Energy storage price arbitrage opportunities

December 10, 2019

UK wind generation set a new record over the weekend, hitting 16GW during the early evening of Sunday 8th December. The abundance of renewable energy saw imbalance prices tip into negative territory for the longest period in UK electricity market history, from 0:00 to 13:00, with prices falling as low as -£88/MWh. The case for smart, flexible solutions has never been stronger.

We need more energy storage

The market has long believed building interconnectors alongside renewable generation will lead to the Continental market as a whole balancing itself appropriately with clean energy. But high winds across North West Europe highlighted the urgent need for more energy storage capacity so that we can capture clean, cheap renewable generation when it is plentiful rather than letting it go to waste. This will allow us to store clean energy when prices are low and use this energy when the market is constrained and prices higher.

We saw the flip side of renewable generation on Monday 9th December with prices spiking above £100/MWh between 4.30pm-6.00pm as CCGTs came on to meet demand and compensate for falling wind generation.

Monday also saw negative pricing on the Day-Ahead auction for the first time. This volatility was the first opportunity in the UK for an energy storage asset to charge for free or get paid to charge and then monetise a £80-90/MWh spread against prices later in the Day-ahead auction. This relatively risk-free strategy shows investors merchant revenues are there with a partner who manages revenue opportunities against asset cycle costs – typically in the region of £30-40/MWh.

The last 48 hours have been the perfect example of how energy storage can balance the grid in a high renewable system. Energy storage has to be built out so consumers are not penalised by high prices when there was an excess of clean, cheap energy only a few hours earlier. The ability to take advantage of these kind of price arbitrage opportunities – which are expected to become more frequent as our energy mix continues to change – and manage merchant risk is key to bringing forward more investment in energy storage projects.

Battery storage costs continue to fall

Recent analysis by Imperial College London suggests Britain needs at least 30GW of energy storage to meet its 2050 net zero climate goals, up from 3GW today. RenewableUK research puts the current pipeline at 10.5GW.

The good news is prices continue to fall. Lazard’s 2019 Levelised Cost of Storage Analysis puts bids from battery suppliers at record lows of $280/kW, particularly for the largest front-of-meter projects. This should support the continued expansion of investor interest we have witnessed in recent years, backed by sharpening price signals in wholesale and imbalance markets.

Kiwi Power’s distributed energy platform enables energy storage investors to respond to these changing opportunities, simplifying their participation and maximising asset value for global sustainability impact. Get in touch to find out how we can help your business optimise energy storage for long-term, sustainable value.

Any questions? Get in touch.