How to trade BESS capacity? Or: How can I make money with battery trading?
Trading BESS capacity means maximizing revenues across several possible products and markets; this is referred to as “value stacking”.
BESS revenue stream sources may be split into two main groups:
- Energy Arbitrage – Consists of buying electricity when prices are low (often during off-peak hours or when renewable generation is high) and selling it back to the grid when prices are high (during peak demand). This allows the operator to make a profit based on the difference between (high) selling price and (low) buying price. Energy arbitrage is typically done on electricity wholesale markets, such as Day-Ahead or Intraday.
- Ancillary services – BESS can contribute to grid stability by providing ancillary services. BESS revenues from ancillary services typically come from balancing products that require the fastest response times, such as Frequency Containment Reserve (FCR) or Automatic Frequency Restoration Reserve (aFRR).
By combining several of these markets, operators of BESS systems can “stack” different revenue streams, thus increasing the overall value and return on investment of the energy storage system.
Different markets and products may result in different levels of profitability and risk; for example, energy arbitrage on the Day-Ahead market or offering capacity for FCR comes with relatively low risk but also limited upside potential. At the opposite, trading on the intraday and imbalances market comes with higher risk but also higher profit potential due to the high volatility of intraday and imbalance prices.
KYOS Software models and Advisory
Optimally trading BESS capacity requires assessing potential risk and revenue streams across multiple markets and products.
Our software model KyBattery supports market players with energy storage valuations, allowing to forecast revenue streams coming from all of these markets and products. The model uses advanced stochastics including Least Squares Monte Carlo techniques to capture the full flexibility of energy storage.