Storing away for a rainy day, pt 2

Turning a profit when integrating renewables

In Part I, we discovered the origins of battery storage technology and where it is applied nowadays. We explained how the charge cycle of lithium-ion batteries forms the basis for a feasible business model and how their technical properties help to stabilize the grid when the supply and the demand do not exactly match. But we have to go deeper to understand why in a couple of years there will be no way around battery storage and why they are a key technology for integrating renewable energy sources.

In this Part II, we want to show you how by trading the flexibility potential on intraday markets, a significant business case for battery storage systems can be made. 

How batteries allow optimizing energy generation

The primary function of a battery storage system is to store excess energy for using it at a later moment when the energy generation alone cannot meet the demand. However, the battery system can also be used to feed energy back into the grid when prices are favorable to increase the profitability of the energy source and its battery storage. To get an optimized result this way, the charging and discharging of the battery storage system needs to be modeled on the basis of a couple of variables such as electricity prices, energy generation, consumption, and battery condition. This can lead to an increase in the flexibility of the energy system and higher efficiency.

"The concept of flexibility of a power system is the extent to which a power system can modify electricity production or consumption in response to variability, expected or otherwise." 

- The International Energy Agency 

Charging the battery provides negative flexibility while discharging and sending power back to the grid provides positive flexibility. Either way, the grade of the flexibility of a system depends on how quickly it can adapt generation or usage in response to external forces like peaks and valleys in demand or changing prices on balancing or spot markets. 

Integrating renewable energy

Electric grids must always balance demand and supply. Historically, large, centralized power plants generated electric energy (thermal or nuclear power), which was then transported over long distances to the final consumers using transmission and distribution grids. The onset of integrating decentralized renewables into this grid broke up this unilateral power flow from centralized power plants. 

The amount of power generated by renewable sources can’t be adjusted to the demand or the market price other than through the wasteful practice of curtailment. Due to their capacity for flexibility, battery storage can help to mitigate the intermittent nature of renewable energy generation and thus secure a reliable power supply even when the sun doesn’t shine or the wind doesn’t blow, to match the energy supply to the times of demand. An increasing number of battery storage systems would lead to a more stable grid consisting of a high number of renewable energy sources. To get renewables to make a breakthrough, we will need widespread dissemination of this decentralized flexibility and the technology to trade it on an intraday market.

The grid benefits from increased flexibility

When a renewable energy source like a solar farm generates less electricity than would be required by the grid, power can be drawn from the storage unit. This way, the storage system closes gaps in supply that would otherwise be closed by other, more expensive sources. By saving up energy for demand at a later time, battery storage is a crucial measure for balancing the consumption of an energy system that consists of renewable sources.

Being operated as stand-alone assets, batteries can deliver ancillary services like frequency response or can shift the energy in co-location with large solar and wind power plants. They can also provide virtual inertia, a factor that will get more important with ever more thermal generators going offline. Inertia is crucial for frequency stability.

With the widespread use of battery storage, peak loads can be handled much easier due to the higher grade of flexibility. This is why battery systems can also be deployed by energy providers, for the sole purpose of offering some flexibility to take the edge of off-peak load hours. Energy suppliers and big industries are able to adapt to the new market circumstances by digitizing their operations. Having system-wide access to stored energy that can be traded algorithmically on an intraday market opens doors to all kinds of optimization. By lowering the energy cost for selected time slots, power suppliers can set incentives on the demand side, which will result in more evenly distributed power consumption.

Marketing your flexibility from battery storage

A rule of thumb is that if you have a high rate of flexible power, you are able to draw cheaper energy from an intraday trading market and minimize the overall energy costs. Today there are several different types of markets where the flexibility from your energy asset can be marketed:

Balancing markets are the most well-known and were created in order to provide grid stability through flexibility, so using them can make sense depending on your goals. However, these markets are characterized by rigid and complex rules, and the barriers to entry are quite high. Pricing is largely influenced by a few large market participants and is run directly by TSOs, which gives them a great degree of control over your plant and your available capacity.

This market where you can profit the most from your flexibility is the continuous intraday market. By buying and selling up until just minutes before the physical delivery of the power, you can take advantage of price fluctuations. Trades happen on a well-organized exchange with friendlier rules and much lower entry barriers. Compared to balancing markets you have much more freedom in decisions as you can change your mind and trade back a position you previously entered at any time if conditions change. 

Trading on the intraday market can be a huge hassle if you have never done it before. Trading manually is extremely challenging nowadays due to increased volume and volatility, an ever-growing number of products, and trades being realized in near real-time. To stay competitive, you need to implement algorithmic trading and automation of the full trading value chain. As we have described before, battery storage is getting more and more ubiquitous and creates an opportunity to profit from this huge energy trading potential. To realize these profits, you need to run your own intraday trading operations, which requires a complex setup including software, sophisticated data analysis, and a specialized team.

Are you interested in marketing your flexibility assets but not sure how to get started? Or just wanting to avoid the hassles of running your own modern intraday trading desk? Our team of experts in AI-based energy trading can take care of it for you, getting you started in no time with full transparency and no risk. Book a non-binding call today.

We hosted two webinars dedicated to exploring the challenges and opportunities of the technology. Learn more about the rise of batteries and cross-market battery optimization.