Batteries in Ancillary Markets

Batteries are mediocre energy producers (4 hours of discharge) but exceptional ancillary service providers. A battery can follow a regulation signal with 95%+ accuracy in milliseconds. A gas turbine manages 60-70% accuracy with a response time measured in seconds. This performance gap is reshaping ancillary service markets.

In PJM's regulation market, batteries captured 28% of settled regulation by 2023, up from 25.4% in 2022, despite representing a small fraction of total generation. The reason: PJM's pay-for-performance structure rewards accuracy and speed. Batteries earn 1.5-2x the payment per MW compared to gas units because they follow the regulation signal more precisely. A 50 MW battery earning $15/MW-hour in regulation revenue generates roughly $6.5 million per year from regulation alone, often more than it earns from energy arbitrage.

Revenue concentration risk. As more batteries enter regulation markets, the clearing price drops. Battery regulation revenue in PJM fell roughly 50%, from $67.7 million in 2022 to $33.7 million in 2023, even as battery participation grew. Batteries that built their business case on regulation revenue face margin compression.

Will batteries eventually dominate all ancillary service markets?

Regulation and fast frequency response, yes. Longer-duration services, not yet. Batteries excel where speed and precision matter (regulation, primary frequency response). For spinning reserves requiring sustained output over 30+ minutes or operating reserves requiring 60+ minutes, current 4-hour batteries can participate but face duration constraints. The market is segmenting: batteries dominate fast services while gas and hydro retain advantage in longer-duration reserves.

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