Obtain the data you need to make the most informed decisions by accessing our extensive portfolio of information, analytics, and expertise. Sign in to the product or service center of your choice.
Battery energy storage systems (BESS) are on the cusp of rapid
growth in US wholesale power markets. But the unique operating
characteristics of BESS—notably rapid response speed,
bidirectional capability, and energy limitations—mean the
nature of BESS participation in power markets is poorly understood.
What services will they provide? How much money can they actually
make? What are their operational strategies?
These and other questions are at the heart of a new report which
examines wholesale market transactions by BESS using FERC's
Electric Quarterly Reports (EQR) database. The EQR database
contains purchase and sales data for all FERC-jurisdictional
generators on an interval by interval basis—which, in the case
of batteries, often means hourly transactions in the day-ahead
energy and ancillary services markets, and five-minute transactions
in the real-time energy markets. This rich dataset provides
tremendous insight into how existing BESS are actually being
dispatched and compensated in wholesale power markets today.
Figure 1 demonstrates the data quality by showing the hourly
transactions for the "Pomona" BESS—a 20 MW, 80 MWh system in
the California Independent System Operator's (CAISO)
market—over the course of a week in August 2019. We observe
several notable insights:
The BESS appears to follow a consistent pattern of providing
regulation throughout most of the day before dispatching into the
energy markets during the evening ramp and peak period.
Revenue-positive transactions greatly outweigh revenue-negative
transactions—suggesting the BESS is charging during times when
real-time prices are negative, or it is only providing
down-regulation. In either case the BESS is effectively being paid
to charge.
There is significant volatility in the revenues from the
real-time energy markets. We think this suggests the BESS is
bidding small amounts of capacity into those markets hoping for a
price spike—like on August 3rd—which leads to windfall
profits.
In several cases, the BESS earns revenues from frequency
regulation, day-ahead energy sales and real-time energy sales
within the same hour. Though the results vary from day to
day, the general strategy of apportioning capacity across different
market products—i.e. "value stacking"—appears to maximize
revenues relative to a strategy dedicated to a single market
product. In other words, the BESS's revenues are higher than they
would be if it had bid its full capacity exclusively into the
regulation market every day.
The dispatch patterns and revenues of the BESS's in our sample
set vary across projects and markets, though a few common themes
emerge. Most notably, the projects in our sample set are earning
very high net revenues, ranging from $75-320/kW-year. Five of the
eight projects earn over $150/kW-year. For context, gas peaker
plants, to which BESS are often compared, typically earn
$50/kW-year or less, though their revenues are concentrated in
energy markets rather than ancillary service.
Another common theme is the emphasis on frequency regulation,
and to a lesser extent the real-time energy market. On average
across the sample set, two thirds of revenues are attributable to
frequency regulation, and another 15% to the real-time market. The
emphasis on these two markets makes sense as they are both
well-suited to flexible resources that can quickly ramp up and
down.
A final key theme we observed was how concentrated the hourly
earnings were across projects. On average the BESSs earned over a
third of their annual revenues across only 5% of total hours. In
most cases revenues were still decent in the other 95% of hours,
but all the cases demonstrated huge revenues over a small subset of
hours.
Over the coming years, as more BESS flood into these markets, we
can expect the smaller ancillary service products to saturate
somewhat and their associated prices to decline. On the other hand,
the continued growth of wind and solar should increase price
volatility in the day ahead and real-time energy markets, making
them more attractive to BESS. So while revenue streams and
operational strategies are likely to shift in the coming years, the
flexibility of BESS means they should remain well-positioned to
capitalize on new opportunities.
IHS Markit closely monitors the global energy transition,
publishing data, key insights and market analysis.
Learn more about our research.
Sam Huntington is an Associate Director in the Gas,
Power, and Energy Futures team at IHS Markit.
Oliver Forsyth is a Senior Analyst in the Gas, Power,
and Energy Futures team at IHS Markit.
