IDEAS home Printed from https://ideas.repec.org/a/eee/energy/v290y2024ics0360544223034035.html
   My bibliography  Save this article

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

Author

Listed:
  • Komorowska, Aleksandra
  • Olczak, Piotr

Abstract

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.

Suggested Citation

  • Komorowska, Aleksandra & Olczak, Piotr, 2024. "Economic viability of Li-ion batteries based on the price arbitrage in the European day-ahead markets," Energy, Elsevier, vol. 290(C).
    • Handle: RePEc:eee:energy:v:290:y:2024:i:c:s0360544223034035
    DOI: 10.1016/j.energy.2023.130009
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0360544223034035
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.energy.2023.130009?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Behnam Zakeri & Katsia Paulavets & Leonardo Barreto-Gomez & Luis Gomez Echeverri & Shonali Pachauri & Benigna Boza-Kiss & Caroline Zimm & Joeri Rogelj & Felix Creutzig & Diana Ürge-Vorsatz & David G. , 2022. "Pandemic, War, and Global Energy Transitions," Energies, MDPI, vol. 15(17), pages 1-23, August.
    2. Nicolli, Francesco & Vona, Francesco, 2019. "Energy market liberalization and renewable energy policies in OECD countries," Energy Policy, Elsevier, vol. 128(C), pages 853-867.
    3. Hilbers, Adriaan P. & Brayshaw, David J. & Gandy, Axel, 2023. "Reducing climate risk in energy system planning: A posteriori time series aggregation for models with storage," Applied Energy, Elsevier, vol. 334(C).
    4. Rubasinghe, Osaka & Zhang, Tingze & Zhang, Xinan & Choi, San Shing & Chau, Tat Kei & Chow, Yau & Fernando, Tyrone & Iu, Herbert Ho-Ching, 2023. "Highly accurate peak and valley prediction short-term net load forecasting approach based on decomposition for power systems with high PV penetration," Applied Energy, Elsevier, vol. 333(C).
    5. Dalala, Zakariya & Al-Omari, Murad & Al-Addous, Mohammad & Bdour, Mathhar & Al-Khasawneh, Yaqoub & Alkasrawi, Malek, 2022. "Increased renewable energy penetration in national electrical grids constraints and solutions," Energy, Elsevier, vol. 246(C).
    6. Bradbury, Kyle & Pratson, Lincoln & Patiño-Echeverri, Dalia, 2014. "Economic viability of energy storage systems based on price arbitrage potential in real-time U.S. electricity markets," Applied Energy, Elsevier, vol. 114(C), pages 512-519.
    7. Khan, Khalid & Su, Chi Wei & Khurshid, Adnan & Qin, Meng, 2023. "Does energy security improve renewable energy? A geopolitical perspective," Energy, Elsevier, vol. 282(C).
    8. Simla, Tomasz & Stanek, Wojciech, 2020. "Reducing the impact of wind farms on the electric power system by the use of energy storage," Renewable Energy, Elsevier, vol. 145(C), pages 772-782.
    9. Lepszy, Sebastian, 2020. "Analysis of the storage capacity and charging and discharging power in energy storage systems based on historical data on the day-ahead energy market in Poland," Energy, Elsevier, vol. 213(C).
    10. Francesco Nicolli & Francesco Vona, 2019. "Energy market liberalization and renewable energy policies in OECD countries," SciencePo Working papers Main hal-02562707, HAL.
    11. Dirin, Sepehr & Rahimiyan, Morteza & Baringo, Luis, 2023. "Optimal offering strategy for wind-storage systems under correlated wind production," Applied Energy, Elsevier, vol. 333(C).
    12. De Rosa, Mattia & Gainsford, Kenneth & Pallonetto, Fabiano & Finn, Donal P., 2022. "Diversification, concentration and renewability of the energy supply in the European Union," Energy, Elsevier, vol. 253(C).
    13. Núñez, Fernando & Canca, David & Arcos-Vargas, Ángel, 2022. "An assessment of European electricity arbitrage using storage systems," Energy, Elsevier, vol. 242(C).
    14. Dominik Kryzia & Michał Kopacz & Katarzyna Kryzia, 2020. "The Valuation of the Operational Flexibility of the Energy Investment Project Based on a Gas-Fired Power Plant," Energies, MDPI, vol. 13(7), pages 1-16, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Jemma J. Makrygiorgou & Christos-Spyridon Karavas & Christos Dikaiakos & Ioannis P. Moraitis, 2023. "The Electricity Market in Greece: Current Status, Identified Challenges, and Arranged Reforms," Sustainability, MDPI, vol. 15(4), pages 1-40, February.
    2. Martínez-Jaramillo, Juan Esteban & van Ackere, Ann & Larsen, Erik, 2023. "Long term impacts of climate change on the transition towards renewables in Switzerland," Energy, Elsevier, vol. 263(PE).
    3. V.V. Krivorotov & A.V. Kalina & S.E. Erypalov & P.A. Koryakina, 2021. "Energy Efficiency of Russian Copper Companies as a Basis for Ensuring Their Global Competitiveness," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 20(3), pages 428-460.
    4. Naimeh Mohammadi & Hamid Mostofi & Hans-Liudger Dienel, 2023. "Policy Chain of Energy Transition from Economic and Innovative Perspectives: Conceptual Framework and Consistency Analysis," Sustainability, MDPI, vol. 15(17), pages 1-27, August.
    5. Bjørndal, Endre & Bjørndal, Mette Helene & Coniglio, Stefano & Körner, Marc-Fabian & Leinauer, Christina & Weibelzahl, Martin, 2023. "Energy storage operation and electricity market design: On the market power of monopolistic storage operators," European Journal of Operational Research, Elsevier, vol. 307(2), pages 887-909.
    6. Przemysław Kaszyński & Aleksandra Komorowska & Jacek Kamiński, 2023. "Revisiting Market Power in the Polish Power System," Energies, MDPI, vol. 16(13), pages 1-23, June.
    7. Shabani, Masoume & Wallin, Fredrik & Dahlquist, Erik & Yan, Jinyue, 2023. "The impact of battery operating management strategies on life cycle cost assessment in real power market for a grid-connected residential battery application," Energy, Elsevier, vol. 270(C).
    8. Vona, Francesco, 2023. "Managing the distributional effects of climate policies: A narrow path to a just transition," Ecological Economics, Elsevier, vol. 205(C).
    9. Eitan, Avri, 2023. "How are public utilities responding to electricity market restructuring and the energy transition? Lessons from Israel," Utilities Policy, Elsevier, vol. 82(C).
    10. Lee, Sang Ho & Choi, Daewoung Joey & Han, Seung Hun, 2023. "Corporate cash holdings in response to climate risk and policies," Finance Research Letters, Elsevier, vol. 55(PA).
    11. Ikechi Emmanuel, Michael & Denholm, Paul, 2022. "A market feedback framework for improved estimates of the arbitrage value of energy storage using price-taker models," Applied Energy, Elsevier, vol. 310(C).
    12. Bonnet, Paolo & Olper, Alessandro, 2024. "Party affiliation, economic interests and U.S. governors’ renewable energy policies," Energy Economics, Elsevier, vol. 130(C).
    13. George E. Halkos & Apostolos S. Tsirivis, 2023. "Sustainable Development of the European Electricity Sector: Investigating the Impact of Electricity Price, Market Liberalization and Energy Taxation on RES Deployment," Energies, MDPI, vol. 16(14), pages 1-21, July.
    14. Jianjun Kang & Delin Huang, 2023. "Examining the Effect of Privatization on Renewable Energy Consumption in the Digital Economy under Economic Patriotism: A Nonlinear Perspective," Sustainability, MDPI, vol. 15(7), pages 1-13, March.
    15. McConnell, Dylan & Forcey, Tim & Sandiford, Mike, 2015. "Estimating the value of electricity storage in an energy-only wholesale market," Applied Energy, Elsevier, vol. 159(C), pages 422-432.
    16. Peng, Benhong & Zhao, Yinyin & Elahi, Ehsan & Wan, Anxia, 2023. "Can third-party market cooperation solve the dilemma of emissions reduction? A case study of energy investment project conflict analysis in the context of carbon neutrality," Energy, Elsevier, vol. 264(C).
    17. Pejman Bahramian, 2021. "Integration of wind power into an electricity system using pumped-storage: Economic challenges and stakeholder impacts," Working Paper 1480, Economics Department, Queen's University.
    18. Tinta, Abdoulganiour Almame, 2023. "Energy substitution in Africa: Cross-regional differentiation effects," Energy, Elsevier, vol. 263(PA).
    19. Asante, Dennis & He, Zheng & Adjei, Nana Osae & Asante, Bismark, 2020. "Exploring the barriers to renewable energy adoption utilising MULTIMOORA- EDAS method," Energy Policy, Elsevier, vol. 142(C).
    20. Hakimi, Abdelaziz & Hamdi, Helmi, 2016. "Trade liberalization, FDI inflows, environmental quality and economic growth: A comparative analysis between Tunisia and Morocco," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 1445-1456.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:energy:v:290:y:2024:i:c:s0360544223034035. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.journals.elsevier.com/energy .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.