The Entras dispatching tool: To charge or not to charge, that is the question
28 Nov 19 by Caroline Gentry
As the share of renewables increases and battery storage technology is becoming viable, energy market trading is becoming more complex. New market mechanisms, flexibility products, demand side participation and near-real time pricing create an interesting dynamic to trade around. Yet the question whether to charge or not to charge a battery is not easily answered. Jeroen Vanfraechem, managing partner of boutique advisory firm Entras, described how its dispatching tool can guide trading decisions and optimise energy assets in a recent Engerati webinar.
Commitments on the spot market are made day-ahead, based on predicted demand, generation, weather forecasts and more. The real-time imbalance price, on the other hand, is not known until the following day, and depends on deviations from the predictions. With its high proportion of wind and solar plants, Germany is a good example to demonstrate this. Looking at one week this summer, on 26th June the intraday price spiked to €80/MWh – an interesting opportunity but one that would have been missed by a simple battery dispatching algorithm. By the 30th June plentiful of wind and solar combined with the usual weekend dip in demand sent prices into negative territory.
To take full advantage of the price fluctuations on both markets, price forecasting algorithms are needed. Entras examined one month in Belgium in November last year which showed a battery could generate a profit of about €5,000 running in the day-ahead market and optimised in the imbalance market, but just €1,700 in the day-ahead market alone and €4,000 in the imbalance market alone, with a cycling cost of €1,150. Other opportunities for arbitraging are offered by flexibility and primary reserve markets. Nonetheless, it is very difficult to make a profit with a battery by arbitraging alone. “It is not enough to pay off your investment,” Vanfraechem warns. Additional value drivers are required, for example the use of the battery as a back-up solution.
Arbitraging in energy markets is not restricted to batteries. It is also possible to play the spread between different commodity markets. For example when the spark spread – an indication of the profitability of burning gas for power generation – is negative, it might make more sense to sell back the gas and wind up the power position in the spot market. Yet another application is the use of surplus renewable power to generate methanol, so called ‘Power to X’. Here, arbitraging is possible between the different markets for electricity, chemical resources and final product.
The amount of value creation will depend on the individual characteristics of the different markets, support schemes and regulatory frameworks. In addition there generally are technical and operational constraints, such as ramp rates, allowed modulation margins or the costs of stopping and starting a turbine. When all of this is factored into the algorithm, a realistic estimate for the value of flexibility can be made.
There are many opportunities for new technologies and applications due to price volatility and the need for flexibility, Vanfraechem says. “The energy markets have never been as interesting as they are now.”