The North American electricity sector is making significant progress toward decarbonizing its power supply as solar and wind become major contributors. However, electric grid operators are increasingly challenged by the intermittent nature of these renewable energy sources. During peak demand, they are not always available. At other times, they generate too much power and cause congestion — a condition in which there is not enough capacity on transmission lines to transmit the excess power. These supply-demand imbalances affect grid reliability and cause volatile electricity prices.
Large-scale battery energy storage is widely viewed as a key to solving these challenges. Storage can absorb excess renewable supply and inject power into the grid when supply is insufficient to meet demand. These numbers reflect the optimism about storage: The U.S. Energy Information Administration expects the deployment of 10 gigawatts of grid storage in the U.S. between 2021 and 2023 — 10 times the storage capacity in 2019.
Despite the optimism, there is great uncertainty about how storage will affect the grid. To continue providing reliable, affordable electric service, utilities and other power providers need robust electricity market data to understand many aspects of storage systems, such as their ability to balance the grid and their maintenance costs.
Informing the most effective operational strategies
Many storage operators today provide the grid with ancillary services, which involve timing the charging and discharging of batteries to balance energy supply and demand, regulate frequency and voltage and stabilize the grid. They can sell these services to the grid operator through ancillary service markets. Utilities and other companies operating storage facilities are likely to explore additional operational strategies beyond ancillary services.
“Because so many batteries are coming online, the ancillary services markets are going to get saturated over the next several years and the prices paid for those services will likely decrease in certain markets,” said Cliff Rose, a product manager at Yes Energy, a leading energy market data provider. “Battery operators will need to find new strategies.”
Some storage operators are increasingly dispatching batteries in real-time and day-ahead energy markets, which pay for the actual production of electricity (measured in megawatt-hours). A key to success in energy markets is arbitrage — buying power and charging batteries when prices are low and discharging batteries and selling power when prices are high.
To inform buy and sell decisions, storage operators must be adept at anticipating market dynamics over the next day or even the next few hours. This requires granular data, such as congestion trends, renewable energy forecasts and real-time, location-specific prices.
“A storage operator may need to make buy and sell decisions many times during a single hour,” said Will Dailey, Yes Energy’s chief commercial officer. “Storage companies are starting to hire power traders, who have experience with these kinds of decisions.”
Capacity markets are another emerging opportunity for storage. Grid operators coordinate capacity markets to procure enough energy resources to meet future demand, paying power providers to make electric capacity available when the grid needs it. Data from grid operators and the Federal Energy Regulatory Commission can inform decisions by storage operators about bidding into capacity markets.
The chart below tracks the revenue of a large-scale battery system in California in 2021, revealing how the proportion of revenue from ancillary services, energy and capacity can vary widely. In February, for instance, the system earned significant revenue from arbitrage in energy markets by taking advantage of volatile prices related to winter storm Uri.
Monthly revenue of a large-scale battery in the California Independent System Operator’s Grid, 2021
Location, location, location
A nuanced, data-driven understanding of electricity market dynamics is a prerequisite for good decisions on siting storage facilities. In many cases, it’s a good idea to deploy storage in regions with significant congestion and price volatility — and a large span between the lowest and highest prices. Siting storage facilities in such areas can potentially relieve congestion and avoid expensive grid infrastructure upgrades while enabling significant revenues from arbitrage.
“To find the best storage sites, you need several types of data — historical prices in the area, the market drivers behind those prices and intelligence on whether those pricing patterns are expected to continue,” said Rose. “For example, a power provider could identify an area with volatile prices. However, if that volatility is mainly driven by congestion that will be alleviated soon with a transmission line upgrade, this might not be a great place to site a battery. Intelligence like this is critical in the siting process.”
Get ahead of energy storage trends with Yes Energy
As experts in presenting comprehensive electricity market data and putting key market indicators in context to inform good decisions, Yes Energy is well-positioned to help utilities, developers and other market participants navigate shifting grid dynamics driven by large-scale storage deployment.
“Our data can help companies learn how batteries are being operated, how they are impacting the grid and what their economics are,” said Rose. “You can use our platform to understand how existing batteries are impacting the grid as well as identify where to site future batteries.”
Yes Energy’s platform can also inform cost-effective storage operations. “One of our sweet spots is trading — getting people the information they need to make intelligent buy-low/sell-high decisions,” said Dailey. “That is the core function of battery storage. Energy storage companies want to use the data we provide to feed algorithms that make automated, near real-time trading decisions.”
As with any new technology, energy storage has a learning curve. “Natural gas fracking was not cost-effective initially,” said Dailey. “But over time, the frackers advanced their technologies and techniques and eventually revolutionized the gas industry in North America. I think we will see a similar trajectory with battery storage over the next five years. Battery operators will learn how to deploy and operate storage facilities in ways that increase revenue and support the grid. We’ll be watching these trends closely.”
