REVENUE STACKING REGULATION FOR STORAGE ASSETS

1. Meaning and Commercial Function

Revenue stacking occurs where an electricity-storage asset earns income from several different services rather than relying on a single market. A battery, pumped-storage facility or other storage project may simultaneously or sequentially obtain revenue from wholesale electricity arbitrage, the Balancing Mechanism, frequency-response services, reserve products, the Capacity Market and network-management services.

Revenue stacking is particularly important because storage assets have high capital costs but can provide several technically distinct services. Regulation must therefore permit efficient participation while preventing double payment, incompatible commitments, market manipulation or recovery of the same economic value twice.

Ofgem formally clarified in 2020 that electricity storage should be treated within the generation licensing framework and sought to remove inappropriate double charging of final-consumption levies.

2. Main Revenue Streams

Storage operators may combine several revenue sources.

Wholesale arbitrage involves purchasing electricity when prices are low and exporting it when prices increase. Storage may also submit bids and offers into the Balancing Mechanism, provide reserve or frequency services, secure Capacity Market agreements and supply congestion-management services.

Ofgem has approved products including Short-Term Operating Reserve and the Balancing Mechanism as specific balancing products within the GB electricity framework.

The legal issue is therefore not whether stacking is inherently prohibited, but whether participation in one scheme conflicts with obligations under another.

3. Capacity Market and Double Recovery

The Capacity Market provides payments for capacity that must be available during system-stress events. Storage technologies can participate, but Capacity Market Rules impose eligibility, metering, delivery and secondary-trading requirements. The current consolidated rules were updated in July 2026.

Government reforms have increasingly sought to accommodate low-carbon technologies, including battery and long-duration storage, while avoiding overlapping public support for the same capacity. The 2026 reforms expressly clarified participation where support schemes do not overlap economically.

Thus, legitimate revenue stacking generally requires each revenue stream to correspond to a separately recognised service or risk.

4. Long-Duration Storage and Cap-and-Floor Regulation

Long-duration electricity storage introduces an additional regulatory layer. Ofgem's emerging cap-and-floor regime guarantees a minimum level of revenue while requiring excess revenues above the cap to be shared with consumers.

For revenue stacking, the definition of gross revenue becomes critical. Ofgem's 2026 draft special licence conditions expressly examine whether revenues received through third-party optimisers, co-located arrangements and behind-the-meter structures are captured without gaps or double counting.

This demonstrates that future storage regulation will increasingly assess the project's complete revenue portfolio rather than individual services in isolation.

5. Case Law – SSE Generation Ltd v CMA

Case Name/Citation: R (SSE Generation Ltd and others) v Competition and Markets Authority [2022] EWCA Civ 1472.

Facts: The dispute concerned transmission charges, congestion-management costs and the treatment of ancillary services within the GB electricity regulatory framework. The Court described balancing arrangements under which one balancing action may serve several purposes, including imbalance correction, congestion management and voltage control.

Legal Issue: How electricity-system services and their associated costs should be legally categorised within the transmission-charging regime.

Judgment: The Court of Appeal considered the scope of GEMA's powers and the proper treatment of ancillary-service and congestion-management costs.

Legal Principle/Ratio: A single technical action may perform multiple system functions, but regulatory classification and charging must follow the governing statutory and code framework.

Significance: The principle is highly relevant to revenue stacking because storage may provide several services through the same physical action. Regulation must determine whether those services are genuinely distinct or represent duplicate remuneration.

6. Case Law – Commission v Tempus Energy

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

Facts: The proceedings concerned the UK Capacity Market and whether its State-aid approval had been properly assessed.

Legal Issue: Whether the Commission was required to undertake a formal investigation before approving the capacity mechanism.

Judgment: The Court of Justice ultimately upheld the Commission's appeal concerning the legal test for establishing doubts requiring formal investigation.

Legal Principle/Ratio: Capacity-remuneration mechanisms remain subject to competition and State-aid disciplines even where designed to secure electricity-system adequacy.

Significance: Where storage combines market revenues with government-supported capacity payments, the design must avoid unjustified competitive advantage or overlapping remuneration.

7. Strategic Trading Restrictions

Revenue stacking also cannot become a mechanism for exploiting transmission constraints. In June 2026 Ofgem specifically addressed repetitive re-trading by electricity storage during constraint periods and its interaction with the Transmission Constraint Licence Condition.

Accordingly, storage optimisation remains subject to licence obligations and market-abuse controls even when each underlying market is separately lawful.

8. Conclusion

Revenue stacking is central to the commercial viability of storage assets, but its legality depends upon clear separation of services, accurate metering, compliance with Capacity Market and balancing obligations, and prevention of double recovery. As long-duration storage develops, Ofgem's cap-and-floor regime will make whole-project revenue accounting increasingly important. The central regulatory objective is therefore to permit efficient multi-market participation while ensuring that consumers do not pay twice for the same service and that storage operators cannot exploit overlapping regulatory arrangements.