Impact of battery technological progress on electricity arbitrage: An application to the Iberian market

• Published in: Applied energy 2020-02, Vol.260, p.114273, Article 114273
• Main Authors: Arcos-Vargas, Ángel, Canca, David, Núñez, Fernando
• Format: Article
• Language: English
• Subjects: Arbitrage business; BESS; Electricity markets; Mixed-integer programming; Technological progress
• ISSN: 0306-2619; 1872-9118
• DOI: 10.1016/j.apenergy.2019.114273

•A Mixed-Integer Linear Programming arbitrage model has been proposed.•Given hourly electricity prices, the optimal battery configuration is obtained.•Li-Ion arbitrage will be profitable after 2024, thanks to technological progress.•Public Research Funds should encourage research aimed at reducing battery costs. Recent technological advances in power electronics and electrical storage have increased interest in the arbitrage business based on Battery Energy Storage Systems. With this objective, the present work develops a Mixed-Integer Linear Programming model for obtaining optimal electricity sale\purchase strategies with batteries. For each configuration (battery size /inverter size), the model provides an optimal trading strategy. Using this strategy for different configurations and with the current market prices, some financial indicators are calculated in order to select the optimal configuration. Finally, our analysis considers the significant technological progress that has occurred in recent years, the effects on profitability of a reduction in the battery cost, and of an improvement both in the round-trip efficiency and in the battery's lifetime (in terms of the number of cycles). The results indicate that, with current technology, the optimal inverter size for a 10 MWh battery is 3 MW, although, if technological progress continues at the current rate, the arbitrage of electricity by using batteries is expected to be viable from 2024 onwards. Additionally, the effects that different technological improvements (cost, useful life and losses) will have on profitability are calculated,; for example, it is observed that an improvement of 1.6% of the round-trip efficiency and an increase of 1000 life cycles will provide an average increase of 16,000 € and 75,000 €, respectively, in terms of Net Present Value.