Beyond Ancillary Services: Market Saturation and the Transition to Longer Battery Storage Durations

The rapid deployment of Battery Energy Storage Systems (BESS) has intensified competition in ancillary service markets, eroding available revenues and challenging the economic viability of short-duration storage assets. This paper investigates how market saturation reshapes optimal BESS sizing and duration, with a particular focus on the transition toward longer duration energy storages. We generate stochastic price scenarios for the day-ahead (DA) and Frequency Containment Reserve (FCR) markets, conditioned on the German grid development plan, yielding 2,500 internally consistent DA-FCR price paths. These prices feed a degradation-aware, rolling-horizon Mixed-Integer Linear Programming (MILP) algorithm that co-optimizes DA arbitrage and FCR provision. Results show that FCR cannibalization collapses ancillary revenues toward marginal floor levels by 2030, while widening DA spreads reorient the revenue stack toward energy arbitrage. The optimal storage duration migrates from 1-2 h to longer duration systems by 2030. Despite a near-term profitability dip, internal rates of return consistently exceed 10%. A closed-form spread-FCR proxy reproduces MILP revenues with R2 of 0.978, enabling rapid investment screening without re-optimization.