Value of electrical energy storage: a comparison between commercial and system level benefits

Abstract

There is a drive to transform the electricity industry in the UK from one based largely on fossil fuels to one based on low or zero carbon sources. The challenge of this transition, enabling a secure and sustainable electricity industry at an acceptable cost to consumers, has been dubbed the Energy Trilemma. Grid-connected electrical energy storage presents a potential solution to this challenge. However, the benefits of storage are split across different sectors of the electricity industry and there are a number of regulatory barriers preventing access to revenue streams. One accessible revenue stream is energy trading or price arbitrage. In current market conditions, arbitrage cannot provide sufficient revenue for electricity storage to cover its capital costs; however, some studies have suggested that with increased penetration of intermittent renewable power, electricity price volatility will increase enabling storage to become commercially viable through price arbitrage alone.

This thesis examines the hypothesis that: Increased wind penetration leads to increased commercial opportunities for energy storage through price arbitrage. A linear programme is used to define the optimum operating strategy for a storage device, subject to the constraints of maximum storage capacity, charging and discharging rates, conversion efficiency and self-discharge. Initially, historic electricity prices from the British electricity market are used to investigate the value of storage with a low penetration of intermittent wind power. The results show that revenue is dependent on storage characteristics, with the performance of different technologies varying substantially. Furthermore, revenue is highly dependent on changes in market structure and fuel price variations from one year to the next.

The thesis describes the development of a fundamental electricity price model based on the stacked merit order dispatch of thermal generation bidding to produce electricity in a competitive market centred around marginal generation costs. For peaking plant, an exponential uplift in price is applied to represent scarcity of supply. The implications of increasing wind power output are examined using projections of the location and capacity of future wind farms and spatially distributed hind cast wind speed data generated from a mesoscale atmospheric model.

The analysis highlights that despite increased value being placed on storage in an energy system with a high penetration of wind power, opportunities for arbitrage are, in fact, reduced.

This is a result of an oversupply of electricity on windy days suppressing peak electricity prices and reducing the daily price spread, which arbitrage exploits.