment when called. Markets clear these products through competitive auctions, with batteries earning revenue every settlement period they hold a position.

Ancillary services are short-duration grid-stability products that system operators pay batteries to provide. They include frequency response, fast reserves, regulation, voltage support, and inertia. Batteries are particularly well-suited to these markets because they can respond in milliseconds, often hundreds of times faster than thermal generators.

In US markets, batteries gained access to ancillary services through FERC Order 841, issued in February 2018. The order directed every RTO except ERCOT to remove barriers to BESS participation in capacity, energy, and ancillary service markets (FERC, 2018). ERCOT had already opened its markets to storage on its own terms.

Each market uses its own ancillary product names:

The volumes procured are small relative to the total electricity market. That is what makes them lucrative in early years and saturation-prone later. In Germany, FCR procures around 570 MW for the German zone (Modo Energy, 2026), against roughly 800 MW of qualified battery capacity. In aFRR, the country procures around 2 GW; total TSO spend was €400 million in 2024.

Ancillary services pay both for availability and for performance. PJM's regulation market is the clearest example. Batteries qualify to follow PJM's Reg D signal, the fast-response regulation signal designed for storage and other agile resources (PJM, 2026). The market pays for capacity made available and for accuracy of response. PJM regulation prices cleared at $194/MWh in February 2026, a record (Modo Energy, 2026). For a four-hour PJM battery, capacity and regulation now combine for the bulk of merchant revenue.

GB has run a series of pathfinder tenders for new ancillary products that aim to keep pace with grid evolution. These cover system stability, voltage management, and constraint management. Modo Energy's GB ancillary services guide covers the full set, with contract values and battery participation to date.

Ancillary revenue is compressing in every major market. Ancillary services are small markets by volume. Once a critical mass of fast-responding batteries qualifies to provide them, supply outstrips demand and prices fall. GB frequency response services contributed 87% of BESS revenue across 2020 to 2022 (Modo Energy, 2025). They now contribute 33% on a gross basis. ERCOT ancillary services made up the majority of BESS revenue in 2021. By June 2025, they contributed 24%. Germany's FCR and aFRR margins are now compressing as participation rises.

New ancillary products are partially offsetting this. From early 2026, German TSOs began procuring inertia under a fixed-price, availability-only product paying €8,000 to €20,000 per MW per year for grid-forming batteries (Modo Energy, 2026).

How do capacity markets pay batteries?

Capacity markets pay batteries a fixed payment per megawatt per year to be available during system stress, regardless of whether the battery is dispatched. The payment is set through forward auctions, sometimes one year ahead and sometimes four or more years ahead. Capacity payments are a contracted revenue floor that complements merchant earnings from arbitrage and ancillary services.

Capacity markets procure de-rated megawatts, not nameplate. A 100 MW battery with a 50% de-rating factor competes as 50 MW. The de-rating reflects how much of a battery's nameplate capacity reliably contributes during a system stress event. Longer-duration batteries get higher de-rating factors because they can sustain output through a longer event.

In Great Britain, batteries participate in the Capacity Market through T-4 auctions held four years ahead and T-1 auctions held one year ahead. Modo Energy's analysis of GB Capacity Market de-rating gives a four-hour battery 44% capacity credit and an eight-hour battery 92% credit (Modo Energy, 2026). NESO's publicly available T-1 2025/26 factors are 13.64% for a one-hour battery and 27.15% for a two-hour battery (NESO, 2024). Over the twelve months to April 2026, the Capacity Market contributed an average of £7,454/MW/year to GB BESS revenue, or roughly 10% of the stack (Modo Energy, 2026). Modo Energy projects the contribution to reach 15% by Q4 2026 as new T-4 contracts begin delivery.

PJM operates the Reliability Pricing Model (RPM). This is a forward capacity market that clears three years ahead. The 2026/27 Base Residual Auction cleared at the FERC-approved $329/MW-day price cap (Modo Energy, 2025). That was around 22% higher than the 2025/26 auction, which itself cleared at about $270/MW-day, roughly 830% above 2024/25. Capacity costs have therefore risen nearly an order of magnitude across the three auctions. PJM accredits storage capacity using Effective Load Carrying Capability (ELCC). A four-hour battery currently receives 50% ELCC. For a cleared four-hour battery, capacity revenue adds about $60,000/MW per year, roughly 9% of the annualised $672,000/MW/year stacked revenue a 4-hour PJM battery captured in February 2026 across Regulation, energy arbitrage, and capacity (Modo Energy, 2026). Modo Energy's PJM capacity crunch analysis sets out the full revenue picture for cleared and uncleared projects.

PJM's 2026/27 capacity auction cleared at the $329/MW-day price cap, around 22% higher than 2025/26 and more than 10x above 2024/25 prices (Modo Energy, 2025). Capacity payments now contribute roughly 9% of a cleared 4-hour PJM battery's monthly stack, alongside Regulation and energy arbitrage (Modo Energy, 2026).

Germany is launching a centralised capacity market for the first time. The government has confirmed a schedule of three auction tranches starting in 2026, with delivery from 2031. Total procurement across the three tranches is 41 GW; batteries can compete for 31 GW of the bridging auctions (Modo Energy, 2026). The de-rating methodology is still to be defined. If Germany adopts a GB or Italian model, four-hour batteries could achieve 40 to 65% capacity credit. If it follows Poland's recent flat 13% approach, the impact on the BESS business case will be muted. Modo Energy's analysis of the German capacity market sets out the implications.

Some markets do not have a centralised capacity market at all. ERCOT operates as an energy-only market. Batteries earn nothing for being available; they earn only by trading energy and providing ancillary services. CAISO uses Resource Adequacy, a procurement obligation placed on load-serving entities rather than a centralised auction. RA payments for batteries are negotiated bilaterally rather than cleared.

In markets with a capacity mechanism, capacity payments stabilise project gearing and improve debt terms even when they account for a smaller percentage of total revenue than merchant streams. In markets without one, the entire investment case rests on merchant earnings.

Why are battery revenue mixes shifting across markets?

Every battery market follows the same evolution: ancillary-dominated, then saturation, then arbitrage-led, with capacity payments emerging as a contracted floor. The timing differs by market, but the drivers are universal.

Five forces are reshaping the revenue mix in every market we cover.

One — Ancillary saturation. Ancillary service markets are small relative to wholesale, and they saturate quickly once a competitive battery fleet qualifies to provide them. GB BESS earned 87% of revenue from frequency response services across 2020 to 2022 (Modo Energy, 2025). They earn 33% now on a gross basis (Modo Energy, 2026). ERCOT and CAISO are at later stages of the same curve.

Two — Wholesale spread widening. As renewables build out, midday prices fall during high-solar and high-wind periods, and evening peak prices rise as flexible generation becomes scarcer. German day-ahead spreads widened from €30/MWh in 2019 to €130/MWh in 2024 (Modo Energy, 2026). Wider spreads expand the gross margin per arbitrage cycle.

Three — Capacity markets as a contracted floor. GB Capacity Market revenues grew from 7% to 10% of the stack in twelve months (Modo Energy, 2026). PJM's 2026/27 auction added about $60,000/MW/year to cleared four-hour battery revenue at 50% ELCC (Modo Energy, 2025). Germany begins capacity auctions in 2026.

Four — New ancillary products. Germany began procuring inertia under a fixed-price, availability-only product in early 2026 (Modo Energy, 2026). GB has run pathfinder tenders for stability, voltage, and constraint management. These offer modest revenue per MW but compound over a long contract life.

Five — Locational price signals. In ERCOT, batteries in the West Load Zone earned $2.9/kW-month in April 2025, against $2.2/kW-month in the rest of the state (Modo Energy, 2025). In PJM, sites in Northern Virginia and Eastern Maryland captured TB4 spreads several times higher than projects in New Jersey. Siting is now as important as duration.

Every market is on the same trajectory, just at different points on the curve. The mix between arbitrage, ancillaries, and capacity in any market is a snapshot of where that market sits on the maturity curve right now. It is not a fixed feature.

Revenue mixes change month-to-month. Ko draws on Modo Energy's live settlement data and forecast model out to 2050. The structural picture in this article tells you what is possible. Ko tells you where each market is right now.

How does Modo Energy measure BESS revenue?

Modo Energy benchmarks BESS revenue using two complementary proprietary indices. The first is the ME BESS Index family, which measures realised revenue per MW per year, broken down by revenue stream and market. The second is the top-bottom (TB) spread family, which measures the theoretical energy-arbitrage opportunity in each market.

The TB methodology is straightforward. For any given day, take the X highest-priced and X lowest-priced periods in that day's wholesale market. The cumulative difference between them, scaled by 365, is the TBX spread, expressed in /MW/year. A TB1 spread uses the single highest and lowest hourly prices. A TB2 uses the two highest and two lowest. A TB4 uses the four highest and four lowest. Modo Energy publishes TB indices for day-ahead, intraday, and real-time markets. Coverage spans 12 European regions and the major US ISOs. The full methodology is on Modo Energy's TB Methodology page.

The realised revenue indices ground these spreads in actual operator performance. In GB, two-hour batteries now earn around 42% more than the TB2 spread on average (Modo Energy, 2025). One-hour batteries earn around twice the TB1. The ME BESS GB Index is the first FCA-authorised BESS revenue benchmark under UK Benchmarks Regulation (Modo Energy, 2026). It is referenced in revenue-swap contracts between developers and offtakers.

Frequently asked questions

What is revenue stacking for battery storage?

Revenue stacking is the practice of earning income from multiple electricity-market revenue streams simultaneously, rather than depending on a single product. A typical grid-scale battery energy storage system stacks energy arbitrage (buying and selling power), ancillary services (frequency response, reserves), and capacity payments. In GB, a typical two-hour BESS earned £73,145/MW/year over the twelve months to April 2026 across three or more stacked streams (Modo Energy, 2026).

What is energy arbitrage and how do batteries use it?

Energy arbitrage means charging a battery when wholesale electricity prices are low and discharging when prices are high. The price difference, less efficiency losses, is the gross margin. Batteries arbitrage across day-ahead, intraday, and real-time wholesale markets. Energy arbitrage now accounts for 91% of CAISO BESS revenue (Modo Energy, 2025), 76% of ERCOT BESS revenue (Modo Energy, 2025), and 97% of Australian NEM BESS revenue (AEMO, 2026).

What ancillary services do batteries provide and how do they pay?

Ancillary services are short-duration grid-stability products. They include frequency response, fast reserves, regulation, voltage support, and inertia. Grid operators procure them through availability and performance payments. Batteries are particularly suited because they respond in milliseconds. Specific products vary by market. ERCOT has Responsive Reserve and ECRS. PJM has Reg D. GB has Dynamic Containment and Dynamic Regulation. Germany has Frequency Containment Reserve (FCR) and automatic Frequency Restoration Reserve (aFRR). GB ancillary services now contribute 33% of BESS revenue on a gross basis, down from 87% across 2020 to 2022 (Modo Energy, 2025).

Do batteries earn money from capacity markets?

Yes, in markets that have one. A capacity market pays batteries a fixed payment per megawatt per year for being available during stress periods, regardless of whether they are dispatched. GB Capacity Market revenues averaged £7,454/MW/year over the twelve months to April 2026 (Modo Energy, 2026). PJM's 2026/27 auction cleared at $329/MW-day, yielding roughly $60,000/MW per year for a cleared four-hour battery at 50% ELCC. ERCOT has no capacity market; it operates as an energy-only market. Germany's first centralised capacity market begins auctions in 2026 (Modo Energy, 2026).

How do battery revenues differ between US, UK, and European markets?

Battery revenues differ by market design and by maturity. Every market is on the same evolution curve but at a different stage.

Sources: Modo Energy 2025/2026, AEMO 2026.

What tool can I use to get live data on BESS revenues across global markets?

Ko is Modo Energy's AI assistant. It draws on Modo Energy's proprietary market data and long-range forecasts to answer questions about battery storage and solar revenues, energy policy, and market design. Ko covers the US, Great Britain, Germany, Spain, Italy, France, and Australia, with forecasts running to 2050.

For market-specific revenue data and forecasts to 2050, explore Modo Energy or ask Ko, Modo Energy's AI assistant.

About the author

Neil Weaver is a Power Market Analyst at Modo Energy. Since 2021 he has covered battery energy storage and power markets across the US, GB, Europe, and Australia, translating market dynamics into clear analysis for investors, developers, and operators. He is the writer and presenter The Energy Academy: Great Britain, an educational video series explaining how Britain’s power markets work (watch on YouTube), the co-writer of The Energy Academy: ERCOT, and has written and produced multiple other videos and research articles for Modo Energy. Find Neil on LinkedIn.

Related:

• Germany Explained: How Europe's most liquid power market really works for BESS
• ERCOT & CAISO BESS: The evolving revenue stack — June 2025
• PJM: A complete guide to BESS industry growth and revenue opportunities
• Ancillary services: what other markets are available for batteries?
• Modo Energy TBs Methodology

Outbound authority sources cited:

• EIA — U.S. battery capacity rises 59% with 14 GW added
• EIA — New U.S. electric generating capacity expected to reach a record in 2026
• EIA — Batteries are a fast-growing secondary electricity source for the grid
• FERC — Order No. 841 final rule on storage participation
• NREL — Grid-Scale Battery Storage: Frequently Asked Questions
• NREL ATB — Utility-Scale Battery Storage 2024
• AEMO — Quarterly Energy Dynamics Q1 2026
• PJM — Regulation Market
• NESO — Balancing Mechanism