Battery storage systems are described as a key technology in the German energy revolution. Thanks to their ability to react quickly to imbalances in the power supply, they can be used in a variety of ways.
If the storage system is active on energy markets, price signals on power exchanges and balancing power markets control the charging and discharging behavior of the storage system. In addition, the storage system is able to provide non-frequency-based services such as improving voltage management and network inertia. Should there be bottlenecks in the power grid, the storage system can specifically counteract them by using it in redispatch. The use of battery storage systems for grid stabilization and infrastructure can avoid lengthy network expansion.
A battery storage system with a suitable strategy is able to combine network-friendly behavior with market-oriented action. This interaction makes it possible to address and reduce some of the biggest problems in the energy system. For example, the storage system can contribute to more effective integration of renewables into the electricity system, to reducing electricity costs for end users, but also to improving voltage maintenance. Not all positive influences can be quantified equally. For this reason, in this article, we are focusing on the market activity of storage systems on the day-ahead electricity market. In doing so, we analyse how the battery storage system's response to market signals can generate added value.
The behavior of battery storage systems on the electricity markets results in long-term ecological and economic benefits. For example, the charging and discharging strategy of a battery storage system can result in more electrical energy being used from renewable sources. In addition to these ecological aspects, the use of battery storage systems can already save German (and European) citizens money today. This effect, which the expansion of storage capacity in Germany has on electricity pricing, is explained and quantified by way of example below.
Based on the goals set by the network development plan of 23.7 GW of additional storage capacity by 2030, the expansion of storage projects must be significantly accelerated. As of now (November 2023), Germany has just 1.2 GW of storage capacity through large battery storage systems. Kyon Energy would like to make its contribution to driving forward the expansion so that the storage projects can develop their added value in a timely manner. For this reason, the following calculations look at the projects that Kyon will implement in the short term. This analysis results in the additional installed output and capacity of 3 GW/6 GWh. The calculations carried out assume that these large battery storage systems are already active on the day-ahead market today. The charging and discharging behavior of storage systems is controlled by price signals on the day-ahead market. In addition, the battery level (state of charge) and the maximum limit on the daily number of cycles (1.5 cycles per day) must be taken into account.
Especially on days with extreme price fluctuations on power exchanges, the cost savings for electricity customers thanks to storage can be particularly high. Price fluctuations result in a high demand for market stabilization. Therefore, a summer day in 2023 (11.06.2023) is used as an example below.
Assuming that the price elasticity of demand for loaded and unloaded energy is negligible, the additional storage capacity would be used as shown in Figure 2. The times of loading and unloading were determined by a linear optimization model, which determines the activity of the memories in accordance with the above-mentioned boundary conditions.
The illustrations provide examples of direct correlations between load profile, the supply of renewable energy and the prices of the day-ahead market for June 11, 2023. Such energy, which exceeds domestic demand for electricity, leads to an oversupply, which can be partly offset by exports. It also causes electricity prices to fall into negative territory on the day-ahead market in some periods. Negative prices are therefore a market signal of an oversupply of electricity compared to domestic demand. The storage system can counteract this through targeted charging processes, as this increases the demand for electrical energy.
Sharply rising electricity prices on the day-ahead market are in turn a sign that there are high demands for electrical energy. By discharging the storage device, triggered by the price signal, the supply of electricity can be increased and thus the high demand can be met in part. As shown in Figure 2, such high market prices occur primarily in times when only a small amount of energy from solar and wind is fed into the grid. Unloading when demand is high means that peak load power plants with high marginal costs for electricity production are less active.
The feed-in capacity of renewable energies is therefore not decisive for storage activity, but is a relevant factor due to its influence on electricity price formation. Charging and discharging behavior is determined by price signals on the day-ahead market. Price peaks and falls on the electricity markets are absorbed and market resilience is thus strengthened. This behavior, together with the existing mechanisms for electricity pricing, is leading to a reduction in the costs of electrical energy.
Regardless of the weather conditions of the day, the battery storage system operates in such a way that it charges when demand is low — and therefore low prices — and discharges when demand is high and therefore expensive electricity prices. The two effects described have an opposite effect on the costs that citizens have to pay for electricity.
The amount of payments that end consumers have to make for electrical energy depends on the marginal costs of the power plants used. These generation capacities of all power plants are sorted in ascending order in the Merit order list. Pricing is based on the pay-as-cleared principle: All power plants used receive payments equal to the marginal costs of the most expensive activated power plant block. The pricing of the total electricity requirement is therefore influenced by the charging and discharging activity of the storage device. Thanks to the approximate convex nature (see Figure 3) of the Merit order list, the price reduction prevails when unloading, the price increase when charging the memory.
The consumer pension resulting from the price differences (reduction in procurement costs for electrical energy due to lower demand) at the time of discharge is greater than the producer pension (increase in procurement costs due to increased demand) at the time of charging. Overall, all consumers therefore incur lower costs due to the consumption of electrical energy.
Through modelling, this consideration can be transferred to the activity of the Kyon Energy Pipeline on the intra-day market. For this purpose, the described linear optimization model was initially used as a 'timetable' for the storage system. In a second step, it is determined whether and to what extent the additional input and output capacity created has an influence on electricity production from fossil fuels. By comparing the required generation capacities and a merit order list published by the research project “EWI Merit Order Tool 2022” by the Institute of Energy Sciences at the University of Cologne, the marginal costs of the corresponding fossil production capacities required can be determined. If this is done for the required generation capacity before and after the use of battery storage systems, the difference in marginal costs for electricity production can be determined. To simplify matters, it is assumed that the difference in marginal costs from the merit order list can be transferred to the pricing of the day-ahead market. The savings or additional costs resulting from each individual charging movement of the storage device can be calculated accordingly.
If the modelling is applied to the exemplary summer day, it becomes apparent that the savings outweigh the additional costs, as shown in Figure 4.
The example shows that at the time of charging, depending on the available generation capacities, additional activations of power plants with low costs may be necessary to produce electricity. Charging can therefore lead to a slight increase in the price of electricity (referred to here as a reduction in savings) if there is no surplus of renewable energy.
However, the cost savings when discharging the power storage device are significantly more significant. At the time of discharge, the demand for electricity exceeds the production of renewable energy sources. Feeding in the buffered electricity reduces the need for electrical energy at the time of discharge. By reducing the demand for electricity production, the power plants with the highest marginal costs are falling short of meeting demand. This lowers the price of electricity.
The total expenditure on the procurement of electrical energy will be significantly reduced on the day in question due to the use of storage systems. The behavior of electricity storage systems on the electricity market results in savings for electricity customers.
The calculation carried out earlier as an example can be extended to any period of time in order to determine what savings the Kyon Pipeline would have generated in the first three quarters of this year. The loading and unloading movement of the 3GW/6GWh Kyon pipeline was therefore simulated for every day for the first ten months of 2023. By means of these loading and unloading movements, conclusions can be drawn about differences in demand and maximum marginal costs of fossil power generation. Transferring the cost difference to day-ahead markets results in savings of 298.42 million euros in just the first 10 months of the year. This corresponds to a cost reduction of 0.7886 EUR/ MWh of generated electrical energy. As a result of the upcoming winter months, these cost savings would increase significantly by the end of the year, as the use of peak load power plants can be avoided here particularly often.
With a share of 28% of final energy consumption in Germany, households (total consumption of 339.413 million MWh) could have already saved over 83 million euros this year through storage.
Especially in times of severe fluctuations on power exchanges, the integration of energy storage systems brings great added value. Therefore, the use of the Kyon pipeline in 2022, which is characterized by instability, would even have resulted in savings of 657.813 million euros (or 1.363 EUR/MWh). The year 2022 was characterized by high prices and, in some cases, supply bottlenecks for fossil fuels. At the same time, less (cheap) electricity could be imported from neighboring countries. These two aspects, together with the even smaller expansion of renewable energy plants, meant that expensive peak-load power plants were often used to meet high demand volumes. Together with high spreads on power exchanges, there was a high potential for battery storage systems to smooth out prices.
Such times, characterized by instability and the increased use of peak load power plants, increase the costs of German energy supply. Battery storage systems are able to counteract such instability and thus improve the resilience of electricity markets. Through political action and increasing expansion of renewable energies, external dependencies for domestic power generation should be reduced in the future. It is therefore expected that the year 2022 will remain the exception.
Nonetheless, this example shows the relevance of a crisis-resistant energy supply, to which battery storage systems can make a contribution.
Modelling the behavior of large battery storage systems on the day-ahead market indicates what influence they can have on electricity prices on the market. The further expansion of storage capacities can therefore lead to immediate cost savings for electricity customers, in industrial and private sectors.
As described at the beginning of the article, the added value that battery storage systems can provide from an economic perspective is not limited to reducing electricity prices. In order to fully describe and quantify the effects, a further analysis is required. Together with other players from the storage industry, Kyon is committed to making the benefits of battery storage systems visible. Derived from the described added value of storage, we plead for the removal of regulatory hurdles in the development of storage projects by creating a transparent framework. This is in particular to ensure the introduction of your feed-in regulation for storage technologies (SpeicherNAV) and the exemption from payments for construction subsidies when connected to the grid
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