Current trends on Ancillary Services Market for Batteries in Germany

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FCR and aFRR capacity prices

In Germany, the Ancillary Services (AS) capacity market is organised into 4-hour blocks, where generators offer their available power for four consecutive hours.  In the FCR market, bids are made for a symmetric band, allowing the Transmission System Operator (TSO) to request an increase or decrease in generation as needed to balance the system.  For the aFRR market, generators can bid separately for upward or downward regulation, as each is treated as a distinct product.

Graph 1 illustrates the average capacity prices for each 4-hour block since 1 January 2023. These prices are particularly appealing for low-operational-cost assets like battery storage systems, as participation in these services does not require additional energy procurement costs.

Additionally, prices tend to peak during solar production hours,  as shown in Graph 1.  This trend likely occurs because a high share of renewables, especially solar, increases the need for grid stabilisation services, which in turn drives up AS market prices. As more renewable energy is added to the grid, AS market prices are expected to rise in the short term due to this growing need for stabilisation. Considering the synergy between the market structure and BESS technical capabilities, and the expected rise in the AS capacity market prices, a prospective scenario for BESS owners participating in AS markets is expected. The remaining question is: Are BESS  owners taking advantage of this opportunity? Let's take a closer look at the prequalified power for ancillary services (AS) in Germany.

Prequalified power in Germany

Prequalified power includes all generators that meet the technical requirements for participating in a specific market. Although it doesn’t reflect the actual market share of each technology, prequalified power gives insight into market trends and the types of technologies being used. Until last year, BESS were active only in the aFRR and FCR markets. Graph 2 shows the changes in prequalified power volume in these markets over the past seven years. As depicted in the graph, FCR shows a considerable decrease of 35%  in the total prequalified power over the last year, largely due to the phase-out of nuclear energy and a notable decline in hydropower, while aFRR has been steady. The mFRR market is not included in this analysis, as BESS only started entering it this year.

Prequalified Power: Frequency Containment Reserve (FCR)

FCR is a popular choice for BESS asset owners in the ancillary services market, with BESS participation steadily growing since 2017, as shown in Graph 3. With a significant decline of 35% in the total prequalified power, BESS now represents  nearly 18% of the total prequalified power in FCR, making it the second most common technology in this market. However, as BESS continues to grow, the risk of cannibalisation—where increased competition drives down prices and profits—rises, underscoring the importance of exploring alternative markets.

Prequalified Power: Automatic Frequency Restoration Reserve (aFRR)

BESS owners have only recently entered the aFRR market, which is becoming increasingly attractive for them, partly due to the higher energy prices shown in Graph 1. As illustrated in Graph 4, the number of pre-qualified BESS units quadrupled in 2024 compared to 2023. With BESS currently making up just 1.5% of the total prequalified power in aFRR, there is substantial growth potential. As conventional energy sources decline, BESS is well-positioned to capture a greater share of the aFRR market.

Opportunities and Risks in AS markets

We began by highlighting the attractiveness of prices in capacity markets and drawing a parallel between the growing share of renewable electricity and the rise in prices. Additionally, BESS has been benefiting from favourable market conditions and making significant strides in the ancillary services (AS) market, especially in FCR and aFRR.

However, these market dynamics might encourage flexible generators, which meet the technical needs of AS, to enter these markets This could lead to competition and reduce the profitability for BESS owners. The fact that the market follows an inverse trend to the day-ahead price profile—reaching its minimum during solar peak hours, when AS markets typically peak—further highlights this concern.

To mitigate these risks, BESS owners already adopted some strategies like participating in multiple markets. This strategy allows BESS owners to take advantage of favourable conditions while minimising risks by avoiding reliance on a single market. To further protect BESS investments from future market saturation, entering into Energy Storage PPAs can be a viable option. PPAs help BESS owners maximise their investment potential while protecting against possible market saturation in the future. This approach allows owners to benefit from the current market conditions while simultaneously reducing risks.

Are you interested in discovering how a PPA can safeguard and optimise your investment in BESS? Don’t hesitate to contact us!