REVENUE STACKING OPTIMISATION RULES

1. Meaning of Revenue Stacking

Revenue stacking refers to the operation of an electricity asset—particularly battery storage, demand-response or hybrid renewable-storage facilities—across several electricity markets so that the same asset earns income from different services. Typical revenue streams include wholesale arbitrage, Balancing Mechanism participation, frequency-response services, Capacity Market payments, constraint-management services and network flexibility contracts.

Revenue stacking is economically important because a single service may not produce sufficient income to finance storage investment. Recent Great Britain research indicates that participation across wholesale and balancing markets can materially increase battery revenues compared with wholesale arbitrage alone.

2. Optimisation and Regulatory Limits

Revenue stacking optimisation means scheduling an asset so that it supplies the most valuable lawful combination of services while respecting technical and legal constraints.

An optimisation framework must normally consider:

battery state of charge and discharge duration;

efficiency losses and degradation;

simultaneous-service restrictions;

availability commitments under contracted services;

Capacity Market obligations;

balancing and wholesale-market positions;

network and connection limits;

metering and settlement requirements; and

rules preventing excessive or duplicate remuneration.

The legal principle is that multiple revenue streams are not inherently prohibited. What matters is whether the asset can genuinely perform each contracted service and whether particular support schemes prohibit overlapping remuneration.

3. Storage Classification and Market Participation

Ofgem clarified the regulatory status of electricity storage in 2020 by modifying the electricity generation licence to define electricity storage expressly and subject licensed storage facilities to the generation licensing framework. The reforms also addressed inappropriate double charging of final-consumption levies.

Storage may therefore participate in numerous electricity markets, but operators must comply separately with the rules governing each revenue stream.

The Capacity Market, for example, provides payments to eligible capacity providers, including storage, in exchange for availability during periods of system stress. Ofgem's latest reporting confirms continuing participation of storage within that framework.

4. Double Recovery and Double Counting

Revenue stacking must be distinguished from double recovery. Legitimate stacking occurs where different payments compensate genuinely different services. Double recovery arises where the same cost, capacity contribution or obligation is effectively remunerated twice contrary to the relevant regulatory scheme.

Capacity Market rules therefore contain detailed obligations concerning delivery, baseline calculations, stress events and interactions with balancing services. Historical rule-change proceedings have specifically addressed risks that storage could receive inappropriate over-delivery payments or duplicate penalties because of its ability to switch rapidly between charging and discharging.

5. Case Name/Citation

European Commission v Tempus Energy Ltd and Tempus Energy Technology Ltd, Case C-57/19 P, EU:C:2021:663.

Facts

The United Kingdom introduced an electricity Capacity Market under which generators, storage and demand-side response providers could obtain payments for agreeing to make capacity available during system stress.

Tempus challenged the European Commission's approval of the scheme, arguing that aspects of its design disadvantaged demand-side response providers.

Legal Issue

The proceedings concerned whether the Capacity Market had been properly assessed under EU State-aid law, particularly regarding differences in participation conditions and contract duration between different technologies.

Judgment

The Court of Justice ultimately set aside the General Court judgment that had annulled the Commission's original approval. Nevertheless, the litigation examined in detail the conditions governing participation by different forms of capacity and the need to evaluate whether market-design rules discriminate between technologies.

Legal Principle/Ratio

Electricity-capacity remuneration may differentiate between technologies where relevant distinctions are objectively justified, but market-access arrangements must be assessed against competition, proportionality and technology-neutrality principles.

Significance

The case is directly relevant to revenue stacking because storage and demand-response assets frequently participate simultaneously in several markets. Regulatory rules should not prevent efficient participation without justification, while equally ensuring that overlapping mechanisms do not result in unjustified advantages.

6. Putney Power Ltd v HMRC [2024] UKFTT 870 (TC)

Facts

The dispute involved generating assets participating in the Capacity Market and considered the economic and legal nature of Capacity Market arrangements.

Legal Issue and Judgment

The Tribunal examined Capacity Market payments and recognised that capacity arrangements comprise a statutory bundle of rights and obligations: providers receive payment for being available but face financial consequences if they fail to deliver when required.

Legal Principle/Ratio

Capacity revenue is tied to a distinct availability obligation, rather than merely payment for electricity actually generated.

Significance

This distinction helps explain why Capacity Market income may lawfully be combined with wholesale or ancillary-service revenues when each payment represents a separate service and all corresponding obligations remain capable of performance.

7. Conclusion

Revenue stacking optimisation allows storage and flexibility assets to combine wholesale, balancing, capacity and ancillary-service income to improve investment viability. The governing legal principles are market access, technology neutrality, accurate metering, performance capability, transparency and prevention of double recovery. Optimisation is therefore legally acceptable where different revenue streams correspond to genuinely distinct services and the asset remains capable of satisfying every contracted and regulatory obligation.