Economic viability of Li-ion batteries based on the price arbitrage in the European day-ahead markets

• Published in: Energy (Oxford) Vol. 290; p. 130009
• Main Authors: Komorowska, Aleksandra, Olczak, Piotr
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01-03-2024
• Subjects: Day-ahead market; Energy storage; European Union; Li-ion batteries; Price arbitrage; Price arbitrage; Day-ahead market; European Union; Li-ion batteries; Energy storage
• ISSN: 0360-5442
• DOI: 10.1016/j.energy.2023.130009

The accelerating increase in the power capacity of intermittent renewable energy sources has a significant impact on the operation of power systems. First, it causes a growth in electricity price volatility in energy markets. Second, it requires balancing the system to meet the demand also in windless hours at night. Li-ion batteries, as a promising energy storage technology, are considered a response to the abovementioned challenges. However, their use must generate profits to encourage potential investors. With this in mind, the objective of this paper is to examine the economic profitability of Li-ion batteries based on price arbitrage in the European day-ahead market. For this purpose, 7 years of data from 22 European markets are analysed. These data are multiplied to maintain the volatility of electricity prices within the entire lifetime of the energy storage system. The results provide for each country (i) sets of hours of electricity purchase and sale that corresponds to hours of storage charging and discharging, (ii) a number of charging/discharging cycles, (iii) potential profits of transactions in day-ahead markets, and (iv) net present values of investments for current and projected costs. The study contributes to the existing literature by pointing out the most competitive markets for Li-ion batteries, depending on economic results, market size and renewable generation in power systems. The results of NPV are below zero in each case analysed when the current capital cost is considered. However, a reduction of capital costs increases the profitability of the system, indicating Finnish and Romanian markets as the most competitive for Li-ion batteries.
•Volatility of wholesale electricity prices is analysed.•The profitability of Li-ion batteries in European day-ahead markets is compared.•With the current costs of the system, NPV is below zero in all countries.•Price arbitrage is profitable when a forecast reduction in capital costs is assumed.•Finish and Romanian markets are the most competitive.