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Analyzing the Potential Economic Value of Energy Storage

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  • Monica Giulietti, Luigi Grossi, Elisa Trujillo Baute, and Michael Waterson

Abstract

This paper examines the commercial opportunities for electrical energy storage, taking market prices as given and determining the extent to which a strategy of arbitrage across the day, buying at the lowest price times at night and selling at the highest price times during the early evening, and relying on price forecasts one day-ahead generates profits in the British context. The paper sets out the potential problems as the market moves to absorb increasing amounts of wind, then characterises the nature of prices, which reveals the importance of a strategy in which power is absorbed into store for a relatively few hours of the day and discharged over a relatively few hours. It argues that additional incentives may need to be put into place in order to render storage over relatively longer periods more attractive and to deliver broader social benefits which are unlikely to be generated and captured as a result of purely commercial considerations.

Suggested Citation

  • Monica Giulietti, Luigi Grossi, Elisa Trujillo Baute, and Michael Waterson, 2018. "Analyzing the Potential Economic Value of Energy Storage," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
    • Handle: RePEc:aen:journl:ej39-si1-giulietti
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    References listed on IDEAS

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    1. Grossi, Luigi & Heim, Sven & Waterson, Michael, 2014. "A vision of the European energy future? The impact of the German response to the Fukushima earthquake," The Warwick Economics Research Paper Series (TWERPS) 1047, University of Warwick, Department of Economics.
    2. Esteban, Miguel & Zhang, Qi & Utama, Agya, 2012. "Estimation of the energy storage requirement of a future 100% renewable energy system in Japan," Energy Policy, Elsevier, vol. 47(C), pages 22-31.
    3. Flatley, Lisa & MacKay, Robert S. & Waterson, Michael, 2014. "Optimal strategies for operating energy storage in an arbitrage market," Economic Research Papers 270235, University of Warwick - Department of Economics.
    4. Zafirakis, Dimitrios & Chalvatzis, Konstantinos J. & Baiocchi, Giovanni & Daskalakis, Georgios, 2016. "The value of arbitrage for energy storage: Evidence from European electricity markets," Applied Energy, Elsevier, vol. 184(C), pages 971-986.
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    Cited by:

    1. Intini, Mario & Waterson, Michael, 2020. "Do British wind generators behave strategically in response to the Western Link interconnector?," CAGE Online Working Paper Series 455, Competitive Advantage in the Global Economy (CAGE).
    2. Moita, Rodrigo & Monte, Daniel, 2022. "The limits in the adoption of batteries," Energy Economics, Elsevier, vol. 107(C).
    3. Luigi Grossi & Fany Nan, 2017. "Forecasting electricity prices through robust nonlinear models," Working Papers 06/2017, University of Verona, Department of Economics.
    4. Diego Aineto & Javier Iranzo-Sánchez & Lenin G. Lemus-Zúñiga & Eva Onaindia & Javier F. Urchueguía, 2019. "On the Influence of Renewable Energy Sources in Electricity Price Forecasting in the Iberian Market," Energies, MDPI, vol. 12(11), pages 1-20, May.
    5. Luigi Grossi & Fany Nan, 2018. "The influence of renewables on electricity price forecasting: a robust approach," Working Papers 2018/10, Institut d'Economia de Barcelona (IEB).
    6. Lamp, Stefan & Samano, Mario, 2022. "Large-scale battery storage, short-term market outcomes, and arbitrage," Energy Economics, Elsevier, vol. 107(C).
    7. Best, Rohan & Li, Han & Trück, Stefan & Truong, Chi, 2021. "Actual uptake of home batteries: The key roles of capital and policy," Energy Policy, Elsevier, vol. 151(C).
    8. Waterson, Michael, 2017. "The characteristics of electricity storage, renewables and markets," Energy Policy, Elsevier, vol. 104(C), pages 466-473.
    9. Grossi, Luigi & Nan, Fany, 2019. "Robust forecasting of electricity prices: Simulations, models and the impact of renewable sources," Technological Forecasting and Social Change, Elsevier, vol. 141(C), pages 305-318.
    10. Williams, Olayinka & Green, Richard, 2022. "Electricity storage and market power," Energy Policy, Elsevier, vol. 164(C).
    11. Jafari, Mehdi & Botterud, Audun & Sakti, Apurba, 2022. "Decarbonizing power systems: A critical review of the role of energy storage," Renewable and Sustainable Energy Reviews, Elsevier, vol. 158(C).
    12. Albert Hiesl & Amela Ajanovic & Reinhard Haas, 2020. "On current and future economics of electricity storage," Greenhouse Gases: Science and Technology, Blackwell Publishing, vol. 10(6), pages 1176-1192, December.
    13. Csereklyei, Zsuzsanna & Kallies, Anne & Diaz Valdivia, Andres, 2021. "The status of and opportunities for utility-scale battery storage in Australia: A regulatory and market perspective," Utilities Policy, Elsevier, vol. 73(C).

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