BESS investment decisions

Abstract

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.