What is Value Stacking in Battery Energy Storage?

Definition

Value Stacking refers to a business strategy in which a single asset is used to generate multiple revenue streams. The goal of the strategy is to increase return on investment (ROI) and shorten the amortisation period of the asset. The concept is used across several industries.

For power-generating or energy-storing assets, Value Stacking is particularly relevant because these assets can participate alternately in various market. This principle is also known as multi‑market, cross‑market, or X‑market optimization.

Which Markets exist for Battery Storage in Germany?

Battery Energy Storage Systems (BESS) are eligible to participate in several markets. Foremost among these is the wholesale power market at power exchanges. However, due to their high flexibility, batteries can also provide various ancillary services that are essential for a secure and smooth grid operation. In addition, commercial and industrial customers can use BESS to store their self-generated power.

Battery Storage in the Wholesale Power Market

Around three-quarters of the power consumed in Germany is traded over-the-counter (OTC), i.e., in bilateral transactions between producers and traders or traders and consumers. However, a significant volume is still traded on the exchange. In 2024 alone, 868 terawatt-hours (TWh) were traded on the spot market of the European power exchange EPEX. While the comparison may be misleading, as many megawatt-hours change "ownership" multiple times before being physically produced and consumed, this figure is more than double Germany's power consumption in the same year.

In the wholesale power market, battery storage systems can generate profits through arbitrage trading. In this process, power is purchased and stored during times of low prices, only to be sold and injected into the grid when prices are higher. This type of trading strategy takes advantage of the volatility in short-term power prices on the short-term wholesale market (spot markets).

Futures Market 

The futures market is not suitable for arbitrage trading with BESS for two main reasons: First, long-term trading through futures contracts is far less volatile than the spot market, eliminating attractive price differentials (spreads). Second, trading frequency is too low. A major advantage of battery storage systems is their ability to charge and discharge almost unlimited times. The more often this flexibility is used, the higher the potential revenue.

By contrast, the various spot markets (Day-Ahead Auctions, Intraday Auctions, and Continuous Intraday trading) offer particularly attractive opportunities for BESS.

Day-Ahead Market

In the Day-Ahead Auctions, power producers and consumers submit bids for each 15-minute intervall of the following day by 12 noon. An algorithm determines the market clearing price for every 15 minutes based on aggregated supply and demand. Bids are accepted in ascending order until total demand is covered; the clearing price then applies to all accepted offers under the uniform pricing mechanism.

This auction process ensures that power supply for the following day is largely arranged and secured.

Intraday Auctions

Intraday auctions take place three hours later, at 3 p.m., and follow the pay-as-clear model similar to the Day-Ahead auction. Here, power is also traded in 15-minute intervals.

For highly flexible battery storage systems, this market design offers a clear advantage. While conventional power plants cannot easily respond to sudden surpluses, BESS can store excess power offered at very low prices by charging during these periods. Conversely, if solar feed-in drops faster than the forecast due to passing clouds, batteries can discharge stored power profitably within minutes.

Continuous Intraday Trading

In Continuous Intraday trading, there are no auctions and no uniform clearing price. Prices are set according to the pay-as-bid principle, meaning each trade is settled at its individual bid price.

This market enables participants to trade power flexibly and nearly in real time. It opens at 3 p.m. on the previous day for hourly products and at 4 p.m. for 15-minute products, with trading allowed up to five minutes before delivery. This facilitates short-term balancing of forecast deviations in generation or demand, supporting overall grid stability.

If Intraday Auctions already position batteries as the perfect complement to conventional generation, Continuous Intraday trading is where they truly excel. No other asset type in the power system can switch from charging to discharging as quickly. Each shift—charging or discharging—presents a new opportunity for profitable arbitrage.

Battery Storage in the Ancillary Markets

Battery storage systems can also participate in markets for ancillary services, particularly in the balancing services. Here, they provide transmission system operators (TSOs) with short-term available power to counteract frequency deviations in the grid. When frequency drops, batteries discharge to stabilize the grid (positive balancing energy); when the frequency rises, they store power (negative balancing energy).

While a storage system providing balancing services cannot simultaneously trade on the spot markets, balancing markets can offer a lucrative supplement during periods of low price volatility.

Due to their rapid response capability, BESS are ideally suited for providing Frequency Containment Reserve (FCR) and automatic Frequency Restoration Reserve (aFRR). Operators must offer at least 1 megawatt of capacity to participate, although pooling multiple smaller assets is allowed. These systems must also meet specific technical requirements to ensure the necessary control precision. Assets participating Frequency Containment Reserve or primary reserve must be able to respond completely autonomously to frequency deviations.

Operators have to prove compliance with these requirements to receive prequalification, the official authorization to participate in balancing auctions. The process is complex and requires upfront investment, but once completed, balancing markets represent a valuable addition to value stacking strategies with BESS.

Frequency Containment Reserve

Frequency Containment Reserve or Primary Reserve is activated when system frequency leaves the “balancing range” between 49.98 and 50.02 hertz. Within 30 seconds, full activation must be achieved and maintained for 15 minutes. Battery systems are exceptionally well suited for this task. They now dominate the German primary reserve market, competing with thermoelectric plants such as gas and coal power plants - which ramp their generation up or down as needed - as well as with pumped hydro plants, the mechanical equivalent of batteries.

In the primary reserve market, only the availability of capacity is remunerated. The actual power charged (or discharged) when called upon is not compensated separately. This is justified partly because the net volume of positive and negative balancing energy is usually so small that additional settlement costs would outweigh the benefits.

The primary reserve auction takes place daily at 3 p.m. for the following delivery day. TSOs conduct a pay-as-clear auction in which four-hour blocks are awarded based on uniform pricing.

Secondary Frequency Control

The secondary reserve is activated when primary reserves are insufficient to stabilize grid frequency. Participants include so‑called peakers - gas-fired plants that run only when the grid is short of power - alongside large industrial consumers capable of flexibly adjusting their power usage. Biogas plants also contribute significantly to secondary reserves.

There are three key differences between secondary and primary reserve markets:

Manual Frequency Restoration Reserve

The minute reserve is activated when even the secondary reserve is insufficient to restore the grid frequency to its nominal value. Assets providing minute reserve are called upon about five minutes after frequency deviations begin and must be capable of delivering their full output to the grid within another ten minutes, sustaining that output for one full hour. The required minimum bid size is 5 MW.

Although many battery storage systems now have both the energy and power capacity needed to meet these requirements—especially when multiple systems are aggregated—other types of plants, particularly large gas‑fired or even hard‑coal power plants, can typically play to their strengths more effectively in this market segment. For operators of battery storage systems, the minute reserve market is therefore not attractive and is usually not pursued.

Black Start Capability

Large‑scale battery storage systems with an output of at least 10 MW can be registered as black‑start‑capable plants. However, the same argument that applies to the minute reserve is even more relevant here: their strength—rapid switching between charging and discharging—cannot really be leveraged in this use case. A black start, i.e., the re‑energization of a failed or shutdown grid section, is a rare event. Other types of generation assets are simply better suited for it.

Behind‑the‑Meter Battery Storage Systems

Another area for battery storage lies "behind the meter" - that is, outside the public grid. This is particularly relevant in private, commercial, and industrial (C&I) contexts aimed at increasing self‑consumption of self‑generated solar power. For companies with their own PV systems, it has become increasingly profitable to store the midday generation peak in a battery rather than feed it into the grid. Two factors drive this: first, the feed‑in tariff is being progressively reduced by regulation; second, market prices tend to be lowest exactly when PV generation peaks—when nearly all PV systems flood both the grid and the market with power.

It is therefore more profitable to consume as much self‑generated power on‑site as possible, also because this reduces grid fees. Initially, PV system design should ensure that its geographical orientation aligns with operational energy demand patterns. As a next step, companies can also adapt processes, for example by shifting process heat generation or EV charging to periods of high solar production.

Nevertheless, operators should also consider opportunities "in front of the meter" - that is, participation in power trading for price arbitrage or providing ancillary services on balancing markets.

How Does Value Stacking with Battery Storage Work?

Wer das Maximum aus seiner Investition in Batteriespeicher herausholen will, beschränkt sich nicht auf eines der genannten Geschäftsfelder, sondern betreibt Value Stacking. Jeder der genannten Märkte weist unterschiedliche Charakteristika auf. An manchen Tagen, Stunden oder Viertelstunden ist der eine attraktiver als der andere, dann wieder ist es umgekehrt. Daher kommt es bei der Umsetzung einer Value-Stacking-Strategie vor allem darauf an, zu jedem Zeitpunkt (automatisiert) die besten Handelsentscheidungen auf verschiedenen Märkten zu treffen und diesen Prozess dauerhaft rollierend zu wiederholen.

In der praktischen Umsetzung entsteht durch die fortlaufende Berücksichtigung von Opportunitätskosten bei gleichzeitiger Aktivität am Großhandels- und Regelenergiemarkt eine äußerst komplexe Prozessdynamik, die sich nicht in einem simplen, leicht verständlichen Beispiel darstellen lässt. Da ein Beispiel für Value Stacking mit Batteriespeichern, das seinen Namen verdient hätte, daher den Rahmen dieses Artikels sprengen würde, verweisen wir auf zwei ausführliche Beitrage aus unserem Blog. Dort führen wir detailliert vor, wie das Value Stacking in der Praxis über die Märkte rollierend abläuft.

To maximize returns on battery storage investments, operators typically combine several business models through value stacking rather than focusing on just one. Each market features different dynamics - on some days or in specific intervals one opportunity is more attractive than another, and this balance keeps shifting. Consequently, a value‑stacking strategy depends predominantly on continuously and preferably automatically identifying the most profitable trading opportunities across markets and iterating this process on a rolling basis.

In practice, this creates highly complex process dynamics, as opportunity costs must be constantly evaluated while simultaneously trading across wholesale and ancillary markets. Illustrating this with a simple, concise example would be insufficient, so we refer instead to two detailed blog articles that demonstrate in depth how real‑world rolling value stacking operates across markets.

Value Stacking through Cross‑Market Optimization

While "value stacking" accurately describes this approach in the context of power trading, the term "cross‑market optimization" is more fitting when combining spot and balancing markets with behind‑the‑meter use cases. Whereas arbitrage gains on Day‑Ahead and Intraday Markets can literally be stacked, participation in balancing markets should rather be regarded as an opportunity, not an additive layer.

A battery storage system can only participate in one service at any given time—either FCR, aFRR, spot market trading, or behind‑the‑meter usage. Any breach would quickly result in exclusion from the ancillary service markets.
Therefore, a BESS operator must forecast and compare revenue potentials across all markets daily and decide on an optimal charge and discharge schedule for each hour.

Competition among assets and aggregators makes achieving strong margins challenging but ultimately beneficial for consumers. Nevertheless, BESS retain a strong market position thanks to their flexibility and the current undersupply of grid‑connected storage.

With sufficient experience and robust forecasting algorithms, analysts can reliably anticipate market price behavior. Combining these insights with asset‑specific trading algorithms enables significant revenue enhancement for battery storage systems through effective value stacking.