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Originally published in Energy Storage News by April Bonner | February 24, 2025
Using battery energy storage systems (BESS) to provide ancillary services has not only been a popular use, but one that has been historically profitable, especially in the ERCOT market. Energy software and consulting group Ascend Analytics CEO Dr. Gary Dorris PhD discusses changes to ancillary services in the Electric Reliability Council of Texas (ERCOT) market and what asset optimizers need to do to stay ahead of the curve.
Ancillary services ensure the reliable and secure transmission of electricity by controlling system frequency, balancing supply and demand, and supporting system recovery. In Texas, ERCOT purchases ancillary services in the day-ahead market, which can be provided by generators or consumers to adjust electricity supply within seconds. ERCOT sets the minimum required amount, and resources selected in the auction are paid the clearing price for that service. Payments are made by load-serving entities like retail electric providers and utilities.
Using BESS to provide ancillary services has not only been a popular use but also historically profitable, especially in the ERCOT market. Ascend Analytics recently hosted a webinar highlighting its optimization software, SmartBidder, which the company says “consistently delivers 50%+ more revenues than BESS projects in ERCOT and CAISO.”
Dorris highlighted the changes to providing ancillary services when speaking about SmartBidder: “At Ascend, we provide software and data solutions to help understand the energy transition. Ancillary services play a crucial role in maintaining system balance, especially as we integrate more renewables into the grid. Initially, we didn’t think much about ancillaries; they were like the cream in coffee—not central to the conversation. But as the market grew, ancillary services became essential, carrying market prices and reflecting the cost of integrating renewables into the system.”
Dorris continued, “Ancillaries maintain system balance, which is vital for keeping frequency steady. In the US, the standard is 60 hertz (Hz), while in the UK, it’s 50 Hz. In Japan, it’s split between 50 and 60 Hz. The role of contingent reserves is especially important—they’re there for when things go wrong, like thermal outages or transmission issues. With the increase of renewables, we now have to consider the variability they bring into the system, adding complexity to our reserves.”
In recent years, the ERCOT market has started to experience some market saturation within energy storage. In a presentation at Solar Media’s Energy Storage Summit USA in Austin in March 2023, Modo Energy suggested that market saturation would start to hit in May 2024 as the BESS buildout exceeded the ancillary service market size.
Dorris explains what markets look like with and without saturation, noting that a saturated market does not equate to ancillary service prices going to zero. Rather, it adds some complications to the market that buyers and sellers alike will have to reason with. “In the US, energy prices are set in five-minute intervals. We regulate small, frequent adjustments in energy quantities, typically under five minutes. This ensures that the system stays balanced and avoids large fluctuations. If you’re operating a battery, you’re charging and discharging in a balanced manner, often with as much energy going up as going down. Over time, this regulation helps keep the system running at a steady frequency.”
Dorris further explained, “Extreme weather events, such as an arctic blast, can stress the system. When the weather turns cold, natural gas prices spike, and unit outages increase. These conditions raise the demand for reserves. In markets like Texas and California, we have enough storage to meet ancillary service requirements. But with saturation, ancillary service prices align more with energy prices. This creates an economic balance—meaning the opportunity cost of being in energy versus ancillaries is equalized.”
He continued, “When markets saturate, ancillary service prices don’t drop to zero, but they become more stable. You get to a point where energy and ancillary services are economically indifferent, which reduces the potential for large revenue differences. Still, there will be volatility in both energy and ancillary prices due to the growing share of renewables, which brings more volatility into the market.”
Maximizing profits in both wholesale and ancillary markets is no small task. Multiple companies, including AI-enabled optimizer GridBeyond, have shared the successes of using optimization software to help create a powerful bidding strategy.
Ascend Analytics’ SmartBidder uses AI forecasts of market conditions and bid optimization agents to increase BESS profitability in day-ahead and real-time markets. Dorris stated, “ERCOT is under a lot of scrutiny because it doesn’t have a capacity market to buffer against volatility. In the past, ancillary services were a major revenue source, especially with storage assets. However, with the saturation of the market, particularly with low-marginal-cost resources like batteries, we’ve reached a point where ancillary service prices have become more stable. This means you no longer make the same level of profit from ancillary services.”
“However, the potential introduction of co-optimization in real-time markets could improve efficiency and slightly lower prices for both energy and ancillary services. These changes will be relatively small, like the shift from open-pit to electronic trading on the New York Stock Exchange—improvements in efficiency, but not massive price drops.”
In the UK, or rather specifically Great Britain (GB), the ancillary service market became saturated relatively quickly. While the energy storage markets are different in the US and the UK, seeing what has happened elsewhere could provide some insight into the future of the US market.
In October 2023, Energy-Storage.news heard from industry sources that while some saturation of the GB ancillary services markets was expected to start in 2023, the resulting drop in revenues had been sharper than most had anticipated. Ancillary services had comprised the bulk of activity and revenues for BESS assets since the market opened in 2016.
In 2024, average revenues for the Gresham House Energy Storage Fund in GB doubled from February to April. Revenues improved thanks to the launch of a new ancillary service, the Balancing Reserve (BR), transmission system operator (TSO) National Grid ESO increasing the use of BESS in the Balancing Market (BM), and improvements in wholesale market energy trading opportunities.
Dorris commented, “The UK, like most of Europe, has less storage capacity relative to load compared to the US and California. This means the UK is a bit behind in terms of saturation. However, we are seeing similar trends: as the market saturates, ancillary service prices will fall, and there will be economic indifference between energy and ancillary services.”
“The key difference is that in saturated markets, there needs to be enough revenue from energy alone to justify new storage entries. If ancillary service prices fall too much, fewer storage units will be built, which could lead to shortages and increased energy price volatility. This volatility in energy prices can push ancillary service prices up again, creating a cyclical pattern.”
The energy storage market continues to grow in Texas, as the population continues to expand and large companies such as Tesla, Oracle, and Hewlett Packard continue to move into the state. Along with an increasing population, rising energy demands from AI and data centers mean that energy storage is crucially needed in the state.
Writing for Energy-Storage.news, William Derasmo, partner at US law firm Troutman Pepper Locke, highlighted the need to secure 24/7 dispatchable clean energy to prepare the grid for the demands of the hyperscale data center boom and how grid-scale storage could play a key role.
Dorris concluded, “The energy market is cyclical. We will go through periods of both excess capacity and shortages. Given the rapid changes in electrification, onshoring, and the current political environment in the US, we expect more load growth, especially with new industries like data centers coming online. This will drive both energy and ancillary services market expansion.”
“However, it’s important to note that as we transition through this energy shift, we may face some bumps—unexpected shortages or volatility as the system adapts to these structural changes. It’s hard to imagine a market undergoing such transformation without some challenges along the way, but these bumps are part of the transition.”
Originally published in Energy Storage News by April Bonner | February 24, 2025
Using battery energy storage systems (BESS) to provide ancillary services has not only been a popular use, but one that has been historically profitable, especially in the ERCOT market. Energy software and consulting group Ascend Analytics CEO Dr. Gary Dorris PhD discusses changes to ancillary services in the Electric Reliability Council of Texas (ERCOT) market and what asset optimizers need to do to stay ahead of the curve.
Ancillary services ensure the reliable and secure transmission of electricity by controlling system frequency, balancing supply and demand, and supporting system recovery. In Texas, ERCOT purchases ancillary services in the day-ahead market, which can be provided by generators or consumers to adjust electricity supply within seconds. ERCOT sets the minimum required amount, and resources selected in the auction are paid the clearing price for that service. Payments are made by load-serving entities like retail electric providers and utilities.
Using BESS to provide ancillary services has not only been a popular use but also historically profitable, especially in the ERCOT market. Ascend Analytics recently hosted a webinar highlighting its optimization software, SmartBidder, which the company says “consistently delivers 50%+ more revenues than BESS projects in ERCOT and CAISO.”
Dorris highlighted the changes to providing ancillary services when speaking about SmartBidder: “At Ascend, we provide software and data solutions to help understand the energy transition. Ancillary services play a crucial role in maintaining system balance, especially as we integrate more renewables into the grid. Initially, we didn’t think much about ancillaries; they were like the cream in coffee—not central to the conversation. But as the market grew, ancillary services became essential, carrying market prices and reflecting the cost of integrating renewables into the system.”
Dorris continued, “Ancillaries maintain system balance, which is vital for keeping frequency steady. In the US, the standard is 60 hertz (Hz), while in the UK, it’s 50 Hz. In Japan, it’s split between 50 and 60 Hz. The role of contingent reserves is especially important—they’re there for when things go wrong, like thermal outages or transmission issues. With the increase of renewables, we now have to consider the variability they bring into the system, adding complexity to our reserves.”
In recent years, the ERCOT market has started to experience some market saturation within energy storage. In a presentation at Solar Media’s Energy Storage Summit USA in Austin in March 2023, Modo Energy suggested that market saturation would start to hit in May 2024 as the BESS buildout exceeded the ancillary service market size.
Dorris explains what markets look like with and without saturation, noting that a saturated market does not equate to ancillary service prices going to zero. Rather, it adds some complications to the market that buyers and sellers alike will have to reason with. “In the US, energy prices are set in five-minute intervals. We regulate small, frequent adjustments in energy quantities, typically under five minutes. This ensures that the system stays balanced and avoids large fluctuations. If you’re operating a battery, you’re charging and discharging in a balanced manner, often with as much energy going up as going down. Over time, this regulation helps keep the system running at a steady frequency.”
Dorris further explained, “Extreme weather events, such as an arctic blast, can stress the system. When the weather turns cold, natural gas prices spike, and unit outages increase. These conditions raise the demand for reserves. In markets like Texas and California, we have enough storage to meet ancillary service requirements. But with saturation, ancillary service prices align more with energy prices. This creates an economic balance—meaning the opportunity cost of being in energy versus ancillaries is equalized.”
He continued, “When markets saturate, ancillary service prices don’t drop to zero, but they become more stable. You get to a point where energy and ancillary services are economically indifferent, which reduces the potential for large revenue differences. Still, there will be volatility in both energy and ancillary prices due to the growing share of renewables, which brings more volatility into the market.”
Maximizing profits in both wholesale and ancillary markets is no small task. Multiple companies, including AI-enabled optimizer GridBeyond, have shared the successes of using optimization software to help create a powerful bidding strategy.
Ascend Analytics’ SmartBidder uses AI forecasts of market conditions and bid optimization agents to increase BESS profitability in day-ahead and real-time markets. Dorris stated, “ERCOT is under a lot of scrutiny because it doesn’t have a capacity market to buffer against volatility. In the past, ancillary services were a major revenue source, especially with storage assets. However, with the saturation of the market, particularly with low-marginal-cost resources like batteries, we’ve reached a point where ancillary service prices have become more stable. This means you no longer make the same level of profit from ancillary services.”
“However, the potential introduction of co-optimization in real-time markets could improve efficiency and slightly lower prices for both energy and ancillary services. These changes will be relatively small, like the shift from open-pit to electronic trading on the New York Stock Exchange—improvements in efficiency, but not massive price drops.”
In the UK, or rather specifically Great Britain (GB), the ancillary service market became saturated relatively quickly. While the energy storage markets are different in the US and the UK, seeing what has happened elsewhere could provide some insight into the future of the US market.
In October 2023, Energy-Storage.news heard from industry sources that while some saturation of the GB ancillary services markets was expected to start in 2023, the resulting drop in revenues had been sharper than most had anticipated. Ancillary services had comprised the bulk of activity and revenues for BESS assets since the market opened in 2016.
In 2024, average revenues for the Gresham House Energy Storage Fund in GB doubled from February to April. Revenues improved thanks to the launch of a new ancillary service, the Balancing Reserve (BR), transmission system operator (TSO) National Grid ESO increasing the use of BESS in the Balancing Market (BM), and improvements in wholesale market energy trading opportunities.
Dorris commented, “The UK, like most of Europe, has less storage capacity relative to load compared to the US and California. This means the UK is a bit behind in terms of saturation. However, we are seeing similar trends: as the market saturates, ancillary service prices will fall, and there will be economic indifference between energy and ancillary services.”
“The key difference is that in saturated markets, there needs to be enough revenue from energy alone to justify new storage entries. If ancillary service prices fall too much, fewer storage units will be built, which could lead to shortages and increased energy price volatility. This volatility in energy prices can push ancillary service prices up again, creating a cyclical pattern.”
The energy storage market continues to grow in Texas, as the population continues to expand and large companies such as Tesla, Oracle, and Hewlett Packard continue to move into the state. Along with an increasing population, rising energy demands from AI and data centers mean that energy storage is crucially needed in the state.
Writing for Energy-Storage.news, William Derasmo, partner at US law firm Troutman Pepper Locke, highlighted the need to secure 24/7 dispatchable clean energy to prepare the grid for the demands of the hyperscale data center boom and how grid-scale storage could play a key role.
Dorris concluded, “The energy market is cyclical. We will go through periods of both excess capacity and shortages. Given the rapid changes in electrification, onshoring, and the current political environment in the US, we expect more load growth, especially with new industries like data centers coming online. This will drive both energy and ancillary services market expansion.”
“However, it’s important to note that as we transition through this energy shift, we may face some bumps—unexpected shortages or volatility as the system adapts to these structural changes. It’s hard to imagine a market undergoing such transformation without some challenges along the way, but these bumps are part of the transition.”
Ascend Analytics is the leading provider of market intelligence and analytics solutions for the energy transition. The company’s offerings enable decision makers in power supply, procurement, and investment markets to plan, operate, monetize, and manage risk across any energy asset portfolio. From real-time to 30-year horizons, their forecasts and insights are at the foundation of over $50 billion in project financing assessments. Ascend provides energy market stakeholders with the clarity and confidence to successfully navigate the rapidly shifting energy landscape.
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