Utility-scale batteries impact electricity prices during peak hours primarily through their ability to perform energy price arbitrage—storing electricity when prices are low and discharging it when prices are high. This behavior influences the market dynamics and price formation, especially in day-ahead electricity markets.
Impact on Electricity Prices During Peak Hours
- Increase in Peak Prices: Batteries charge during low-price periods (often off-peak hours) and discharge during high-demand peak hours. By absorbing electricity at low prices, they reduce the surplus supply that would otherwise push prices near zero or even negative. When batteries discharge during peak demand, they add supply but also coincide with higher demand periods, which can actually lead to sharper increases in peak prices rather than lowering them. Studies on the German market demonstrate that utility-scale battery storage can increase peak electricity prices by up to around 7% by 2040, while base prices rise only slightly (about 2%).
- Reduction in Zero and Negative Price Hours: Battery storage reduces the frequency of hours with zero or negative electricity prices by absorbing excess generation when supply exceeds demand—especially during solar midday peaks. This helps maintain a more balanced market and supports higher capture prices for renewable generation.
- Arbitrage Behavior Drives Prices: The main driver of these changes is the arbitrage action of batteries. They “buy” energy (store electricity) when it is cheap and “sell” it (discharge electricity) when demand and prices are high. This pattern tends to smooth out very low-price events but pushes peak-time prices upwards as batteries influence supply and demand dynamics.
- Enhanced Solar Energy Capture Prices: Battery storage has a more pronounced effect on increasing capture prices for solar power (up to 19%) compared to wind power (~5%), because solar generation has a more distinct midday peak that batteries can exploit by charging at solar peak and discharging later during the evening peak demand.
Summary Table
| Effect | Description | Approximate Impact |
|---|---|---|
| Peak Electricity Prices | Batteries charge at low prices and discharge at high demand, raising peak prices | Up to +7% (German market projection) |
| Base Electricity Prices | Slight increase due to battery storage integration | Around +2% |
| Zero/Negative Price Hours | Decreased frequency as batteries absorb excess supply | Significant reduction |
| Solar Capture Prices | Increased due to strategic charging during solar peaks | Up to +19% |
| Wind Capture Prices | Moderate increase due to more consistent wind generation profile | Around +5% |
In essence, utility-scale batteries act as market participants performing arbitrage, which smooths out extremely low prices but also tends to increase peak-hour electricity prices by effectively shifting demand and supply across the daily cycle. This nuanced impact helps integrate renewables more effectively but comes with the trade-off of slightly higher peak electricity prices.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-utility-scale-batteries-impact-electricity-prices-during-peak-hours/
