Sources published in 2026 describe battery storage income as a stack rather than a single revenue stream. Capacity payments form the predictable base, with demand response, energy arbitrage and grid services layered on top. In Britain, Ofgem's cap and floor regime is cited as a global reference model for building revenue certainty into long-duration projects, with final awards expected in autumn 2026.
Capacity payments form the base layer
Battery developers rarely build for capacity payments alone, because on their own those payments usually will not cover the cost of the equipment and a 25-year lease. A capacity payment pays a battery to be available, and grid operators run auctions that set a price per megawatt for committing to discharge when the grid is stressed. Capacity payments are described as the most predictable layer, which is why developers and their lenders build the rest of the stack on top.
US examples show how far these payments have moved. In PJM, capacity prices rose from $28.92 to $329.17 per MW-day across two auctions, and the last three auctions cleared at the price cap. In MISO, capacity prices climbed from about $500 per MW-year to as much as $90,000, according to Voltus president Matthew Plante.
Demand response, arbitrage and grid services
Demand response pays a battery to perform. When a utility or grid operator calls an event during a peak or an emergency, the battery discharges and earns a payment tied to what it delivers in those hours. A battery already committed for capacity can usually be enrolled in demand response as well, so it earns a standing payment for being ready plus an event payment when it is called.
Energy arbitrage earns the daily spread: the battery charges when power is cheap, sometimes at negative prices, and discharges when prices spike, with congested grid locations producing bigger spikes. Grid services such as second-by-second frequency regulation and voltage support are treated as upside, because these markets fill up quickly as more batteries come online. In Texas, battery revenue from these services has fallen about 90% from its 2023 peak.
The UK cap and floor as revenue certainty
The UK cap and floor is described as the global reference model for designing revenue certainty into long-duration storage, alongside Italy's MACSE, Japan's long-term decarbonisation auction and the New South Wales LTESA programme. Ofgem opened the first window in April 2025, offering a revenue floor to manage high capital costs and long build times, and a revenue cap that returns upside to consumers. In September 2025 it shortlisted 77 projects totalling 27 GW.
On 26 June 2026 Ofgem published a minded-to decision selecting 16 projects totalling 7,645 MW, with durations of 8 to 22 hours. The portfolio mixes lithium-ion, three pumped hydro schemes, compressed air and flow batteries. Battery owner-operator Field secured five projects in the first long-duration shortlist, totalling 1.6 GW and 26.8 GWh at an average duration of about 16.75 hours. Final awards are expected in autumn 2026.
Costs, payback and the duration question
Falling equipment costs underpin the investment case. Lithium-ion battery pack prices have fallen 93% since 2010 to $108 per kWh according to BNEF. Plante said the payback on a commercial battery has dropped from about 8 years to about 3.5 years with today's long-term contracts, describing the dynamic as the cost of installing a battery going down while the value of it goes up.
Duration is the next commercial question. Global long-duration installations exceeded 15 GWh in 2025, up 49% year on year, yet they represented only about 6% of all storage installed, with China accounting for roughly 93% of cumulative deployment. Lithium-ion projects of 8 to 18 hours are now winning government-backed long-duration contracts in Australia, the UK and Italy.
Key Takeaways
Capacity payments are the most predictable layer of a battery revenue stack, with demand response, energy arbitrage and grid services added on top.
Ofgem shortlisted 77 projects totalling 27 GW in September 2025, then published a minded-to decision selecting 16 projects totalling 7,645 MW with durations of 8 to 22 hours.
Lithium-ion battery pack prices have fallen 93% since 2010 to $108 per kWh, and payback on a commercial battery has dropped from about 8 years to about 3.5 years.
Global long-duration storage installations exceeded 15 GWh in 2025, up 49% year on year, but made up only about 6% of all storage installed.
Sources