According to figures from Ember, a think tank, photovoltaics (PV) became the EU’s primary power source for the first time in June, accounting for 22.1 percent. The increasing volume of renewable electricity in the system is driving the rapid development of the industry. The power grid is seeing a shift as renewable energy systems are increasingly having to handle critical functions necessary for its operation. Solar hybrid power plants (PV+BESS) as well as standalone BESS are able to provide system services that help keep the power grid stable. At the same time, this segment of the market opens up new business models that make PV+BESS / standalone BESS projects more attractive to investors.
System services are the services that are needed to ensure the reliable and stable operation of the electricity system, and of the electricity grid in particular.
System services cover the following functions:
Across Europe, system services are mostly provided by transmission system operators (TSO) and distribution system operators (DSO). Different countries have different models for opening the market (public tenders, bilateral agreements) and technology integration (fossil/thermal power plants, PV+BESS).
Unlike capacity mechanisms, system services are about flexibly responding to changes in the power grid. In a system with a rising share of electricity from renewable sources, the importance of system services is increasing. This is because:
The adoption of system services by PV+BESS/BESS will, thus, be essential in determining whether an energy system that uses a large proportion of renewable energy sources can function. Renewable power plants without BESS are also able to provide system services, albeit to a limited extent: They can provide reactive power.
Germany has several procurement and market schemes for system services, in which some hybrid solar power plants and stand-alone battery systems are already participating to some extent. However, the upcoming reform of these schemes will create new business models for these types of systems:
The objective is to allow renewable/BESS capacities to participate in this market. The technical requirement is that the systems provide grid-forming functionality, which is possible if they are equipped with a grid-forming inverter.
The ability to perform black starts and the independent control of frequency and voltage will depend on the existence of a grid-forming technology, consisting of BESS and a grid-forming inverter. This will enable complex system services to be performed – replacing the services previously offered by conventional power plants. Germany undertook an important step towards this goal in 2024 and 2025 with the introduction of technical guidelines and standards (for grid-forming properties of inverters).
Some of the earnings of hybrid power plants using PV+BESS or standalone BESS are being generated through arbitrage transactions and the sale of electricity on the spot market. The income streams and the resulting system profitability therefore depend on volatile market prices. Arbitrage transactions provide a basis for investments while system services can boost the ROI on equity capital. System services offer the chance to diversify the yield from PV+BESS/BESS.
In some markets, such as the UK, projects integrate system service involvement with tolling agreements, allowing to combine fixed revenue from contracts with flexible market yields and system service earnings.
The introduction of markets for power system inertia and reactive power procurement will create new remuneration options for systems with grid-forming properties in Germany.
One such example is the market model for quick reserve, which was recently introduced in the UK. According to Cornwall Insight, a market research firm, the model has led to a five-fold increase of income streams from system services for BESS within the space of one year. Cornwall Insight is expecting the prices to fall, however, as battery capacity increases in the market becomes saturated.
Renewable energies will have to take on responsibility for the system – with battery storage systems and grid-forming inverters. In the future, system services will have to be provided by solar hybrid power plants or standalone BESS – and this opens the door to new business opportunities and paves the way to the healthy diversification of income streams for plant operators. At the same time, the ongoing development of grid-forming technology is proof of the fact that solutions for a 24/7 supply with renewable energy have reached market maturity, and that a speedy rollout is essential for the energy transition to succeed.
