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The Profitability of Energy Storage in European Electricity Markets

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  • Petr Spodniak
  • Valentin Bertsch
  • Mel Devine

Abstract

In this work, we study the profitability of energy storage operated in the Nordic,German, and UK electricity day-ahead markets during 2006-2016. During this time period, variable renewable energy sources (vRES) have been rapidly penetrating the markets and increasing the volatility of the residual load, which is often assumed to be associated with improving financial viability of energy storages. However, storage operator profits are not publicly available, in particular not at plant level. We therefore develop a linear optimisation model which maximises profits from arbitraging hourly prices and use the model output of profits and storage operating hours in further econometric analyses. This is a novel approach merging two strands of literature (optimisation and econometrics) in a single energy storage study. Specifically, we quantify and disentangle the effects of electricity demand, solar and wind generation, the spread between gas and coal prices, carbon emission prices and tructural breaks on profits and operation of 1-13MWh/MW energy storages. Among others we find that solar generation is associated with lower profits but higher operating frequency of energy storages in Germany. Wind power generation is associated with positive effects on profits in the UK and Germany. vRES does not affect profits or operation of new Nordic energy storages.

Suggested Citation

  • Petr Spodniak & Valentin Bertsch & Mel Devine, 2021. "The Profitability of Energy Storage in European Electricity Markets," The Energy Journal, , vol. 42(5), pages 221-246, September.
    • Handle: RePEc:sae:enejou:v:42:y:2021:i:5:p:221-246
    DOI: 10.5547/01956574.42.5.pspo
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    References listed on IDEAS

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    1. Newbery, David, 2018. "Shifting demand and supply over time and space to manage intermittent generation: The economics of electrical storage," Energy Policy, Elsevier, vol. 113(C), pages 711-720.
    2. Zafirakis, Dimitrios & Chalvatzis, Konstantinos J. & Baiocchi, Giovanni & Daskalakis, Georgios, 2016. "The value of arbitrage for energy storage: Evidence from European electricity markets," Applied Energy, Elsevier, vol. 184(C), pages 971-986.
    3. Bertsch, Valentin & Geldermann, Jutta & Lühn, Tobias, 2017. "What drives the profitability of household PV investments, self-consumption and self-sufficiency?," Applied Energy, Elsevier, vol. 204(C), pages 1-15.
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