Energy Arbitrage and Battery Storage: Revolutionizing the Electric Grid

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Written By Jasmine Young

Jasmine Young is a passionate writer and researcher specializing in battery technology, with a keen interest in its applications across various industries and its role in shaping a sustainable energy future.

As our world becomes increasingly dependent on electricity, energy storage is becoming a critical solution for delivering the energy we need, when we need it. Energy arbitrage, which allows consumers to buy low and sell high prices of electricity using batteries and other storage solutions, is a popular application of energy storage technology.

In this article, we will explore how energy arbitrage and battery storage are transforming the electric grid and enabling energy independence. We will discuss the benefits for utilities, customers, and the environment, as well as provide real-world examples of how these technologies are being used today. We will also look at the future of energy storage and how advances in technology will shape our energy landscape.

Introduction

With the rise of renewable energy and falling battery storage prices, energy arbitrage is becoming an increasingly popular way for households, utilities, and businesses to achieve energy independence, reduce costs, and create a more sustainable future. Energy arbitrage enables households and businesses to take advantage of time-of-use tariffs and reliable battery storage solutions to buy low during off-peak hours and sell high during peak hours. By using the right capacity and smart energy management system, households can achieve energy independence and reduce their carbon footprint without the need for solar power.

In utility-scale applications, such as at the PJM Interconnection, battery storage systems can take advantage of price spreads by charging during low price hours and discharging during high price hours. This allows utilities to maximize revenue while boosting the use of renewables. Further, renewable energy sources are setting marginal prices, which increases volatility in market prices, creating additional opportunities for battery storage systems to realize profit. Let’s dive into the details of how energy arbitrage and battery storage work at different scales and how they’re changing the energy landscape.

Energy Independence with Energy Arbitrage

The average household in the United States consumes around 30 kilowatt-hours a day of electricity. With peak electricity prices often much higher than off-peak prices, energy arbitrage can provide significant savings on energy bills. Additionally, battery storage can ensure a reliable power supply when on-grid power is not available, or where on-grid power isn’t cost-effective. For greater savings, “peak shaving” is a useful strategy. This method entails charging the battery during the day at off-peak prices and then discharging during peak pricing. This strategy results in lower energy costs, improved efficiency, and reduced grid stress during peak periods, improving grid stability.

Electric utilities will often offer incentives to customers who use energy storage systems with their on-grid power supply systems to balance demand and supply. This provides customers with the added security of uninterrupted power supply, while benefiting utilities with ancillary services such as frequency regulation and ramping responses. Customers with grid-tied battery systems can be compensated for providing services that maintain the stability of the electric grid, and the battery systems can operate independently to power a home in case of a power outage.

Battery storage for energy arbitrage is also an attractive option for businesses who operate during peak hours. The fuel on the margin at those periods is expensive, and with battery storage, businesses can save money by supplementing conventional grid power supply with stored energy. This stored energy can be discharged during peak electricity prices, offering businesses significant savings, and can also offset peak demand, which can reduce overall electricity costs.

By enabling energy independence, businesses and households are not only saving on their energy bills but are also reducing their environmental footprint. By using off-peak electricity to charge their batteries and supplementing peak demand with stored energy, energy consumption is shifting away from grid energy generated from fossil fuels to renewable energy sources. By producing surplus production from renewable sources, households can sell the excess power back to the grid for additional income, providing benefits for both the individual and the environment.

In the next section, we will take a closer look at larger scale energy storage and the benefits it provides.

Utility-Scale Battery Storage and Price Arbitrage

Utility-scale energy storage is playing an ever-increasing role in energy management as its cost falls rapidly due to energy arbitrage opportunities. In the past, utilities without the net-metering option sold excess power to the grid and bought back later. But, with falling battery prices, utilities can now store excess power during low demand hours and sell it during peak hours at higher prices. Battery storage can help utilities curtail their energy costs, reduce their carbon footprint, benefit from renewable energy tax credits, and minimize energy supply interruptions during natural disasters and other grid emergencies.

Utility-scale energy storage also benefits the grid’s stability as its dynamic, dispatchable charging and discharging capacity can respond to changes in energy demand quickly. This addresses one of the biggest challenges associated with intermittent renewable energy sources like wind and solar, which have a less predictable energy output. With grid instability reducing, there is better coordination of power deliveries.

In California, for example, state regulators set a goal in 2018 intending to cover half of California’s retail electricity sales with renewable energy by 2025. To meet this target, California utilities increased the penetration of renewables in the electric grid and implemented energy storage systems to manage the renewal energy load’s variability. The implementation of a 1.2 GWh battery bank at the Moss Landing station helped California advance towards a clean energy standard and enabled energy arbitrage opportunities.

Price arbitrage within a power market is the potential profit that can be derived from the price difference between the quantity of electricity generated by renewable resources at any given moment in time and the demand for that electricity. The price difference fluctuates daily as power demand changes; battery storage enables utilities to take advantage of the highest price point to maximize profits. The battery makes profits by charging up when the energy is cheap and selling it back at a higher price when demand peaks.

The opportunity for battery storage to manage renewable portfolio standards will continue to be relevant as renewable energy sources penetrate the grids more deeply and confidently. Further, with natural disasters increasing in intensity and frequency, energy storage will become critical during these times to ramp up operations and ensure reliable power.

Maximizing Profits with Stochastic Formulations

Evaluating the potential profits of an energy storage system, which is dependent on volatile market processes, is far from straightforward. Variations in the day-ahead hourly price curve, the level of variance in the real-time market, and the level of renewable energy penetration must all be carefully considered.

Therefore, energy engineers continuously explore ways to optimize energy storage with mathematical models in real-time that predict the changing nature of energy prices, allowing them to maximize the profits of energy arbitrage opportunities. One model in particular stands out as effective in addressing the uncertainty surrounding energy arbitrage – the stochastic formulation model.

The utilization of a stochastic formulation model assists storage owners with bidding on market prices and optimizing their operational decisions. This model computes the optimal charging and discharging rates of the energy storage system and the expected profit over a certain horizon. The model’s decision variables that maximize the expected profit are discharging and charging rates. It also takes into account the technical constraints and market regulations, particularly in the PJM interconnection.

This model significantly improves on the deterministic benchmark model to estimate the economic viability of energy storage by considering the stochastic nature of the hourly prices in day-ahead and real-time markets, as well as the stochasticity of load and renewable energy production. A case study based on energy price data from the PJM interconnection market confirms the viability of the model and highlights the potential profits for energy storage owners.

The Future of the Electric Grid with Energy Arbitrage

Energy arbitrage via battery storage is becoming a critical technique for utilities to boost green energy and maximize profits. This trend extends beyond just storing energy during low-load periods: battery storage systems provide various essential services, including ramping responses and frequency regulation, with a direct impact on grid reliability and stability. The electric grid is managed increasingly through energy arbitrage, demand response, load forecasting, and distribution energy resources.

The development of modular batteries with larger storage capacity, longer cycle rates, and more simplified cooling systems, is continuing, enabling even greater economies of scale and energy storage capacity at the grid scale. Whereas 10 MWh utility-scale battery systems have been standard in recent years, next-generation systems of up to 100 MWh are becoming increasingly more common, allowing for more extensive energy storage time frames.

Furthermore, prices for energy storage systems continue to drop as economies of scale, technological innovation, and competition among manufacturers have improved the batteries’ efficiency and lifespan. Indeed, the cost of energy storage systems for large-scale applications has decreased by roughly 78% from 2010 to 2018.

Renewable energy storage is still in its infancy, and the new storage technologies that emerge within the next ten years will shape the next decade of the global energy landscape. Lithium-ion batteries will remain popular, but advancements in new chemistry, product design, and control systems will lead to new kinds of energy storage systems, as well as substantial increases in the system size and extending storage capacity.

Conclusion

Energy arbitrage and battery storage are revolutionizing the electric grid, creating a more sustainable future by enabling energy independence, boosting the use of renewables, and maximizing profits for utilities and businesses. Battery storage systems provide economic benefits to renewable energy providers, utilities, and its customers, primarily through balancing supply and demand with grid-tied battery storage.

The growing number of energy arbitrage opportunities created by energy storage systems has the potential to reduce greenhouse gas emissions, improve grid stability, and make the transition to a more sustainable future less expensive. By considering the stochastic nature of market prices, digital tools and optimization strategies allow battery storage owners to extract value from volatile price markets. The future of battery storage technology is undoubtedly heading towards better performance, lower cost, more extensive energy storage, enabling energy independence from the grid, and an overall more efficient energy system.