The rise of renewables, especially solar energy, has created a new opportunity for the battery business. If we’ve seen anything in recent months, especially during the summer, it’s that electricity prices can reach zero, if not negative. This means that it can be very profitable for some companies to buy electricity during those cheap times, store it, and remove it again when demand increases and production is not so high.
However, all that seems is not gold and, rightly so, this trend could have a reverse effect that will jeopardize the viability of some parks in the future.
It all starts in the electricity market. In the daily energy market, buying and selling are negotiated for each hour of the next day. Offers are accepted based on various factors, such as economic viability or available interconnection capacity, as explained by Omie. To check the effectiveness of these offers, the auction results are passed through the system operator, who verifies them from a technical point of view.
But the forecast may change. That’s why the intraday market exists, allowing participants to adjust their positions ahead of the supply of electricity, depending on how demand, renewable generation and the rest of the system’s conditions develop.
Intraday spreads. This is where an indicator comes into play: the intraday spread. This is the price difference between the cheapest time of day (which is usually the central hour when photovoltaic production is highest) and the most expensive (when nighttime starts to decrease, but electricity demand is not). This difference expresses the hourly profit margin for buying and selling energy during low-cost hours or downloading through the storage system during high-cost hours.
A higher intraday spread may encourage greater participation by companies in the electricity market, attracted by the value that storage systems have.
What happened this summer? El Periódico de la Energía reports that the monthly average of the one-hour intraday spread in September in our country was 215.37 euros/MWh. This figure is even compared to August, which was 195.29 euros/MWh, a month of, in general, good solar resources (albeit with high electricity demand).
What all this shows is that Spain seems to be a good scenario for the development of the battery market, a horizon where Europe is betting very strongly on its energy transition strategies. The problem is that the conditions that make these projects attractive today may change radically in the coming years.
An effect that can be reversed. However, the fact that there is a large difference in electricity prices today does not mean that batteries will maintain that income throughout their useful life. As energy consulting firm AleaSoft Energy Forecasting explains, the profitability of storage systems can also be affected by other factors, such as the ability to transport stored energy, battery degradation characteristics and duration, and other operational constraints.
Added to these factors is something fundamental: the fact that the expansion of storage itself can change prices to such an extent that intraday spreads are not so economically attractive. This is known as cannibalization.
Cannibalism vs. Financing. This factor may occur because, by implementing battery systems that charge at a lower cost, the demand for electricity will increase. Also the other way around: when expensive prices come in and batteries are discharged, they will increase the available supply. That is, this price difference between loading and unloading will decrease. This introduces a problem for financing new projects. If your revenue forecast is based on current price spreads, you may overestimate your long-term profitability. And that makes it difficult for financial institutions to consider certain investments viable.
Opportunities will continue. Cannibalization does not mean that batteries will not be profitable or that their installation should cease. Rather, it means that business cannot rely solely on the price differentials that we see today. In order to make projects financeable, it will be necessary, as Telkes said by AleaSoft, to establish consistent assumptions about installed power and operations.
Along with this, there is a need to have hourly forecasts considering different trajectories of electrical systems with less favorable conditions. Only in this way will projects be able to demonstrate long-term, attractive for financing and proposals for continuing to gain market momentum for renewable energy compared to other options.
Picture | Virtue Solar
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