The complicated business of BESS

Posted: June 16, 2026

Think tank Ember Energy calls batteries “the ultimate multitool of the energy transition.” They help keep the system stable, resolve minute-to-minute supply and demand mismatches and, when needed, provide emergency support to the grid.

But while the characterization might capture grid batteries’ usefulness, it also belies their operational complexity. Battery energy storage systems (BESS) are uniquely hard to categorize among industrial assets.

Within the grid, their ability to dispatch power, both for consumption and to stabilize the system, sees them fulfil the same function as thermal power plants. But BESS don’t generate any power themselves—they simply store and discharge it. The analogy isn’t perfect. 

Are they, then, better understood as a form of commodity storage, akin to a grain silo or crude tank? Ember itself has argued as much, calling batteries “silos for sunshine.” Yet that analogy also feels incomplete. Given how they buy and sell electricity at a second’s notice, doing so based on vast amounts of data and sophisticated algorithms, one could argue they don’t so much resemble grain silos as they do quantitative hedge funds. 

So what exactly are BESS? And what might they become in the future? 

The different ways BESS make money 

In literal terms, BESS are fleets of large batteries (usually lithium iron phosphate), connected to the grid. Sometimes they are built on the same sites as solar or wind farms, but don’t share a grid connection; sometimes they are hooked directly up to those renewables.

It is more common, however, for BESS to exist as independent assets, neither co-located nor coupled with renewables. In Benchmark’s global BESS database, 51% of the 10,000+ projects are standalone. 

For merchants looking to enter or expand into the BESS market, the big-picture trends are enticing: the energy transition looks unlikely to go into reverse; battery cell technology is becoming cheaper and better; and data centers are driving massive demand growth for electricity. 

Making money from BESS, however, is not as straightforward as it sounds. When asked by a guest on his podcast about the industry’s pain points, Modo Energy’s Ed Porter was blunt: “often it’s revenue.”  

He continues: “For example, in the U.K., people get obsessed with the connections queue and this rush to get stuff connected. But the reality is that once you get it connected, is it actually going to make the money that you thought it would?” 

One might assume that the profitability of BESS can be modelled quite easily, based on the wealth of historical data and forecasts about the supply and demand of electricity. As Porter’s question suggests, however, revenue can be hard to predict precisely. 

That’s because BESS have more than one way of making (and losing) money. Just as they can be conceptualized in three different ways—alternatively as power plant, storage silo or hedge fund—BESS have three loosely corresponding revenue streams. 

The first stream consists of so-called ancillary services. This revenue stream comes not from selling or storing electricity per se, but by making available the grid-stabilizing potential of BESS to system operators. If a system issue occurs (like a drop in frequency), batteries can be quickly discharged to restore balance. This sees BESS acting, and earning, like thermal power plants. 

The second comes in the form of capacity markets. BESS earn money in these by making capacity available at a given future date, often years in advance. Regardless of whether the capacity is ever used, BESS get a fixed payment per megawatt per year, the price of which is determined by auctions in which BESS compete alongside other assets for slots. Because there are so few capacity events (i.e., when the capacity of back-up generators is actually needed), BESS are effectively being paid to store electricity.  

Finally, and most significantly, there is arbitrage: buying electricity when prices are low and then selling it on wholesale markets when prices are high. This trading is not performed manually; it’s done algorithmically and often at high frequency, similarly to how hedge funds operate in the stock market.

The current importance of arbitrage 

“Every major market follows the same evolution,” writes Modo’s Neil Weaver. “Markets tend to start ancillary-dominated. As more batteries enter, those services saturate and operators lean more heavily on energy arbitrage.” Capacity markets, he notes, “supplement arbitrage rather than replace it.” 

The importance of canny arbitrage can hardly be overstated. Per Modo’s data, in Texas’s lightly-regulated ERCOT power market, “the 10 highest-revenue days delivered 38% of its annual battery revenue in 2024, and the two biggest days each cleared over $1.7m/MW-yr on an annualized basis against a calm-day baseline under $20k.” 

BESS are physical assets. As such, their economic viability is tied to things like uptime, the cost of capital and the lifespan and efficiency of equipment. Yet, once built, they are required to make most of their money by behaving like commodity traders. While there are precedents of a single organization both running industrial assets and trading in commodities (Glencore being a multi-billion-dollar example), these remain two very different practices, requiring very different skills.  

The long view: towards BESS as power plant 

For an arbitrage business like BESS, the more volatility, the better—because the more stable the price of electricity, the harder it is to make money. But, as Ember’s Daan Walter argues in a thought-provoking essay, prices will likely become less volatile over the long term: 

Many of today’s electricity markets trade in hourly and 15-minute intervals. That structure exists not due to preference but by necessity—supply and demand must match instantly because storage has long been scarce. As storage expands, that constraint will ease. 

Walter predicts that the build-out of electricity storage will eventually result in markets that clear across days and weeks, and as long-duration storage technology improves, the cycles of the market will come to resemble “today’s gas or grain markets more than the electricity systems of the past.” 

If electricity and grain markets come to resemble one another, that would turn BESS from proto-hedgies into simple storage silos—bad news for all the merchants currently relying on arbitrage. But there is another path. 

The most fruitful, long-term future for BESS—both for the grid and merchants—might be found in the third paradigm for understanding them: the power plant. In this future, BESS would largely cease to exist as standalone operations, becoming instead extensions of renewable assets. 

For grid operators, the coupling of BESS and renewables would resemble an old-fashioned thermal power plant: they would be capable of feeding as much or as little power into the grid as the system required. The BESS-and-renewables combo would also reduce curtailment, as many renewable assets would be able to store their excess production for later use. 

For the owners and operators of renewable assets, the addition of BESS would allow them to wring the most possible value from their precious grid connections. Being able to store their electricity would also allow them to do a little hedging of their own. 

Power plant. Storage silo. Hedge fund. Whatever BESS are, whatever they become, they’re here to stay: since 2020, the CAGR of sales, measured in gigawatt-hours, has been 94%.