In a dynamic shift within Europe’s energy landscape, the profitability of Battery Energy Storage Systems (BESS) is being called into question as price disparities create new opportunities for energy trading. The latest research by Rystad Energy reveals a complex scenario where Battery Energy Storage Systems can thrive or face challenges based on geographical considerations and evolving market dynamics.
According to the analysis by Rystad Energy of day-ahead power prices for 2023, Bulgaria (BG), Italy (NORD), and Hungary (HU) emerge as hotspots with the highest profit potential for BESS energy arbitrage. On the contrary, Nordic power markets, specifically Sweden (SE1), Norway (NO1), and Finland (FI), exhibit lower profit potential due to relatively low peak prices.
Bulgaria, in particular, stands out as a beacon of opportunity, offering the potential for high revenues. A two-hour discharge capacity battery storage system engaged in energy arbitrage could generate €110 per megawatt-hour (MWh) in average spot market revenue in 2023.
Sepehr Soltani, an energy storage analyst at Rystad Energy, commented, “BESS capacity could be the key to a reliable, green energy future, but questions over its profitability could severely slow uptake. Currently, profitability is limited to markets operating under very specific conditions, so policies and incentives are required to mitigate risk and encourage build-out. While spot market profits exceed system costs in a few European countries, even a 30% tax credit on BESS projects may not be enough to make energy arbitrage a standalone viable business case in 2023.”
Amid soaring prices in Europe’s spot power market and a growing emphasis on emission reduction, Power Purchase Agreements (PPAs) are gaining prominence as a strategic option for securing clean energy sources at stable prices. This shift raises questions about the future profitability of BESS, prompting a closer look at how PPAs might offer a solution.
PPAs, whether physical or virtual, are becoming crucial instruments in the renewable energy landscape. Virtual Power Purchase Agreements (VPPAs) are gaining traction for their benefits. In a VPPA, a power buyer commits to purchasing a project’s power at a predetermined price. If the market price exceeds the fixed VPPA price, the buyer benefits from the difference, providing BESS projects with a guaranteed price for their output.
The ongoing European energy crisis and the shift towards renewable energy add an element of unpredictability to the market. Limited flexibility options in the grid, such as cross-border trade and BESS, amplify the potential negative impact of low-priced PPAs on BESS revenue streams.
To ensure BESS projects remain profitable, a relatively high PPA price is necessary to compete with energy arbitrage revenues in 2023. Engaging trading specialists becomes crucial, allowing operators to strategically navigate various markets, including capacity markets, while consistently delivering on PPA agreements. This proactive approach not only enhances potential revenue streams but also reduces the minimum PPA price the BESS owner must offer, increasing attractiveness for the buyer.
While traditional PPAs for BESS may be declining in Europe compared to solar and wind agreements, the flexibility of BESS remains a hallmark. This flexibility allows operators to leverage volatile power markets, providing grid services like frequency regulation and peak shaving. The current volatility in European power markets presents substantial energy arbitrage opportunities, offering BESS operators considerable flexibility to address the evolving needs of Europe’s power market.
