Over 80% of battery revenues in PJM today are earned through providing Regulation.
Regulation helps keep the grid stable. As supply and demand experience minor imbalances throughout the operating day, the system operator deploys Regulation to keep system frequency close to 60 Hz.
Batteries - and other resources providing Regulation - earn by closely following a control signal that fluctuates second by second.
But payment isn’t as simple as market price x MW cleared.
A resource’s earnings depend on:
- how far and often it moves (mileage),
- how closely it tracks the signal (performance)
- the amount of capacity awarded (MW offered and accepted),
- which signal it follows (Rega or RegD),
- whether it missed out on energy revenue (lost opportunity cost).
Market participants modeling BESS performance, planning bids, or assessing long-term value need to know why RegD pays well today - and how that could change.
PJM’s two Regulation signals
PJM assigns resources to one of two Regulation signals:
- RegA - slow and steady, built for thermal generation.
- RegD - fast and responsive, optimized for batteries.
Before providing Regulation, resources must qualify to follow RegA, RegD, or both. As the operating day rolls along, PJM assigns cleared resources to either signal each hour, based on system needs.
While batteries can run on either, PJM typically assigns most of their capacity to RegD - thanks to their speed and accuracy.
How PJM clears the Regulation market
Offers to provide Regulation in PJM have three terms: capability (capacity), performance, and lost opportunity cost.
Every five minutes, PJM clears Regulation alongside Energy and Reserve markets, choosing the lowest-cost mix of resources to meet requirements.
The market clearing price for capacity comes from a merit order based on each resource’s adjusted offer cost:
- Capability offer – price to reserve capacity for Regulation, covering fuel costs and efficiency losses.
- Performance offer – price to follow the signal in real time, covering ramping, wear, and variable O&M.
- Lost opportunity cost – potential revenue lost by not using that capacity for Energy.
PJM pays performance “per mile” (ΔMW). So, the system operator converts a performance offer from $/MW to $/ΔMW using a mileage ratio for RegA or RegD, reflecting higher mileage for RegD.
PJM then scales offers by:
- Performance score – how well a resource follows the signal (precision, delay, correlation).
- Marginal benefit factor (MBF) – converts high-movement RegD MW into a RegA-equivalent value.
In short: total offer cost = capability + adjusted performance + lost opportunity cost, divided by performance score × MBF.
PJM then ranks offers from lowest to highest total cost and clears the cheapest set, co-optimizing with Energy and other Ancillary Services, to meet Regulation targets.
The highest cleared offer sets the Regulation Market Clearing Price (RMCP).
How the building blocks translate into payment
Once cleared, a battery - or any other resource providing Regulation - receives payment for three components that mirror its offer.
Determining the performance - or mileage - payment
Performance payment depends on how much a resource is required to move to follow its assigned Regulation signal, and how well it follows that signal.
After setting the market clearing price, or the RMCP, PJM also determines the Regulation Market Performance Clearing Price (RMPCP). This value is based on the highest adjusted performance offer among cleared resources.
Mileage is the sum of all movement - or Regulation dispatch - (ΔMW) in a resource’s assigned signal. This is typically larger and faster moving for RegD than RegA.
PJM then pays for performance based on mileage incurred in a given interval and how well a resource follows its signal - reflected by its performance score. This is calculated as:
- Performance payment = Cleared MW x Mileage Ratio x RMPCP x Performance Score
Determining the capability payment
The capability payment is similar to typical Ancillary Service payments in other markets like ERCOT. In simple terms, this is payment for being available and awarded Regulation responsibility, regardless of whether the resource moves.
The price for capability, or the Regulation Market Capability Clearing Price (RMCCP), is simply the RMCP minus RMPCP. The payment is then calculated as:
- Capability payment = Cleared MW x RMCCP x Performance Score
Determining the lost opportunity cost payment
PJM pays opportunity cost when a resource could have made more in the Energy market than from providing Regulation.
There isn't an associated clearing price, rather PJM estimates what the resource would have earned if its reserved capacity had been dispatched for energy in the same interval.
- Lost opportunity cost payment = Estimated Missed Energy Revenue x Performance Score
Performance is one of the keys to maximizing Regulation revenues
Ultimately, tracking the Regulation signal directly impacts payout.
Even a fast-responding resource - like a battery - can leave money on the table if it fails to follow its signal precisely.
In other words, poorly tracking the signal translates into low performance scores, resulting in lower payouts.
PJM calculates performance scores every five minutes. All three components of Regulation payments incorporate the ‘performance score’.
To earn full value, a cleared resource must follow the signal with high precision, minimal delay, and tight correlation.
The chart below shows actual five-minute traces from different unit types.
Batteries providing RegD often score highly. In this example, the battery scores near 98%, while other resources, like hydro or steam, lag further from the target.
This performance advantage appears in aggregated data too. In Q1 2025, batteries providing RegD scored between 91-100% for 92% of operating hours.
The Regulation market is changing
RegD resource payouts tend to exceed those of RegA. This has driven a flood of low-cost RegD bids - often from batteries.
In Q1 2025, 97% of cleared RegD MW had an effective cost of $0 - either self-scheduled or zero-cost offers.
That’s because most batteries offer at $0 knowing they will clear and get paid at the higher, RegA-set clearing price.
Self-scheduled resources are price takers - guaranteed to clear, and insulated from lost opportunity cost. Many battery operators self-schedule in the Regulation market to lock in clearing and avoid energy market trade-offs.
What does this mean for batteries?
Batteries are the primary provider of RegD in PJM.
As of today, providing RegD pays more than RegA.
Part of that is higher mileage - and mileage drives performance payments.
The other part is a settlement quirk: PJM uses the marginal benefit factor (MBF) to clear the market, but pays RegD based on the mileage ratio.
To clarify again, MBF is a scaling factor that normalizes the system benefit of RegD relative to RegA.
The Market Monitor argues this inflates RegD’s payments relative to its actual contribution.
RegD’s mileage-based rate per effective MW is often far above RegA’s - in some months more than double.
However, this is not the amount operators take home.
Final RegD payouts are performance-adjusted. So the premium is smaller, yet meaningful for high-performing batteries.
This mismatch is a boon for battery revenues today.
What’s next: the market redesign
PJM is accounting for the mismatch between its two Regulation signals.
In October 2025, PJM will redesign the market - replacing RegA and RegD with a single, unified signal.
The redesign will flatten the RegD vs. RegA earnings gap. Next year, PJM will begin to implement two separate Regulation signals. This will split Regulation into an ‘Up’ and ‘Down’ service, akin to markets like ERCOT and CAISO.
Keep an eye out for Modo Energy’s upcoming article that will unpack what the new design looks like -and how it changes battery bidding and optimization strategy.
If you’re new to Modo Energy’s research, sign up for the Weekly Dispatch newsletter here to get all of the latest research delivered to your inbox every Friday.
