Wholesale Energy Markets

A BESS can participate in the wholesale energy market by buying and selling energy to and from the grid. This allows the BESS to take advantage of price fluctuations in the market to generate revenue. Basically, the battery energy storage system is charged when prices on wholesale energy markets, e.g. the spot market of the energy exchange, are low. Subsequently, the battery energy storage system is discharged when prices on wholesale markets are high and power is sold back to the grid. Depending on the structure of the specific wholesale energy market, the BESS will usually be optimized on very short notice, for example when trading on intraday markets.

This form of market participation of battery storage is often called arbitrage and is very common.

Arbitrage Trading with a BESS

Arbitrage trading with a Battery Energy Storage System (BESS) is a strategy that involves buying energy at a low price and selling it at a higher price. This is done by taking advantage of the difference in energy prices at different times of the day or different days of the week. The BESS is used to store energy when it is cheaply available, and then release it when prices are higher.

For example, let's assume that a BESS is connected to a wholesale energy market and the prices are lower during the night time and higher during the day time, the BESS can buy energy during the night when the prices are low and store it in the battery. Then, during the day when the prices are higher, the BESS can release the stored energy back into the market, effectively selling it at a higher price.

Renewables and Short Term Price Volatility

The relationship between renewable energy and short-term power price volatility in wholesale markets can be complex, as it depends on a variety of factors such as the penetration level of renewable energy, the availability of storage, and the flexibility of the system.

Generally speaking, as the penetration level of renewable energy increases, the short-term power price volatility can also increase due to the intermittent nature of renewable energy sources such as solar and wind. This is because the output from these sources can fluctuate rapidly, causing fluctuations in supply and demand and resulting in higher price volatility.

However, the integration of energy storage systems such as Battery Energy Storage Systems (BESS) can help to mitigate the impact of renewable energy on short-term power price volatility by providing a way to store excess energy when it is available, and release it when it is needed. This can help to smooth out the fluctuations in supply and demand and reduce the volatility of power prices.

Additionally, having a flexible power system that can quickly respond to changes in supply and demand can also help to reduce the impact of renewable energy on short-term power price volatility. This can include having a diversified energy mix, having flexible conventional power plants, and having demand-side management options.

It's important to note that the relationship between renewable energy and short-term power price volatility can vary depending on the specific market conditions and the specifics of the power system.

Defining Short Term Price Volatility in Electricity Wholesale Markets using an Example?

Short-term price volatility in electricity wholesale markets refers to the fluctuations in the price of electricity over a relatively short period of time, typically on the order of minutes, hours, or days. It is a measure of how much and how frequently the prices change. It can be caused by various factors such as changes in supply and demand, weather conditions, unexpected outages, and so on.

For example, if in a given market, the price of electricity is $50/MWh in the morning, $100/MWh in the afternoon, and $70/MWh in the evening, that would be considered high short-term price volatility. On the other hand, if the price remains relatively stable at $80/MWh throughout the day, the volatility would be considered low.

This price volatility can have a significant impact on the operation of the electricity market, as it can affect the revenues and costs of generators, the profits of retailers, and the price paid by consumers. It can also create uncertainty for market participants and make it difficult for them to make investment decisions.

It is worth noting that the price volatility may differ depending on the market design and regulations, as well as the characteristics of the power system, such as the penetration level of renewable energy, the availability of storage and the flexibility of the system.

Ancillary Services Market

Additionally, the BESS can also participate in ancillary services markets, providing services such as frequency regulation, peak shaving, and black start capability. This way, the BESS can provide these services during the times when they are needed the most, and charge the battery when they are not needed, taking advantage of the price differences between the different services.

Balancing Market

The balancing market often being part of the broader ancillary services market, a BESS can participate in the balancing market by providing balancing services to the grid operator, usually the Transmission System Operator (TSO). This includes services such as frequency regulation, which helps to balance the supply and demand of energy on the grid. Due to its fast reaction capabilities and short lead times for charging and discharging, battery energy storage is well positioned for the most advanced products on balancing markets, such as Frequency Containment Reserves (FCR) in Europe.

Capacity Market

A BESS can participate in the capacity market by providing reliable backup capacity to the grid, this way the grid operator can call on the BESS to provide energy during peak periods, to avoid brownouts or blackouts.

Transmission and Distribution Markets

Depending on the respective national energy system, BESS can also participate in the transmission and distribution markets, by providing services such as voltage regulation and line loss reduction to the transmission and distribution system.

Value Stacking

Value stacking is a strategy for trading with a Battery Energy Storage System (BESS) that involves participating in multiple revenue streams simultaneously, in order to maximize the overall value of the BESS. This can be achieved by providing multiple services to the grid and participating in multiple energy markets.

For example, a BESS can participate in both the wholesale energy market and the balancing market. During times of low demand, the BESS can buy energy at a low price and store it in the battery. Then, during times of high demand, the BESS can release the stored energy back into the market at a higher price, effectively participating in the wholesale energy market. The BESS can also provide balancing services to the grid operator, such as frequency regulation, by releasing energy into the grid to balance the supply and demand, earning revenue from this service as well.

Another example, a BESS can participate in the ancillary services market, providing services such as black start capability and spinning reserve, and also participating in the capacity market by providing capacity to the grid.

Value stacking allows the BESS to generate multiple streams of revenue from a single asset and to take advantage of different pricing structures in different markets. It also enables to increase the overall revenue potential and to provide more benefits to the grid and the society. However, it also requires a good understanding of the different markets, regulations and the flexibility of the BESS and the control system.

Route to Market for Battery Energy Storage Systems

The route to market for battery energy storage usually goes through the control system of an energy trader resp. virtual power plant (a group of distributed energy resources that are aggregated and controlled as a single entity to provide different services to the grid).

It is worth noting that different markets have different rules and regulations, and that the specific opportunities for market participation will depend on the location of the BESS and the regulations in place.