Energy storage systems in energy and ancillary markets: A backwards induction approach

Battery storage technologies have developed to the point that some are mature enough to serve as a generation resource. However, whether a battery can generate profits by interacting solely in energy markets is unclear. Meanwhile, FERC order 784 requires electricity exchange markets in the U.S. to install the necessary technical equipment for batteries to supply ancillary services [12]. We suggest that current economic studies on the battery energy storage system (ESS) are limited because they do not explore possibilities to use battery storage in ancillary (reserve) markets. Applying battery ESS to ancillary service could be profitable enough to cover investment costs.