Flex Trading on Spot Markets
Flex trading refers to the trading of electrical power from flexibility assets on the power exchange. These assets include battery storage systems (BESS), biogas plants, or large flexible consumers.
Definition: What is Flex Trading?
'Flexibility' in this context means the short-term ability to inject power into, or withdraw it from, the grid at short notice. Flex trading - the commercialization of this flexibility - typically takes place on the spot markets - that is, with less than 36 hours before physical delivery.
The systemic importance of flexibility marketing becomes clear when you consider the role of spot markets: they are designed to compensate for deviations between planned and actual generation. Such deviations arise for a variety of reasons. The most common cause in recent years has been the inherent inaccuracy in forecasting weather-dependent generation from wind and solar plants.
On the spot market, supply and demand are matched through a multi-stage process, right up to five minutes before delivery. This happens via the trading and subsequent deployment of flexible generation or consumption at the time of delivery.
The key indicator for traders is the power price on the spot markets . Revenue can be generated simply by offering pure flexibility - without producing or consuming any energy. This is most apparent in the case of battery energy storage systems (BESS): aside from minor round-trip losses, their charge/discharge balance is neutral, since they neither generate nor consume electricity in the traditional sense. And yet, flex trading in the electricity market allows them to generate real revenue.
Beyond storage systems, flex trading can also be attractive for other asset types that can adjust their power output quickly and cost-effectively. Gas-fired power plants, for example, are often only profitable through flex trading due to their high marginal costs and position in the merit order, even though they actually generate power.
Certain electricity consumers can also provide flexibility: by purchasing electricity cheaply on the spot market and increasing consumption accordingly, they indirectly relieve pressure on the grid by absorbing surplus power. Conversely, when electricity is expensive at another point in time, flexible consumers can temporarily reduce their offtake. Any electricity they had previously purchased for that period can often be resold on the spot market at a higher price - effectively helping to prevent supply shortfalls. Their originally planned consumption can simply be shifted to an earlier or later time slot when prices are lower.
Flex trading becomes economically attractive for asset operators when traders actively use price movements in the short-term power markets. When prices rise, electricity can be sold or consumption reduced. When prices fall, electricity can be purchased at a lower price and consumption increased. This approach not only boosts revenue or reduces costs, it also lowers the risk exposure within a balance group (see the Balancing Energy section).
Throughout this article, we explain flex trading primarily through the lens of battery storage and its market participation. We also look at other ways flexibility can be monetised in the electricity system.
The most important facts about flex trading and battery storage at a glance:
What is flex trading in the electricity market?
Flex trading refers to short-term electricity trading on spot markets, using flexible generation and demand to respond to price fluctuations and capture additional revenue.
How can you earn money with battery storage in power trading?
Battery storage can charge when prices are low and discharge when prices are high. In addition to power trading, batteries can also provide balancing services as a system service.
What is the difference between balancing services and balancing energy?
Balancing services physically stabilise the grid. Balancing energy is the settlement mechanism through which the costs of these interventions are distributed among the responsible balance groups.
Why is intraday trading important for flexibility providers?
Intraday trading allows forecast deviations to be corrected almost up to physical delivery. This often results in high prices and attractive revenue opportunities for flexible assets such as battery storage.
What market segments exist in short-term flexibility trading?
The electricity spot market is divided into three sub-markets. They differ not only in the lead time between contract and delivery, but also in market design - particularly in how prices are formed:
Market Segment | Coverage | Hedging effect |
|---|---|---|
Day-Ahead Auction | 12 to 36 hours | Pay-as-Clear Auction |
Intraday Auction | 9 to 12 hours | Pay-as-Clear Auction |
Intraday Continiuos | A few hours to minutes | Bid-and-Ask (Continuous) |
Together, these market segments form a tiered, granular trading ecosystem within the power market: Day-Ahead lays the foundation, intraday auctions provide intermediate price signals, and the continuous intraday market enables flexible adjustments almost in real-time.
What are Day-Ahead auctions?
In Day-Ahead trading on the power exchange, electricity deliveries for the following day are bought and sold. Participants submit their bids by noon on the day before delivery. In a blind pay-as-clear auction, supply and demand curves are coupled and a single uniform market clearing price is determined for each quarter-hour delivery slot.
Crucially for flexibility trading, the resulting price applies equally to all market participants - regardless of whether the electricity comes from a wind farm, a gas plant, or a battery storage system, and regardless of whether it is consumed by households, an industrial facility, or used for storage.
The Day-Ahead auction sets a central price benchmark on the electricity spot market, around which participants align their trading strategies.
Until October 2025, deliveries were traded on an hourly basis. Since then, trading has shifted to quarter-hourly granularity. This change is part of an EU-wide harmonisation of spot market and balancing settlement intervals, based on EU Regulations (EU) 2019/943 and (EU) 2017/2195.
The finer granularity allows generators and consumers to plan their schedules more precisely and at an earlier stage. Battery storage operators can now factor in 96 instead of 24 price points per day when calculating Day-Ahead arbitrage revenues or balancing their portfolios.
A battery's dispatch schedule is planned so that it charges when electricity is cheap and discharges to sell it back at a higher price. The first charge of the day typically happens overnight. The first profitable discharge often occurs in the morning, roughly between 6 and 10 a.m., as these hours frequently see some of the highest prices of the day. Through effective flex trading, this cycle can often be repeated multiple times throughout the day.
What value do Intraday Auctions offer flexibility providers?
Just three hours after the Day-Ahead auction, the first intraday auction is held - at 3 p.m. on the day before delivery. The rationale is straightforward: the closer the delivery window, the more accurately market conditions can be forecast of real market conditions, thanks to improved weather data and consumption projections. Further intraday auctions follow at 10 p.m. on the evening of delivery, where the same delivery intervals are auctioned again. At 10 a.m. on the delivery day, the expected deviations for the 48 quarter-hour periods of the second half of the day are auctioned one final time. This three-auction structure (IDA1, IDA2, IDA3) has been standardised across Europe since the introduction of the Single Intraday Coupling (SIDC) in June 2024.
For flexibility asset providers, intraday auctions frequently offer the opportunity to optimise existing dispatch schedules and correct forecast errors.
For example, if a period of lower wind speeds shifts forward by an hour, wind power direct marketers need to rebalance their balance group positions to match the market conditions. This is precisely where flexibility providers step in - adapting physical power flows to match actual demand.
How does the Intraday Continuous market work?
The Intraday Continuous market does not operate through central auctions. Instead, it runs continuously from 3 p.m. on the day before delivery through to five minutes before delivery. Buyers and sellers trade electricity directly on the exchange at live market prices - much like securities on a stock exchange.
In Germany, balance responsible parties (BRPs) can typically place buy or sell orders for each quarter-hour up to five minutes before delivery - offloading surpluses, filling shortfalls, and thereby balancing their portfolios.
The continuous intraday market developed since 2010s alongside the rising share of renewable generation and has since been continuously expanded in Germany. Quarter-hour contracts have been available since 2011, introduced specifically to accommodate the variable output of wind and solar generation.
For BESS and other flexible assets, the continuous market is particularly valuable. It enables short-term forecast deviations to be balanced right down to the final minutes before delivery - often at highly favourable prices for flexibility providers.
Unlike the sDay-Ahead and Intraday auctions, there is no uniform pricing in continuous trading. Instead, prices follow a bid-ask logic. Each matched order in the order book sets a new price, similar to the way prices are formed on securities exchanges.
What role do balancing services play in flex trading?
Balancing services are not traded on the spot market but in separate auctions. Nevertheless, they are an important component of flexibility trading.
The provision of balancing services is a ancillary service that directly supports grid stability. It is called upon when balancing responsible parties (BRPs) are unable to balance their positions through the spot market alone resulting in short-term mismatches between generation and consumption that must be corrected through reserve activation to keep grid frequency stable at the standard 50 Hz.
Balancing services are activated by transmission system operators (TSOs). Providers must then deliver the requested amount of positive or negative balancing energy within seconds or minutes, depending on whether they are providing primary, secondary, or tertiary reserves known in the European context as FCR (Frequency Containment Reserve), aFRR (Automatic Frequency Restoration Reserve), and mFRR (Manual Frequency Restoration Reserve).
Activation of Primary, Secondary, and Minute Reserve
In the balancing services auctions, participants first bid for reserve balancing power - the availability of generation or consumption power. Separately, they also submit energy bids (activation prices) that apply if the reserve is actually called upon and physical energy is delivered or consumed. To participate in these auctions, providers must first complete a prequalification process.
This is part of why balancing services are typically treated as a supplementary revenue stream rather than the primary business case for flexibility trading. However, depending on the asset size, completing the prequalification process can be a worthwhile investment.
What role does balancing energy play in flex trading?
Balancing energy (Ausgleichsenergie) is not a traded product - it is a settlement mechanism in the electricity market through which the costs of balancing services activation are allocated. It quantifies and prices the imbalances within the portfolios of market participants known as balance responsible parties (BRPs).
What is a Balance Responsible Party (BRP)?
A Balance Responsible Party (BRP) is a market role in the electricity market. A BRP is responsible for keeping a balance group (essentially a virtual electricity account) in equilibrium on a quarter-hour basis.
BRPs are typically generators or their direct marketers, large consumers, or suppliers. As BRPs, they bear financial responsibility for ensuring that, in every 15-minute interval, the electricity they inject into the grid matches what they have sold - or, conversely, that what they withdraw matches what they have purchased. If they fail to achieve this, they must bear the resulting costs, which are calculated via the balancing energy mechanism.
The moment a BRP is unable to balance their position, they create a potential demand for balancing services. In the best case, all deviations cancel each other out across the relevant control zone, meaning no reserve energy needs to be called upon. In practice, however, this rarely happens - it is more a question of how large the deviations turn out to be.
The larger the deviation, the more balancing energy must be activated in addition to thebalancing payments. This tends to drive up the imbalance price (reBAP), making it increasingly costly for BRP.
Through the balance group and balancing energy system, grid operators track the size of each BRP's deviations and determine who is responsible for what share of the balancing services costs. These costs are distributed proportionally based on the magnitude of the imbalances created.
In this way, the balance group and balancing energy system does more than just ensure fair cost allocation. It also gives BRPs a strong financial incentive to minimise forecast deviations early - ideally by trading them out on the spot market.
This, in turn, has a significant influence on flex trading. On one hand, even BRPs operating battery storage assets face some risk of incurring balancing energy charges if their trading strategy does not work out as planned.
On the other hand, the balancing energy system also creates significant opportunities - particularly in the continuous intraday market. Since BRPs are keen to avoid the potentially very high costs of balancing energy, they are often willing to pay comparatively high last-minute prices, creating attractive trading opportunities for flexible assets.
What is Cross-Market optimisation?
Cross-market optimisation - also known as value stacking - is a business strategy in which a single asset is used to generate revenue from multiple sources simultaneously. Flexibility assets are ideally commercialised using a cross-market or multi-market strategy. Battery storage and other flex assets can be deployed across all three spot market segments as well as for ancillary services.
In this framework, Day-Ahead and intraday markets typically form the primary revenue base, especially for battery storage. The provision of balancing services (for BESS: primarily FCR or aFRR) is generally treated as a complementary revenue stream, activated on days when spot market price spreads are forecast to be too narrow to generate attractive arbitrage returns.
Deploying the same flexible asset simultaneously in the spot market and in the balancing services market is only permissible if the available power is clearly allocated and properly ring-fenced both contractually and technically. The reserved power must remain available throughout the entire contracted period.
Cross-market optimisation therefore comes down to making the right daily assessment of revenue opportunities and allocating available balancing power accordingly across different markets. The aim is to maximise the return on investment (ROI) of the asset and to shorten the payback period.
This is the essence of optimal flexibility trading. By combining and prioritising the best market opportunities available, total revenues can be significantly increased and the economics of the storage investment materially improved.
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What revenue models exist in flex trading?
Asset operators, particularly battery storage operators, typically delegate flexibility marketing to a specialised direct marketer. For this reason, the choice of revenue model plays a central role in managing the financial risk of their investment.
Three models are commonly used:
The trade-offs between these models are straightforward - it is ultimately a question of risk versus reward. Investors with a high proportion of debt financing will typically favour the tolling model to keep capital costs predictable. Those who are willing and able to take on more risk will gravitate towards a model with greater upside potential.
Conclusion: Professional Flex Trading for Maximum ROI
Professional flex trading in the power market makes it possible to turn price volatility into revenue, reduce balance group risk, and unlock additional income streams. By acting on short-term price and liquidity signals in the spot market, market participants can minimise forecast deviations, balance their positions, and effectively monetise their flexibility.
As the share of renewables in the energy mix continues to grow, so does the need for battery storage as a flexibility solution. Thanks to professional traders, battery storage is becoming an increasingly attractive investment opportunity - not just for energy sector players, but for investors from other industries as well.
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