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Battery Energy Storage Systems (BESS) provide operators with multiple avenues to generate revenue. These systems are not limited to a single function but can capitalise on various market opportunities, making them highly versatile investments. From energy arbitrage – where batteries buy electricity at low prices and sell it during peak demand – to ancillary services that stabilise the grid, and capacity payments for ensuring power availability, BESS projects offer diverse revenue streams. This kind of ‘revenue stacking’, where operators combine multiple income sources from a single asset, has become important to maximising returns on BESS investments.
As renewable energy integration increases, so do the opportunities for BESS to maximise profits through price volatility and advanced trading strategies. The ability to dynamically shift between these different revenue models – sometimes within the same day – positions BESS as a critical player in the evolving electricity markets.
How do you generate revenue with a BESS project?
Each of the three main ways that BESS generates revenue offers distinct opportunities to monetize investments.
Energy arbitrage
The primary revenue stream for BESS projects comes from price arbitrage – buying electricity when prices are low and selling it when prices are high. The strategy is straightforward: charge when prices are low and discharge when prices are high. The most profitable times to charge batteries are typically during off-peak hours (often between 2:00-5:00 AM) and discharge during peak demand periods (usually around 7:00-8:00 PM).
This allows BESS operators to capture the maximum price differential in electricity markets. The profitability of this strategy varies significantly by market. Arbitrage is particularly profitable in Germany due to high price volatility in the energy market and Germany’s supportive regulatory framework. The German Renewable Energy Sources Act encourages energy storage participation, making it easier for battery systems to capitalise on price differentials
With increasing renewable energy integration, price volatility in day-ahead markets has grown, creating more opportunities for profitable arbitrage operations. These price swings, driven by the variable nature of wind and solar generation, can create significant profit potential for well-positioned BESS projects. This effect is particularly evident in markets with high renewable penetration. For example, Denmark, Luxembourg, and Lithuania (with 52.8%, 42.4%, and 39.8% wind and solar share respectively) experience significant price variations, creating more potential arbitrage opportunities for BESS operations.
Ancillary services
Ancillary services provide another revenue stream, where BESS operators support grid stability through frequency regulation, voltage control, and spinning reserves. These services become increasingly valuable as power systems accommodate more renewable energy. In addition to contracting with grid operators for these services, balancing energy from automatic Frequency Restoration Reserves (aFRR) can also be traded across borders via platforms like PICASSO.
However, mature markets, such as France, are showing clear signs of saturation, according to the Oxford Energy Forum article Powering the Future. While once highly profitable, ancillary service revenues have fallen more sharply than expected in 2023, making it no longer viable for operators to rely solely on these markets.
Capacity payments
Capacity payments can also provide revenue in markets where operators are compensated for guaranteeing power availability during high-demand periods or grid stress. Some markets also offer government incentives or subsidies for energy storage deployment, adding another potential revenue layer.
BESS is already playing a critical role in capacity markets, with several EU member states allowing energy storage to compete alongside conventional generation sources. Countries like Italy and Poland have seen capacity markets unlock large-scale battery storage, with contracts awarded based on cost-effectiveness.
Recent capacity market auctions have shown strong momentum for battery energy storage systems (BESS) in European markets. In Belgium’s latest Capacity Remuneration Mechanism (CRM), BESS projects dominated new capacity awards, securing 350MW across 13 projects and bringing total BESS contracts to 1.1GW. Similarly, Italy’s recent capacity market results reflected this trend, with BESS projects winning over half of new contracts (89MW out of 174MW), spread across three projects with durations of 2-3 hours in different market zones.
Among these revenue streams, energy arbitrage has emerged as the most scalable opportunity for BESS operators. While ancillary services can provide steady income, these markets are often capacity-limited and showing signs of saturation. In contrast, arbitrage operates in an open market where opportunities scale with price volatility and market dynamics. This explains why arbitrage currently accounts for 60% of installed storage systems’ activity. Understanding the key performance factors that drive successful arbitrage operations therefore becomes crucial for BESS project development.
Performance factors for arbitrage operations
Availability
Availability planning becomes crucial – operators must balance maximizing arbitrage opportunities against maintaining reserve capacity for grid services and managing battery degradation over the project’s lifetime.
Duration
The duration of a BESS system – how many hours it can discharge at rated power – significantly impacts arbitrage potential. Research shows optimal returns typically require 4-6 hour systems, as these can capture the full evening price peaks while maintaining operational flexibility. Shorter duration systems miss opportunities during extended high-price periods, while systems beyond 6 hours face diminishing returns against their higher capital costs.
Location
Market location proves to be a determining success factor for arbitrage operations. The most profitable European markets consistently show two characteristics: high intraday price volatility and sufficient market liquidity to execute trades. According to a 2023 report, markets with significant renewable penetration tend to create more arbitrage opportunities – Romania, Finland, and the Baltic states achieve over 300 profitable cycles annually, while others manage fewer than 100 despite higher average prices.
Timing
While traditional arbitrage focused on overnight charging and evening discharge, markets with significant solar capacity now often present midday charging opportunities as prices drop during peak generation. Success may depend on advanced trading algorithms that can find and take advantage of the best price differences while considering energy losses during charging and discharging. But, as we discuss next, high electricity prices alone don’t guarantee better returns for BESS projects. The key driver is actually price volatility within each day.
Price volatility drives higher returns
The success of a BESS project in energy arbitrage depends more on the size of price differences during each day than on how high the average prices are. What matters is how much prices swing up and down within a single day; how many buy-low, sell-high opportunities there are.
Energy trading in day-ahead and intraday markets plays a crucial role in creating these opportunities. In the day-ahead market, participants forecast and trade electricity for the next day, locking in prices based on expected supply and demand. However, unexpected changes can occur, leading to price fluctuations. In the intradaymarket, positions can be adjusted closer to real time, responding to unforeseen changes in demand or renewable generation.
For example, Spain’s market had some of Europe’s highest average electricity prices in 2022, but supported only 58 profitable trading cycles because prices remained relatively flat throughout each day. In contrast, markets like Romania, Finland, and the Baltic states saw frequent price swings within each 24-hour period, enabling over 300 profitable cycles annually. Their success comes from combining substantial price differences between peak and off-peak hours with consistent day-to-day trading opportunities.
In short, the most successful BESS markets tend to have both high prices and significant intraday price variations.
Will arbitrage or grid services lead the way?
As we move to longer-duration storage and 100% renewable energy goals, which revenue model may become dominant? Will these systems continue to serve as primarily grid-balancing workhorses?
The traditional playbook of parking batteries in the frequency response market and watching the revenues roll in may not serve for much longer. According to a 2024 Energy Storage Report published by Energy Storage News, optimization firms are already adapting to this new reality, developing sophisticated trading strategies that can navigate multiple revenue streams simultaneously. The maths on this is fairly simple – when any single market becomes saturated, returns diminish, pushing operators to seek new opportunities.
Energy arbitrage already commands a 60% share of installed storage systems’ activity, and that number is trending upward. Yet, at the same time, we’re seeing new grid service models emerge. Germany’s “Grid Boosters” program, for example, positions batteries to mimic transmission line capacity, potentially eliminating the need for expensive backup infrastructure. This kind of dual-purpose thinking suggests that the future might not be an either/or scenario between arbitrage and grid services.
Winners in this evolving landscape will likely be those who maintain maximum flexibility. The ability to quickly shift between arbitrage opportunities and grid services – sometimes within the same day – could become the key to maximising battery storage value. Rather than betting everything on a single revenue stream, the trend points toward a more nuanced approach where batteries play multiple roles in our grid ecosystem.
The evidence suggests that European BESS projects that rely on single-revenue models are seeing diminishing returns, while those embracing operational flexibility across multiple revenue streams are pulling ahead. Versatile revenue stacking like this is becoming a requirement for success.
