How value stacking could boost profits by “several millions of dollars a year”

GridSME's model can help solar firms make more cash from their plants. Pic: Cypress Creek Renewables.

GridSME’s model can help solar firms make more cash from their plants. Pic: Cypress Creek Renewables.

By Jason Deign

Stacking multiple energy storage applications could improve the profitability of assets by “several millions of dollars a year,” an expert has said.

Matt Barnes, chief financial officer of US energy consultancy Grid Subject Matter Experts (GridSME), said the figure was based on modelling carried out with a proprietary storage analysis service.

The modelling also shows that in markets such as that covered by the California Independent System Operator (CAISO), it can pay to sweat your battery assets.

“In time-shifting scenarios, we thought that maybe the spread between low and high prices in the day-ahead market might drive a lot of value for storage,” Barnes said.

“We’re actually seeing that the more the battery operates in the real-time market, which in CAISO is the five-minute market, the more lucrative it becomes, even if you’re foregoing large margin on cycles.” 

Predicting what applications could earn

GridSME’s energy storage operations and revenue model (eSTORM) allows asset owners to maximise revenues by predicting what different applications could earn throughout the year.

The model was developed over a year ago for big-name US solar plant owners looking to add energy storage to new or existing sites. “We had solar clients saying: ‘We’ve got to start looking seriously at storage’,” Barnes said.

Many of these customers had assets in markets such as that covered by CAISO, where batteries can provide a range of functions, from energy dispatch to ancillary services.

Understanding the revenues from these is hard, though. “It is clear storage is going to be able to provide a lot of value, but you’ve got to model it,” said Barnes. “Financiers need to see something tangible.”

To provide this insight, eSTORM contains realistic assumptions about constraints such as cycle rates and minimum depth of discharge. 

Generating the highest economic return

For each hour of the year, eSTORM works through different scenario decision trees to identify and execute the operation that would generate the highest economic return.

The data provided by the model for each hour includes power-purchase agreement time-of-day-adjusted pricing and day-ahead and real-time energy and ancillary service market prices, if applicable.

It also takes account of state of charge, roundtrip efficiency losses, available clipped energy, battery energy flows and revenue generated, or costs incurred.

The model shows how value stacking can significantly boost revenues compared to sticking to a single application, such as arbitrage. The difference could make or break the viability of energy storage projects.

“With simplistic approaches we have found the economics aren’t quite there to get a satisfactory internal rate of return,” said Barnes. 

Stacking products on top of each other

“Once we start trying to stack different market products on top of each other, or optimise the battery within the market, that’s when we start to see the internal rate of return creep up.”

In an ideal scenario, the model assumes a battery system is able to deliver maximum value to the market at any point in time. It can simulate profitability for a battery on its own and one coupled with PV.

The spreadsheet-based model typically assumes a four-hour-duration lithium-ion battery with PV plant sizes that usually range from 85MW to 200MW.

“You can change sizes to see what maximises your returns, so you’re not buying too much capacity,” Barnes said.

GridSME has also looked at the value of short-duration batteries, which Barnes said “in today’s market are quite economic. You can get pretty decent revenue streams [and] not pay for a lot of capacity.” 

Only available to GridSME clients

Currently, eSTORM is only available to GridSME clients as part of a consultancy package.

But Barnes revealed GridSME could in future develop eSTORM as a software package, potentially incorporating the industry-standard System Advisor Model created by the US National Renewable Energy Laboratory.

While the model is tailored to CAISO, it could easily be adapted to other US regional transmission organisation and independent system operator markets, he said.

The eSTORM modelling further confirms the already widely accepted view that value stacking is critical to energy storage profitability.

Last September, a report prepared by The Brattle Group for Eos Energy Storage concluded value stacking could lead to a two- or threefold improvement in battery value.

“Accounting for the ‘stacked’ benefits of battery storage by optimising its dispatch across all analysed value streams significantly increases the total value of the battery relative to any individual value stream,” the report said.

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