Battery energy storage systems: The foundations of a resilient energy future in the US

BESS have become an important tool in supporting the energy transition by enhancing grid flexibility and enabling the storage of intermittent renewable energy sources such as solar and wind. While not a stand-alone solution, BESS can play a significant role in addressing the variability of renewable energy generation, providing grid operators with more options to balance supply and demand.

As policies, incentives, and technological advancements converge, BESS deployment in the US has accelerated rapidly. Between 2020 and 2024, installed capacity grew more than tenfold, from 2.4GW to 27GW, representing a 1,016% over four years (see figure 1). According to projections from S&P Capital IQ, installed capacity is expected to exceed 170GW by 2030, marking another 525% increase from 2024 levels. This surge is driven by declining battery costs, the growing need for grid flexibility, and the increasing integration of renewables. In Europe, we see similar trends albeit at much lower growth rates than in the US.

BESS offer the flexibility to store surplus energy during periods of overgeneration and discharge it during peak demand, helping to alleviate grid stress. However, the impact depends heavily on market dynamics, system design, and operational strategies, underscoring the importance of critical planning and deployment.

BESS store electricity in chemical form, making it available when needed, independent of when it was generated. This decoupling of generation and consumption enhances grid reliability and introduces operational flexibility, which is particularly valuable for integrating variable renewable energy sources.

BESS can act as a buffer for the grid, by absorbing excess energy during periods of surplus generation and discharging it when demand peaks or renewable output declines. In California, for example, the "duck curve" illustrates the mismatch between midday solar overgeneration and the steep evening ramp in electricity demand. In the California Independent System Operator (CAISO) market, BESS can help manage this challenge by storing surplus solar energy during the day and discharging it during evening peaks, contributing to grid stability.

However, it is essential to recognize that BESS is not the only tool available to address such challenges. Other solutions, including demand response programs, flexible gas generation, and grid upgrades, also play crucial roles.

BESS can support the grid at both transmission and distribution levels, offering flexibility, reliability, and efficiency (see figure 3). The specific role of BESS at each level depends on system design, market conditions, and regulatory frameworks.

Transmission level applications

At the transmission level, BESS can help manage large-scale grid dynamics by responding rapidly to fluctuations in supply and demand. Short-duration BESS (typically one-hour systems) can provide ancillary services such as frequency regulation and spinning reserves. These fast-responding services help maintain grid stability, particularly as renewable penetration increases.

Longer-duration BESS (up to four-hour systems) can support bulk energy storage applications, including peak shaving, energy arbitrage, and Resource Adequacy (RA) requirements. In markets like CAISO, BESS can help alleviate the steep evening demand ramp by discharging stored solar energy, reducing reliance on fossil fuel peaking plants. However, BESS duration varies by market. CAISO’s resource adequacy framework drives four-hour deployments, while the Electric Reliability Council of Texas (ERCOT) sees more one- to two-hour systems optimized for price volatility and ancillary services. The Pennsylvania-New Jersey-Maryland Interconnection (PJM) historically favored one-hour batteries for frequency regulation, although evolving market rules are shifting this dynamic. Unlike Europe, where one-hour BESS are more common for ancillary services, US deployments vary based on market structure and revenue opportunities.

Additionally, BESS can help address transmission congestion by storing surplus energy in high-generation regions and releasing it when demand spikes or when lines are less congested. When properly deployed, BESS could defer costly grid infrastructure upgrades by providing an alternative means of managing grid stress.

Distribution-level applications

At the distribution level, BESS can optimize local energy flows, enhance grid resilience, and support the integration of distributed energy resources (DERs), such as rooftop solar energy systems. Short-duration systems can help stabilize voltage and frequency, while longer-duration systems provide backup power during outages and emergencies.

For example, in areas prone to extreme weather events, strategically placed BESS can provide critical power to essential facilities like hospitals and emergency shelters. In regions where a significant portion of the electricity supply comes from renewable energy sources, BESS can reduce curtailment by storing excess solar or wind energy during overgeneration periods and discharging it during peak demand.

BESS also supports the integration of DERs by smoothing intermittent generation and enabling more consistent power delivery. By reducing the need for curtailment and enhancing grid flexibility, BESS can help maximize the value of distributed renewables while strengthening local grid reliability.

BESS unlock diverse revenue streams in energy markets, but their real value lies in how operators stack revenues across multiple markets, balancing short-term gains with long-term asset performance. These revenue opportunities are highly dependent on location. Wholesale electricity market structures, state policies, and regional grid needs vary significantly across the US, much like the differences observed in EU energy markets. Successful revenue stacking hinges on selecting the right combination of market opportunities – energy arbitrage, ancillary services, and resource adequacy – while managing operational risks that can erode value.

Energy arbitrage is often the first market BESS enter, capitalizing on the spread between low and high wholesale electricity prices. In markets like CAISO and ERCOT, where price volatility creates frequent opportunities, BESS can charge during low-price periods and discharge when prices peak. However, arbitrage carries risks: Frequent cycling accelerates battery degradation, increasing maintenance costs and shortening system lifespan. The growing number of storage assets also reduces volatility over time, leading to thinner arbitrage margins – a dynamic known as price cannibalization. This trend has been a significant driver for changes in earnings in the UK, for example.

To counter these risks, many operators prioritize ancillary services, which offer steadier, more predictable returns. BESS’s rapid response makes it ideal for services like frequency regulation, spinning reserves, and voltage control. Ancillary services typically involve shorter, less frequent cycles, preserving battery health and extending operational life – making them a core pillar in many revenue stacking strategies.

Resource adequacy adds another layer of value by providing capacity payments in exchange for guaranteeing BESS availability during periods of peak demand. This long-term revenue stream is highly attractive for securing financing but comes with strict performance obligations. Underperformance – often due to degradation or poor operational planning – can result in derating, reducing a system’s qualifying capacity and slashing its revenue potential.

Revenue stacking not only maximizes income potential but also spreads operational risks across different market services. Developers and operators leverage this approach to navigate fluctuating energy markets, balance technical constraints, and strengthen project bankability. It’s a strategic method that aligns short-term market participation with long-term asset value, ensuring that BESS remain both financially viable and operationally resilient.

BESS operators also leverage additional market mechanisms – including congestion management, black start capabilities, and reactive power support – to diversify revenue streams and enhance grid stability. These often underutilized services offer strategic pathways for BESS to capture new value streams while supporting broader grid resilience efforts.

In an increasingly competitive market, successful revenue stacking is the differentiator. Operators who skilfully combine market participation with smart operational strategies maximize returns while safeguarding long-term asset value. It’s not just about tapping into multiple markets – it’s about balancing them for sustained profitability.

The performance, longevity, and financial viability of BESS hinges on a combination of technological design, operational strategies, and market dynamics. Understanding these elements is essential, particularly when evaluating BESS projects for long-term financing, where risks often intensify in the later stages of a project's lifecycle.

Core technological components

The long-term success of BESS is not simply about having the best battery cells or the smartest control systems – it’s about how these components integrate to support stable operations and long-term financial outcomes. Every technological element, from battery chemistry to thermal management, feeds into a system where performance, risk, and profitability are interconnected.

At the heart of BESS are the battery cells, the primary energy storage units, whose chemistry – whether lithium iron phosphate (LFP) or nickel manganese cobalt (NMC) – determines energy density, safety, and degradation rates. Yet, even the most advanced cells depend on the Battery Management System (BMS) to function optimally. The BMS continuously monitors cell performance, balancing safety and efficiency, and works hand-in-hand with the Power Conversion System (PCS) and inverters to regulate energy flow between the battery and the grid. This triad – battery cells, BMS, and PCS – forms the backbone of system reliability.

However, reliability isn’t static. The Energy Management System (EMS) adds a dynamic layer, using real-time data to optimize when and how the BESS charges and discharges based on market signals and grid conditions. Its decisions directly impact degradation rates and revenue generation, balancing technical health with financial returns.

These technological elements don’t operate in silos. A poorly calibrated EMS can overburden thermal systems, leading to accelerated degradation, while inefficiencies in the PCS can undermine energy conversion, reducing revenue potential. This interconnectedness is critical for investors and lenders, who analyze how well these systems align when evaluating long-term project risks and refinancing potential.

Operational considerations

Translating the capabilities of technological components into financial success hinges on operational strategies that optimize performance while managing long-term risks. Operational decisions – from charge cycles to timing of adding new battery cells or modules (augmentation) – shapes both system health and revenue streams.

Degradation is a core challenge in BESS operations. While inevitable, its pace is influenced by how the system is run. Maintaining an optimal state of charge (SoC) and maximizing round-trip efficiency (RTE) can slow degradation, but aggressive market strategies – such as frequent cycling for short-term revenue gains – can accelerate wear. This creates a strategic tension: Balancing daily market participation with the need to preserve long-term asset value.

As degradation progresses, even with optimized SoC and RTE, systems could underperform against their original design specifications. This is where augmentation strategy becomes essential. Augmentation restores lost capacity and ensures the system continues to meet contractual obligations. The timing and scale of augmentation are critical; augmenting too early inflates costs unnecessarily, while delaying it risks breaching performance guarantees. Moreover, augmentation planning must account for component compatibility, ensuring that new battery cells or modules work seamlessly with existing inverters and the BMS, to avoid costly retrofits.

Thermal conditions further complicate this complex interplay. Effective thermal management is crucial for maintaining battery health, as excessive heat accelerates degradation and increases safety risks like thermal runaway. Inconsistent temperature control can compromise both SoC management and RTE, amplifying degradation rates and reducing system efficiency. Effective thermal systems, therefore, serve as a protective layer, stabilizing performance and safeguarding against unplanned downtime.

The financial implications of these technical dynamics are significant. Investors and lenders scrutinize degradation curves, augmentation strategies, and efficiency metrics when assessing refinancing prospects, particularly in the later stages of a project’s lifecycle when technology risks increase. A system that has managed its SoC, RTE, and augmentation effectively will not only maintain stronger revenue streams but also command more favorable refinancing terms.

Predictive maintenance ties this entire strategy together. Leveraging real-time data analytics, predictive maintenance identifies early warning signs of system stress, enabling operators to intervene before minor issues escalate into costly failures. This proactive approach enhances reliability, reduces downtime, and ultimately supports stable cash flows – an essential factor in maintaining investor confidence.

Innovations and outlook

BESS technologies are evolving rapidly, reshaping market strategies and investment landscapes. Innovations in battery chemistries, management systems, and grid integration are unlocking new opportunities but also introducing new complexities for operators and financiers.

One of the most transformative developments lies in advanced battery chemistries. While LFP and NMC dominate utility-scale deployments, emerging chemistries such as solid-state batteries and sodium-ion promise higher energy densities, longer lifespans, and improved safety profiles. Although still in the early stages of commercialization, these technologies could further reduce degradation rates and lower augmentation needs, improving long-term project economics. Recent strategies from major Chinese manufacturers, like CATL and BYD, signal accelerated progress in solid-state battery commercialization, with CATL aiming for small-scale production by 2027 and BYD targeting integration into mainstream electric vehicles by 2030.

Artificial Intelligence (AI) and machine learning are revolutionizing BESS operations. AI-driven EMS enable real-time market participation strategies, accurate load forecasting, and optimized dispatch decisions. These platforms dynamically balance degradation management with revenue maximization, providing operators with tools to navigate volatile energy markets while maintaining system health.

The push for grid modernization has also catalyzed regulatory reforms that accelerate BESS deployment. FERC Order 2023, for example, streamlines interconnection processes, reducing delays and clearing bottlenecks in project pipelines. Hybrid renewable projects such as solar-plus-storage or wind-plus-storage are gaining traction. These projects allow developers to optimize capacity factors, reduce curtailment risks, and improve project bankability.

Safety innovations remain central to BESS evolution. High-profile incidents have led to stricter safety standards and advances in fire suppression, thermal management, and real-time hazard detection. These improvements not only mitigate operational risks but also influence financing – projects with strong safety protocols are more likely to secure insurance and investor backing.

Looking ahead, the BESS market will become increasingly complex as it integrates more deeply with grid operations and market dynamics. Success will hinge on aligning technological advancements with operational strategies and long-term financial planning.

Batteries are redefining the way electricity is generated, stored, and distributed, playing a central role in the energy transition. From stabilizing grids during peak demand to enabling greater renewable integration, BESS have evolved from a novel concept to a strategic asset. The technological reliability, grid integration complexities, and operational demands highlight the intricate balance required to unlock their full potential. Despite these hurdles, innovation across the sector continues to push boundaries. Each new project, policy reform, and technological breakthrough is considered a step closer to a more resilient and decarbonized energy future.

This article serves as the foundation for understanding the fundamental role of battery storage in the energy transition. In the next piece in this series, we will explore the current state and future trends of BESS in US electricity markets, diving into market dynamics, innovative technologies, and the evolving policy landscape shaping this critical sector.