More battery capacity needed to eliminate negative prices – expert

• With growing occurence of negative prices amid renewable penetration, more battery storage capacity will be needed
• Wide intra-day spreads to remain top revenue option for BESS, but margins can tighten as more capacity comes online
• Cross-markets optimization, battery degradation among key challenges for operators

LONDON (ICIS)–Batteries can help mitigate negative wholesale power prices and wide intraday spreads but there is currently not enough capacity installed to eliminate them, Pierre Lebon, director of analytics at cQuant.io, told ICIS in an interview.

Nevertheless, as new battery energy storage system (BESS) capacity comes online, it is likely that the occurrence of negative power prices will decrease, the expert noted.

ICIS Analytics showed increased flexibility will be crucial in the long-run to improving solar capture prices, though expansion of battery and electrolyser capacity will remain far below the level of renewable expansion in the next few years.

The latest ICIS analytics models predict 63.3GW battery storage capacity for EU countries by 2035.

The European resource adequacy assessment, ENTSO-E’s annual assessment of the risks to EU security of electricity supply for up to 10 years ahead, showed Germany would be a leader in battery capacity growth across the bloc, while outside EU, the UK has the highest available capacity.

It is difficult to identify an optimal ratio of renewable capacity to BESS, as many factors must be taken into account and the supply balance will ultimately depend on each country’s generation mix and demand profile, as well as variable weather conditions.

As of September, the number of hours with negative prices in Germany more than doubled to 373 compared to 166 in 2023.  These could have been mitigated by an adequate battery storage capacity, in turn reining in some price spikes in times of lower renewable supply.

DURATION

The vast majority of battery systems in Europe are currently two- to four-hour batteries and “that’s mostly for economic reasons,” Lebon said.

“If you have a four-hour battery, if you divide the power by two, you get an eight-hour battery. So you can change the duration if you change the capacity, it then becomes a matter of financial optimization,” he explained.

There are currently new technologies such as iron salt battery (ISB) – also known as iron redox flow  battery (IRFB) – which can allow to build battery storage plants with a duration of up to 12-24 hours, however Lebon noted that, while the market is already looking into these technologies, they are still in early development.

This seems confirmed by calculations from ICIS based on ERAA data, showing short (one hour) and medium (four hour) duration batteries will remain the preferred technology for the coming years.

 

REVENUES OPTIONS

Operators don’t necessarily need to have a negative power price to have a profitable battery, since BESS make money on the spread between the lowest price of the day or based on the duration that they can capture, Lebon explained.

“It [negative power prices] adds the extra cherry on top of the cake, which is that you get paid to actually charge the battery,” he said.

In markets with a strong ‘duck-shaped’ intra-day curve, the battery operators “can see a lot of value in intra-day trading” and less so on the ancillary services markets, Lebon added.

Ancillary services like frequency regulation, voltage control, reserves and black start capabilities are needed to maintain power grids stability and guarantee an uninterrupted supply of electricity.

Lebon noted that while battery operators typically consider the potential revenue from both intraday power markets and ancillary services, the stability of the revenue structures associated with the ancillary markets is often questioned. This is because transmission system operators (TSOs) and regulators tend to frequently change the rules and conditions of these markets.

While cross-markets optimization – operating both on intraday and ancillary markets to maximize revenue sources – is possible, technical constraints or the legal paperwork needed to access ancillary markets can lead some operators to prioritize only one of these depending on the company’s structure and resources, the expert noted.

INVESTING NOW?

Penetration of batteries into European markets can reduce intra-day spreads, tightening margins for battery operators.

Experts have previously told ICIS that early investors could benefit more from current wide power prices spreads than waiting for cheaper technologies.

“The longer it takes for that technology to come in, the more likely it is that this technology will come [online] at a time where the spreads are crushed [by more battery storage capacity being installed],” Lebon added.

BATTERY DEGRADATION

The degradation of current lithium-ion utility-scale battery systems depends on several factors, including technology, number of cycles and temperatures.

ICIS understands the typical yearly degradation can range between 2-5% and plants lifespan between 10-20 years, as reported in the lifetime warranty provided by some producers. A study by the US National Renewable Energy Laboratory indicated 15 years as the median lifespan based on several published values.

Degradation is a key challenge in the optimization of battery assets, Lebon noted, adding that operators need to ensure their cycles strategy is compatible with manufacturers’ instructions and warranty.