Economic viability of energy storage systems based on price arbitrage potential in real-time U.S. electricity markets

Bradbury, Kyle; Pratson, Lincoln F.; Patiño‐Echeverri, Dalia

doi:10.1016/j.apenergy.2013.10.010

Cited by 304 publications

(160 citation statements)

References 18 publications

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“…Some authors obtained this result assuming that the battery can only operate in the spot market [20,21]. Our results support this finding, that a battery that only operates in the spot market is not lucrative.…”

Section: Introductionsupporting

confidence: 87%

“…This is a contrast to recent published papers [3,20,21]. They assume that a battery will only operate in the spot market and revenues are therefore only gained by time arbitrage of the spot price.…”

Section: Resultscontrasting

confidence: 45%

“…The main reasons for this are economy of scales and technology development. However, none of the papers which consider investment in battery storage include such uncertainty in technology development for grid scale batteries [10,[20][21][22][23]. If investors fail to take into account the uncertainty of technology development, they risk underestimating the value of the battery as well as investing before the optimal investment time.…”

Section: Investment Costmentioning

confidence: 99%

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Investment in electric energy storage under uncertainty: a real options approach

et al. 2016

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Problem descriptionThe growing portion of renewables in the generation mix has led to an increasing need for ancillary services in the electricity grid. As a part of this green shift, the role of storage in the electricity market has changed. Traditionally, the motivation for investing in storage was based on time arbitrage of the spot price. Today, the investments in storage are being linked with the need for improving the power quality and balancing the grid.Recent research papers point out that investments in small storage facilities are not profitable today without public support. This thesis will apply the real options framework, and investigate the profitability of energy storage under uncertain electricity prices, balancing prices and investment cost. It will further consider how policy makers can trigger investments in electric energy storage. PrefaceThis is a master thesis written within the field of Financial Engineering at the Department of Industrial Economics and Technology Management, Norwegian University of Science and Technology (NTNU). We would like to thank our supervisors, Verena Hagspiel and Stein-Erik Fleten, for professional guidance throughout the project. We also wish to thank Professor Sonja Wogrin at Universidad Pontificia Comillas de Madrid for technical assistance, PhD candidate Lars Ivar Hagfors at NTNU for valuable input and Statkraft for providing market data. Trondheim, 8th of June 2015Ida BakkeBeate Norheim AbstractThe transition from conventional power sources to renewable energy sources is taking place in a number of European countries. Electric energy storage has been proposed as an environmentally friendly solution to make this transition possible. This thesis analyzes the profitability of investing in a battery bank in Germany and the UK, using a real options model. The model determines the option value and the optimal investment time, under the conditions of uncertain revenues and investment cost. The results show that it is profitable to invest in both countries, given that the battery banks can participate in both the spot and balancing market. The valuation also gives insight into how the battery bank should be operated between the two markets to maximize its expected profits and discovers that the battery earns over 70 % of its profit from ancillary services. This finding underlines the importance for investors to not only consider revenues from the spot market. The thesis further analyzes how uncertainty affects investor behavior and explains why there is a reluctance to invest in storage technology under the current market conditions; the investor is favoring the option to wait for more information. SammendragOvergangen fra konvensjonelle energikilder til fornybare energikilder finner sted i en rekke europeiske land. Elektrisk energilagring har blitt foreslått som en miljøvennlig løsning forå gjøre denne overgangen mulig. I denne masteroppgaven utvikler vi en realopsjonsmodel for a analysere lønnsomheten vedå investere i batteribanker i Storbritannia og Tyskland. Mode...

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Section: Introductionsupporting

confidence: 87%

Section: Resultscontrasting

confidence: 45%

Section: Investment Costmentioning

confidence: 99%

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Investment in electric energy storage under uncertainty: a real options approach

et al. 2016

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“…This supply warranty is jeopardised in the event of a mass rollout of network connections for producers of renewable energy. This is due to the fact that renewable energy depends on intermittent sources and the fact that we have no cost-efficient means (as yet) of storing electricity (Bradbury et al 2014). A critical condition for energy transport systems to maintain security of supply is to balance demand and 21 Art.…”

Section: Investing In Transport and Distribution Systemsmentioning

confidence: 99%

A Reasonable Price for Electricity

Bommel

2016

J Consum Policy

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Over the past decade, consumers' electricity costs have risen disproportionally compared with the average inflation rate, mostly as the result of increased network tariffs and taxes. This development appears to be at odds with the stated purpose of introducing competition into the electricity sector through implementation of the EU Electricity Directive to realize benefits for end users in terms of lower prices as well as better quality of goods and services. This article discusses the conditions under which the price of electricity can be considered reasonable according to the Directive. The meaning of the term Breasonable^may depend on a number of factors, and it is necessary to distinguish between the various components of an energy bill. The various objectives of the directive could lead to diverging interpretations, even when applied to the same component of the bill, the supply price. According to the underlying market principle, reasonable may imply Beconomically efficient.^However, in line with the principle of universal service for households, reasonable should be understood to mean Baffordable.^The article also examines the conditions under which a substantial rise of consumer energy costs due to increasing network tariffs can be justified. The focus of this article is on electricity, although, as stipulated under the Third Gas Directive, a consumer's right to pay a reasonable price, while enjoying universal service, applies equally to gas. Therefore, the observations outlined in this paper are relevant also for gas consumers.

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“…Electrochemical energy storage in battery modules can be both modular and scalable, while offering high round trip efficiency, long cycle life, and with low maintenance requirements [2]. BESSs can perform a wide range of grid support services which improve network efficiency and stability [5], thus increasing profitability [4]. Crucially battery systems are also able to provide the fast response rate required to achieve many of the high value benefits from grid connected energy storage [6].…”

Section: Introductionmentioning

confidence: 99%

Battery energy storage systems for the electricity grid: UK research facilities

Feehally

Forsyth

Todd

et al. 2016

8th IET International Conference on Power Electronics, Machines and Drives (PEMD 2016)

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Grid-connected battery energy storage systems with fast acting control are a key technology for improving power network stability and increasing the penetration of renewable generation. This paper describes two battery energy storage research facilities connected to the UK electricity grid. Their performance is detailed, along with hardware results, and a number of grid support services are demonstrated, again with results presented. The facility operated by The University of Manchester is rated at 236kVA, 180kWh, and connected to the 400V campus power network, The University of Sheffield operates a 2MVA, 1MWh facility connected to an 11kV distribution network.

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Economic viability of energy storage systems based on price arbitrage potential in real-time U.S. electricity markets

Cited by 304 publications

References 18 publications

Investment in electric energy storage under uncertainty: a real options approach

Investment in electric energy storage under uncertainty: a real options approach

A Reasonable Price for Electricity

Battery energy storage systems for the electricity grid: UK research facilities

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