Firstly， the implication and characteristics of peaking service are discussed according to a comparison between peaking service and reserve service. Secondly， by analyzing the hydropower peaking cost， the opportunity cost of efficiency loss caused by frequent adjustment of hydropower output should be seriously considered. Then on the basis of the current ancillary services management and hydropower operation， an estimation method of hydropower peaking compensation is illustrated. The method consists in forming a free peaking interval by dipping and heaving a certain proportion of the daily average output; and then the water loss due to hydropower output below the lower-bound of the free peaking interval is analyzed. The water loss can be converted to profit loss， which can serve as the hydropower peaking compensation. An example is given to verify the correctness and validity of the method.