3 Revenue Sources for Battery Storage
— JEPX, Balancing Market & Capacity Market Stacking Strategy

Battery Revenue Comes from "Three Pockets"

Grid-scale battery revenue is composed of "stacking" — layering three markets rather than relying on a single one. How you design the balance across these three markets is the biggest variable affecting IRR (Internal Rate of Return).

Pocket 1: JEPX Arbitrage — Price Spread Expanded 5x

The wholesale power market (JEPX) trades in 48 time slots of 30 minutes each across 24 hours. Batteries profit from arbitrage — charging during low-price slots and discharging during high-price slots.

The massive adoption of solar power has caused daytime market prices to drop to near zero, while evening peak prices spike — the "duck curve" has become the norm in Japan as well. This structure is the source of battery arbitrage revenue.

Pocket 2: Balancing Market — The "Main Battleground" for Batteries, but with Disruption Risk

The balancing market began trading all 5 products (primary reserve, secondary reserve 1&2, tertiary reserve 1&2) in April 2024. The most advantageous for batteries are primary reserve and secondary reserve 1.

Primary and secondary reserve 1 have extremely high shortfall rates of 70-80% due to insufficient bids, and as of 2024, a "seller's market" continues where bids can contract at virtually any price. Battery contract prices of 28-39 yen/DeltakW-h are several times higher than thermal's 4.1-8.1 yen.

Pocket 3: Capacity Market — "Stable Income" Reaching Record Highs

The capacity market (Main Auction) conducts auctions 4 years before actual delivery, paying power sources for "existing." Batteries can participate with 1,000kW or more, with a win rate of over 96%, meaning virtually all bids are accepted.

Contract prices went from 14,137 yen in the 1st round (uniform nationwide, criticized) → plummeted to 3,495 yen in the 2nd round → then split by area: 5,226 yen in the 3rd → 7,847 yen in the 4th → 11,134 yen in the 5th, continuously rising. The background includes increasing power demand from data centers and semiconductor factories.

However, battery bids in the Main Auction account for only about 0.1% of total volume (approximately 240MW), as most large-scale batteries are flowing toward the LDA.

Revenue Model: 3-Market Stacking for a 2MW Project

METI/MRI has analyzed three use cases.For the capacity market + balancing market combination (Pattern 2), with capacity market revenue of 8,348 yen/kW/year as a base, under conditions of DeltakW price of 15 yen, 1 block/day, and 60% win rate, the results show IRR is generally positive when construction costs are below 70,000 yen/kWh.

Aggregator Selection Determines Revenue

Simultaneous participation in three markets requires advanced operational expertise. Many operators utilize aggregators (market trading agents).

Revenue Structure Differences with LDA-Type (30MW+)

LDA-winning projects over 30MW lock in annual fixed revenue of several hundred million to over a billion yen for 20 years, with approximately 10% of market revenue remaining as additional income. While IRR is 2-4% ("bond-like returns"), the overwhelming predictability of revenue makes project finance structuring much easier.

In contrast, 2 MW-class Full Merchant-type projects may aim for IRR above 10%, while directly bearing regulatory change risks such as Balancing Market price cap reductions.