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Revenue stacking: The solution for battery viability

AleaSoft Energy Forecasting, November 17, 2023. Energy storage capacity is an essential part of the energy transition. According to AEPIBAL, revenue stacking is the key to battery profitability, diversifying revenues through price arbitrage, ancillary services and capacity payments. Although the funding gap currently represents 25%‑30% of the necessary revenues, the capacity market in Spain is expected to fill the gap that is currently covered by subsidies.

The 38th edition of the monthly webinars organized by AleaSoft Energy Forecasting and AleaGreen took place on Thursday, November 16. On this occasion, the vision of the future of energy storage and in particular batteries was analyzed. The webinar featured the participation of Luis Marquina de Soto, president of AEPIBAL, the Business Association of Batteries and Energy Storage. The recording of the event is available for AleaSoft Energy Forecasting clients and AEPIBAL members on the AleaSoft website.

Storage: key to the energy transition

Storage is one of the vectors and key factors in the energy transition. The ability to store renewable energy is key to make it manageable and to achieve decarbonization. According to Luis Marquina, the renewable energy sector and the governments of the European Union are already aware of this and are already taking measures and providing aid to start implementing battery storage on a large scale.

Revenue stacking

The key to the massive deployment of batteries is to make the investment profitable. For that purpose, according to the president of AEPIBAL, revenue stacking is necessary. In other words, batteries must diversify their income and be able to participate in any service that can generate income. This layered remuneration has three main differentiated groups.

AleaSoft - Revenue stacking energy storage batteries

On the one hand, there is price arbitrage in the day‑ahead and intraday markets. This is the basic operation expected of a storage system: consume and store energy at times of higher renewable energy production and lower prices, and release energy back to the grid at times of higher demand and higher prices.

On the other hand, there is participation in ancillary services. In these services, the batteries offer their power and stored energy to be used when needed by the system operator in exchange for a fee.

But to become profitable, another layer is still missing. According to Luis Marquina, right now this funding gap represents 25%‑30% of the total revenue needed to achieve a return (IRR) of 9%. This last layer of revenue is capacity payments. The Spanish government is working on the design of this capacity market, which should start before 2025.

Luis Marquina showed during the webinar a potential scenario for storage revenues. This scenario would show that, during the first years, most of the revenues would come from the participation in the secondary band, followed by revenues from price arbitrage, and finally a small part from the participation in other ancillary services.

The secondary band market is a relatively small market, but in the current high volatility scenario, storage can provide a solution, with very high prices, to that volatility. But this is a market that will trend downward with the massive entry of more storage.

In this potential scenario of AEPIBAL, in the long term, most of the revenues will come from price arbitrage and capacity payments, leaving remuneration for participation in ancillary services in a residual place.

AleaSoft Energy Forecasting’s analysis on the prospects for energy markets in Europe and the energy transition

The next webinar of the monthly webinar series organized by AleaSoft Energy Forecasting and AleaGreen will take place on Thursday, December 14. In addition to the usual review of the energy markets, all services offered by AleaSoft for companies in the energy sector will be shown in the fourth anniversary webinar of the monthly webinar series launched in December 2019.

The January 2024 edition is also being organized, in which PwC Spain will participate for the fourth consecutive year, to analyze the PPA market and the financing of renewable energy projects.

Source: AleaSoft Energy Forecasting.

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