Grid Energy Storage Systems: Providing Critical Buffer Between Generation and Demand in U.S. Electricity Markets
By Harish Sarma Krishnamoorthy, Ph.D., Associate Professor (Energy Sustainability and Power Conversion) at University of Houston
In the evolving landscape of electricity markets, the role of grid energy storage systems (ESS) has become pivotal, especially for a clean energy transition. These systems address the intermittency of renewable energy sources (RES) such as solar and wind, providing stability, reliability, and economic benefits. The Electric Reliability Council of Texas (ERCOT) and the California Independent System Operator (CAISO) in the U.S., for example, are integrating ESS into their grids, leveraging their capabilities to offer ancillary services, perform energy arbitrage, and provide emergency response services (ERS).
Current Trends in Energy Storage
Energy storage adoption has surged, driven by the falling costs of lithium-ion batteries, advancements in hydrogen storage, and supportive policies. The net installed ESS power capacity crossed 30 GW in 2024, with projections indicating exponential growth in the next decade (about 13 GW in California and 9 GW in Texas).
Hydrogen-based ESS can also contribute by stabilizing the grid during extended periods of high demand or low renewable output. Hybrid Energy Storage Systems (HESS), combining technologies like batteries and hydrogen storage, are gaining traction due to their complementary attributes: batteries excel in short-term, high-power applications, while hydrogen offers long-term energy stability.
The integration of energy storage systems into the U.S. electricity markets underscores their indispensable role in achieving a resilient, reliable, and sustainable energy future.
Maximizing the Energy Potential and Profitability of ESSs
ERCOT and CAISO, serving regions with high renewable penetration, exemplify the integration of ESS to meet grid demands. ERCOT, characterized by its deregulated market and substantial wind capacity, has focused on ESS for ancillary and emergency services. Meanwhile, CAISO, leading in solar capacity, utilizes ESS for energy and day-ahead arbitrage and addresses the infamous “duck curve” caused by the mismatch between solar generation and evening peak demand.
1. Ancillary Services and Grid Stability
ESS plays a critical role in providing ancillary services such as frequency regulation, voltage support, and spinning reserves. In ERCOT, the fast-response capability of batteries has significantly enhanced grid stability. They can deliver frequency regulation within milliseconds of a disturbance and provide reactive power support to stabilize voltage levels. As an example, the ESSs installed in Texas played important roles in maintaining grid stability during the hot summer days in 2024 and the winter storm (Enzo) in Jan. 2025.
CAISO’s ancillary services market has seen similar successes, particularly with hybrid systems that include batteries and renewable generation. These systems’ ability to shift seamlessly between charging, discharging, and grid support modes maximize their value.
2. Energy Arbitrage: Capitalizing on Market Dynamics
Energy arbitrage involves storing electricity during low-price periods and discharging it when prices are high. This strategy is particularly profitable in regions like California, where daytime solar generation creates low prices, and evening demand spikes push prices up. ESS systems in CAISO have capitalized on this phenomenon, yielding significant returns.
ERCOT’s real-time energy market offers similar opportunities. Batteries participate by charging during off-peak hours when wind generation surges and discharging during high-demand periods. Coupling energy arbitrage with ancillary services enhances profitability while supporting grid reliability.
3. Emergency Response Services (ERS)
The resilience of power systems during emergencies is another area where ESS shines. In February 2021, the winter storm (Uri) crisis highlighted the need for flexible resources in ERCOT. When traditional generation sources falter, ESSs can step in to provide critical support. Similarly, in California, wildfires and heatwaves have underscored the importance of deploying ESS for rapid response to grid disruptions.
Hybrid Energy Storage System (HESS)
The future of HESSs in electricity markets is poised for significant growth as the global energy landscape shifts toward renewables and grid modernization. Combining technologies like batteries, hydrogen storage, flywheels, and ultracapacitors allows HESS to balance high energy density, rapid response times, and long-duration storage needs. For instance, flywheels contribute to fast response and high cycle life for grid frequency stabilization. As grid-scale energy storage demand is expected to reach 442 GWh by 2030, HESS will play a pivotal role in managing intermittent renewable generation, ensuring grid reliability, and supporting decarbonization goals worldwide.
Integrating HESS into the grid, for example, batteries with hydrogen storage, can further enhance ERS capabilities by providing immediate power from batteries and sustained support from hydrogen. For instance, during prolonged outages, hydrogen fuel cells can operate for days, maintaining essential services when batteries alone would deplete.
Economic Feasibility and Market Opportunities
The economic feasibility of ESS in U.S. markets is increasingly attractive. With declining costs and supportive incentives, ESS operators can not only generate revenue through energy sales and ancillary services, but also contribute to reducing carbon emissions and enhancing energy independence. Additionally, market reforms such as FERC Order 841, which mandates fair access for ESS in wholesale markets, have expanded opportunities for deployment. The ability to stack multiple revenue streams—including arbitrage, ancillary services, and ERS—ensures the financial viability of these systems. For policymakers, the challenge lies in creating frameworks that incentivize ESS deployment while addressing challenges such as market saturation and regulatory barriers. For industry stakeholders, the focus should be on leveraging advanced technologies and operational strategies to maximize the benefits of ESS.
Emerging technologies can further improve the performance, cost-effectiveness, and operational flexibility of ESSs. Advanced energy management systems (EMS) enable precise control of ESSs and can ensure optimal battery charge-discharge cycles, as well as reduce operational costs. Significant modeling, analysis, and optimization of ESSs are being conducted across the academia, national labs (such as the A-LEAF framework developed by the Argonne National Laboratory), and the industry to better understand the ESSs’ characteristics with regard to their effective deployment under various grid conditions (current and future). Recent studies have shown that advanced EMS can significantly increase the rate of return of ESSs and improve the operational flexibility in the electric grid or microgrid.
Conclusion
The integration of energy storage systems into the U.S. electricity markets underscores their indispensable role in achieving a resilient, reliable, and sustainable energy future. By addressing the challenges of renewable intermittency, enhancing grid stability, and providing economic benefits, ESS acts as a buffer between the generation and load centers, hence revolutionizing the energy landscape. Hybrid systems, combining the best of batteries, hydrogen storage, flywheels, etc., exemplify the innovation needed to meet the demands of modern grids. As the markets evolve, continuous advancements in technology, coupled with supportive policies, will ensure that ESS remains at the heart of the energy transition.