Europe’s energy system has reached a pivotal juncture. In June 2025, solar energy supplied the majority of the EU’s electricity demand for the first time. This marks a major milestone for decarbonisation. Yet as renewables are intermittent, volatility rises, driving up the need for energy storage. In response, the market has seen a surge in Battery Energy Storage System (BESS) deployments, fuelled by what has, until now, been a highly attractive business case.
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Of the many BESS applications, two have stood out: ancillary services (ANS) and wholesale electricity trading. To maximise profits, battery operators have focused on timely optimisation, switching between providing ANS and trading on the spot market, with most revenues to date coming from ANS rather than trading. However, as the market matures, this is changing. With a rising number of prequalified BESS assets on the supply side, ANS prices are set to fall. As a result, the importance of trading strategies in short-term energy markets is growing rapidly.
Balancing markets: Approaching saturation
The logic is straightforward: limited demand is meeting expanding supply. In Germany, the ANS market stands at roughly 4 GW. With substantial new battery capacity in advanced development, this extra supply is expected to push ANS prices down. This trend is accelerating as renewables move into the ANS market. In 2025, MVV Trading prequalified Germany’s first onshore wind farm (Siegfriedeiche and Buhlenberg) for a FRR, quickly followed by the first utility-scale PV plant in Schkölen, a collaboration between Sunnic and Entelios. These projects demonstrate that intermittent assets are now able to provide some of the grid stability once reserved for conventional plants or dedicated batteries.
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While this is a win for the energy transition, it signals a paradigm shift for BESS operators: as wind and solar begin to balance the system themselves, the scarcity that once guaranteed high battery margins is quickly disappearing. Importantly, this saturation is not unique to Germany but reflects a wider maturing of Europe’s energy markets.
A pattern we have seen before
Markets with earlier BESS adoption, such as the UK, have already seen saturation lead to sharp revenue declines for specialised asset-backed operators. In the Czech Republic, a similar trend emerged recently, with ANS price drops, driven in part by increased use of diesel generators for rapid grid balancing. This follows classic market logic: as more assets compete, the margin per megawatt from ANS inevitably shrinks.
National saturation is also being accelerated by cross-border European ANS markets. PICASSO – the cross-border platform for regulation energy exchange – has been active for the past two years. The ALPACA initiative, a shared platform for aFRR capacity across Germany, Austria and the Czech Republic, launched in late 2025. In its first three months, ALPACA generated around €2.7 million in savings for the German grid by leveraging ANS supply from the Czech Republic. While this is positive at a macro level, it increases pressure on BESS operators – competition is now regional rather than just local.
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Looking ahead, regulation is set to evolve further. Transmission System Operators (TSOs) have indicated that Passive Balancing, which is already in use in the Netherlands and a few other EU countries for ex ante balancing, could be legalised in more markets, including Germany, within the next three to four years. This may reduce demand for formal balancing energy, pushing BESS operations even further toward continuous spot markets as their main revenue stream.
These developments expose a structural limitation of ANS: demand is capped, while supply keeps growing. By contrast, short-term wholesale markets offer significantly greater depth, enabling additional battery capacity to be monetised primarily through trading rather than balancing.
Traders outperform operators
A BESS can deliver positive returns with simple strategies – charging during low-price nights and discharging during peak hours. This works because storage adds value by shifting energy over time, and the market reliably rewards this flexibility. However, the real differentiator lies elsewhere. Traders who generate revenue without access to physical flexibility rely on a fundamentally different skill set: the ability to consistently buy low and sell high within the same delivery period, without storing or shifting energy. They create value through market understanding, forecasting, and execution – not by simply selling flexibility.
For BESS optimisation, this distinction is critical. Only traders who consistently outperform the market can unlock the full economic potential of a battery. In a market where trading is the main game, BESS operation amplifies the strong strategies of skilled traders, rather than base-level trading compensating for mediocre BESS operation.
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Achieving market-leading trading performance takes more than an algorithm. Success depends on a tightly integrated setup that combines quantitative research, continuous model development, high-quality market and weather data, robust in-house software, low-latency infrastructure, and experienced human traders providing 24/7 oversight. While individual elements can be outsourced, true excellence comes from integrating and continuously improving these capabilities.
As electricity markets evolve from slow, locally-driven exchanges into fast, high-frequency trading environments that increasingly mirror financial markets, trading quality becomes a decisive factor for long-term BESS returns. This shift will favour market participants with a proven track record in trading excellence.
Spot trading excellence will drive BESS ROI
For European BESS investors and developers, the message is clear: as renewables become smart balancing tools and balancing markets grow more integrated and saturated, the era of simply building a battery and securing passive ANS returns is over. BESS is shifting from an infrastructure play to a sophisticated financial asset. Profit maximisation will increasingly depend on the ability to navigate the complexities of intraday trading. (Stephan Lehrke/hcn)
