Capacity Markets and Ancillary Services

Selling electricity itself — the megawatt-hours actually delivered — is only one revenue stream for a power plant. Grid operators also run separate capacity markets, paying generators simply for being available to run when called on, even in the hours they never actually generate. Alongside that, ancillary services markets pay plants (or batteries) to hold reserve capacity and respond within seconds to keep grid frequency stable. Together these exist because electricity can't be stored cheaply, and the lights must stay on even during rare demand spikes that ordinary energy sales don't compensate anyone for preparing for.

Worked example

A gas peaker plant runs only 200 hours a year, when demand is highest, earning $2 million from energy sales. It also clears a capacity auction at $50,000 per MW-year for its 100 MW of capacity, adding $5 million regardless of how many hours it actually runs — capacity revenue alone more than doubles what the plant earns from generating power, which is exactly why it stays economically viable despite running so rarely.

Ancillary services add a third layer on top: the same plant might also bid its capacity into a frequency-response market, earning a fee just for being able to ramp output up or down within seconds if the grid operator calls on it, whether or not it is ever actually asked to do so that year.