Original title: Decarbonising price formation: unit-level evidence on battery storage and the imbalance price in the GB Balancing Mechanism
Robert Dalton, Aidan O'Sullivan · August 2026
Great Britain uses a lot of renewable energy, but renewables rarely set real-time electricity prices. The grid needs flexible tools to step in and fix supply mismatches. Researchers looked at how large batteries set these balancing prices between 2023 and 2025. When the power grid has too much electricity, it accepts bids to cut generation or soak up power. When it has too little, it accepts offers to add power. The most expensive accepted offer or bid sets the marginal price. The study found batteries surged in setting both types of prices. They replaced gas plants when power was plentiful and replaced pumped storage when power was scarce. By 2025, battery actions saved around £9 to 10/MWh compared to alternatives, though they rarely set prices during peak demand spikes.
Imagine a group of friends deciding who pays for dinner. Usually the person who orders the most expensive dish sets the price everyone else pays. But now one friend, who used to order cheap salads, suddenly starts ordering expensive steaks and often ends up being the one who sets the price. That friend also consistently gets a discount on their meal, but they rarely set the price when the bill is highest. In this paper, the dinner is the electricity balancing market, the price-setter is the unit that determines the payment, and the friend is battery storage—its role has grown dramatically, it offers cheaper adjustments, but it is underrepresented in the most expensive settlement periods.
Batteries are now the dominant price-setters in Britain's balancing market, replacing gas and pumped storage. Their actions are cheaper by £9-10/MWh than alternatives, yet they are underrepresented in the highest-price periods. This matters for market design: as renewables grow, understanding which technologies actually set prices determines whether the system rewards flexibility efficiently and whether decarbonisation is reflected in real-time prices.
The abstract does not establish whether the observed association between battery capacity and marginal share is causal. It also does not examine battery behavior in other electricity markets or over a longer time period. The finding that individual batteries are price-taking while the fleet is endogenous is noted but not further analyzed. The reasons for battery under-representation in the highest-priced periods are not explored.
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Decarbonising price formation: unit-level evidence on battery storage and the imbalance price in the GB Balancing Mechanism — Robert Dalton, Aidan O'Sullivan
Abstract licence: CC0
Explanation generated by Synthesis from the abstract — it is not the original paper. This is a preprint, so it hasn't necessarily been peer reviewed.