Energy trading, arbitrage and ancillary services

Attractive front-of-meter revenues on the electricity markets

Attractive front-of-meter revenues on the electricity markets

The purpose of battery storage is often tied to a specific location. Since the added value in these cases is usually generated on-site behind the electric metering point to the public grid, these constellations are referred to as behind-the-meter applications. Front-of-meter revenues, on the other hand, are not generated through resolving local contstraints but via participation in the higher-level electricity markets in front of the electric metering point. In deregulated electricity markets, battery storages can generate front-of-meter revenues in three market segments:

  1. Day ahead trading
  2. Real time or intraday trading
  3. Ancillary services
Opportunity 1: Day ahead trading (intrinsic value)

Globally, the share of renewable energy sources is growing rapidly and with that development comes a sharp increase in the volatility of electricity prices. Since the market price needs to clear supply and demand at any given moment, it can be extremely low – or even dip below zero when wind and solar energy is abundant. On the flip side, when availability is low, electricity prices will often spike to the marginal costs of gas-fired power plants.

Charging and discharging within these inherent price cycles results in the so-called intrinsic value of market-driven front-of-meter battery business cases. These opportunities are most often raised in the day ahead electricity markets. Here, we are going to find a giant market-depth feeding the revenues of numerous battery systems at any scale all over the world.

Opportunity 2: Real time or intraday trading (extrinsic value)

The growing share of renewables also results in considerable differences between forecasted and actual power generation. As soon as updated weather forecasts are coming in over the course of the day, less or additional conventional power generation than originally scheduled is needed to fill up the overall power demand. This situation raises or lowers the market price and gives flexible power plant operators the opportunity to sell additional volumes at higher prices, or buy back abundant volumes at lower prices.

Especially in the European intraday markets, the 96 simultaneously and continuously traded individual order books representing electricity produced and consumed within each of the day’s 96 quarter-hours provide very high dynamics and massive price volatility. Based on continuously updated weather forecasts, flexible producers are able to repeatedly sell expensively and buy back cheaply power to be generated in one and the same of the forthcoming quarter-hour slots. Each of these trading cycles secures additional margins even before any electricity is produced or consumed. Without electricity storage, traders are of course restricted to playing this attractive order book ping-pong separately within every single order book independently from the price fluctuations within the other ones. Batteries, however, eliminate this restriction and provide crucial additional degrees of freedom: with battery storage, it’s not only possible to gain from the intraday volatility within each single product by itself, but to trade the full opportunities of continuous intraday cross-order-book volatility. This considerable added revenue potential results in the so-called extrinsic value of market-driven front-of-meter battery business cases.

Opportunity 3: Ancillary services

More limited market depth, but often the highest specific revenues are provided by ancillary services such as frequency reserve, spinning reserve and non-spinning reserve. These options are the last resorts for system operators to secure the stability of the whole electricity grid during actual operation. Although the market design strongly differs from region to region, and from grid to grid, the basic principle is the same all over the world: traditionally, conventional power plants raise their output at decreasing and lower their output at increasing grid frequency. As the world’s share of fossil power generation shrinks, this field will be occupied more heavily by battery storage technology: depending on the network frequency, batteries can switch dynamically from charging to discharging in order to stabilize the grid. Consequently, ancillary services provide the third of three markets for highly attractive front-of-meter revenue opportunities using battery storages.

The immediately reacting frequency reseserve requires high power for only short periods of time. In contrast to comparable lithium-based systems, we are able to scale power and capacity independently from one another and thus to adapt the battery system exactly to this short-term requirement. This keeps our costs lower and makes Organic SolidFlow batteries the perfect technical solution for opening up these markets. And by the end of a long cycle-lifetime, we just have to replenish the rather small volume of electrolyte instead of the whole battery.

Connecting the dots with an AI-based software platform

All of these front-of-meter services can be combined with behind-the-meter solutions such as local requirements of industrial applications, EV charging stations, renewable power generation assets, etc. As this requires complex algorithms, CMBlu plans to provide an integrated AI-based software platform to tap into this full value chain, from optimized battery operation to full electricity wholesale market access.

Be part of a key technology for the energy and climate transition.

Contact us