Batteries as market participants.
For most of electricity's history, the fundamental constraint on power markets was the impossibility of economical storage. Electricity had to be consumed the instant it was produced. Grid operators had to maintain spinning reserves, dispatch generators moment-to-moment, and use expensive combustion turbines for the brief periods of extreme demand — all because there was no practical way to store excess energy from wind-sunny afternoons for use during calm, cloudy evenings.
Battery storage has changed this equation, with stunning speed. The cost of lithium-ion battery storage fell by over 90% between 2010 and 2023. Projects that would have cost $1,000/kWh a decade ago now cost under $150/kWh. And costs are still falling.
In electricity markets, a battery storage system occupies a unique position: it can act as both a generator (charging is a load, discharging earns energy revenue) and a load (charging consumes power during low-price periods). This flexibility makes batteries uniquely valuable across multiple revenue streams:
Energy arbitrage: Charge when prices are low (often during the middle of the day with high solar). Discharge when prices are high (typically morning and evening peaks). The revenue is the spread between charge and discharge prices.
Frequency regulation: Batteries respond to frequency deviations in milliseconds — far faster than any thermal generator. RTOs pay a premium for fast-responding regulation resources. Battery storage has become the dominant provider of frequency regulation in many markets.
Capacity: In capacity markets, battery storage can bid as a capacity resource, providing the commitment to be available during peak periods. A 4-hour battery providing 100 MW of peak capacity is worth the same as any other 100 MW resource from the grid's perspective.
Transmission deferral: A battery sited at a congested point on the transmission grid can reduce the need for costly transmission upgrades by absorbing power during low-load periods and releasing it during high-load periods.
Integrating storage into electricity markets has required significant market rule changes. How do you determine a battery's "offer price"? How do you handle the state of charge as an operational constraint? How do you credit a battery for services provided across multiple products simultaneously?
FERC Order 841 (2018) directed RTOs to remove barriers to storage participation in wholesale markets. RTOs developed new participation models for storage, enabling batteries to bid into energy, ancillary services, and capacity markets on equal terms with other resources.
The result has been explosive growth. The United States added more battery storage capacity in 2023 than in all prior years combined. The grid is no longer constrained to consume what it produces in real time — at least at the margins.
December 11, 2020, Moss Landing, California. Vistra Corporation's Moss Landing Energy Storage Facility begins commercial operation — the world's largest battery storage system at the time, at 300 MW / 1,200 MWh of lithium-ion capacity. The facility was built on the site of a retired gas-fired power plant on Monterey Bay. Vistra announced it could discharge enough electricity to power approximately 225,000 homes for four hours. A Phase 2 expansion brought total capacity to 400 MW / 1,600 MWh by August 2021.