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Estimation of Internal Rate of Return for Battery Storage Systems with Parallel Revenue Streams: Cycle-Cost vs. Multi-Objective Optimisation Approach

Author

Listed:
  • Jura Jurčević

    (Faculty of Economics & Business, University of Zagreb, 10000 Zagreb, Croatia)

  • Ivan Pavić

    (Faculty of Electrical Engineering and Computing, University of Zagreb, 10000 Zagreb, Croatia)

  • Nikolina Čović

    (Faculty of Electrical Engineering and Computing, University of Zagreb, 10000 Zagreb, Croatia)

  • Denis Dolinar

    (Faculty of Economics & Business, University of Zagreb, 10000 Zagreb, Croatia)

  • Davor Zoričić

    (Faculty of Economics & Business, University of Zagreb, 10000 Zagreb, Croatia)

Abstract

This paper assesses the profitability of battery storage systems (BSS) by focusing on the internal rate of return (IRR) as a profitability measure which offers advantages over other frequently used measures, most notably the net present value (NPV). Furthermore, this study proposes a multi-objective optimisation (MOO) approach to IRR estimation instead of relying on the simple linear optimisation and compares the results to the popular linear optimisation with battery cycle-cost penalty. The analysis is conducted under perfect foresight conditions by considering multiple revenue streams: arbitrage trading in the day-ahead and intraday markets, peak shaving, participating in the primary reserves market, and from photovoltaic (PV) power-generation unit. Data are collected for the German power market for 2017 and 2021. The results show that MOO approach yields similar IRR estimates to the cycle-cost model in 2017. However, higher market volatility and increased electricity prices in 2021 resulted in tangible differences. The analysis shows that, if such conditions are coupled with a low battery capacity price, the MOO method significantly outperforms the cycle-cost model. The effects of battery calendar lifetime and state of charge which decrease profitability are also considered. Nevertheless, a noticeable rise in profitability in 2021 relative to 2017 could provide enough compensation to address the issue of relatively poor viability track record.

Suggested Citation

  • Jura Jurčević & Ivan Pavić & Nikolina Čović & Denis Dolinar & Davor Zoričić, 2022. "Estimation of Internal Rate of Return for Battery Storage Systems with Parallel Revenue Streams: Cycle-Cost vs. Multi-Objective Optimisation Approach," Energies, MDPI, vol. 15(16), pages 1-17, August.
    • Handle: RePEc:gam:jeners:v:15:y:2022:i:16:p:5859-:d:886682
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    References listed on IDEAS

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