BESS investment decisions
Summary
Grid-scale Battery Energy Storage System (BESS) adoption is limited by investment
decision uncertainty. One of the reasons for this uncertainty is revenue determination
for the different markets grid-scale BESS could operate on. In this thesis BESS
systems that operate on the electricity markets in Belgium and the Netherlands
are analysed. The goal is to quantify significant parameters that influence business
case result so that investment uncertainty might be reduced. In order to do so a
Mixed Integer Linear Programming (MILP) model is developed that analyses BESS
providing Frequency Containment Reserve (FCR) and reacting to the Imbalance
Market (IM). Three model options are developed. Model option A provides FCR
while managing State of Charge (SoC) against an average day-ahead price. Model
option B only reacts to the system imbalance to generate revenue from the IM pricing
mechanism. Model option C combines FCR provision with managing SoC through
IM reaction, generating additional revenue. The most significant parameters are
found to be BESS capital cost and FCR pricing. BESS efficiency change has a limited
effect. Increasing duration of BESS systems has a significant effect on business case
result, dependent on BESS investment costs. It is found that only reacting on the IM
market (model option B) results in too much degradation to be a valid operating
strategy. For model option C a certain FCR price level would incentivise BESS
operators to shift power from FCR provision to more IM reaction to obtain better
business case results. Three scenarios are developed, based on sources that project
parameter development. The Business as Usual (BAU) scenario considers current
levels of technical performance, BESS cost and FCR prices. The high Renewable
Energy Source (high-RES) scenario considers moderate decline of FCR prices and
conservative BESS cost decrease. The Battery Revolution (BR) scenario considers
strong decline of FCR prices and strong BESS cost decrease. Results show that
model option A results in positive IRR for all scenario’s. Results for model option
C are always highest in all cases. The business case result keeps improving from
scenario BAU to scenario high-RES to scenario BR for this model option. It is
therefore concluded that BESS give best business case result combining FCR and
IM reaction. For investment decisions results show the importance of monitoring
revenue streams, pricing and BESS cost development. Results imply that even with
declining FCR prices BESS projects are expected to have positive business case
results, if BESS cost decrease in expected ranges. This would result in increased
adoption of BESS in Belgium and the netherlands.