Implementing price arbitrage for long-duration energy storage (LDES) faces several challenges:
- Limited Price Arbitrage Opportunities:
- Currently, price arbitrage opportunities are not frequent or large enough to make a strong economic case for LDES alone. The increasing penetration of variable renewable energy (VRE) is necessary to enhance these opportunities.
- The ability to capitalize on price differences between charging and discharging periods is crucial but often limited by market conditions.
- Competition with Short-Duration Storage:
- LDES competes with shorter-duration energy storage systems, like lithium-ion batteries, for providing ancillary services such as frequency regulation. Most ancillary services can be provided by these shorter-duration systems, limiting the exclusive benefits of LDES.
- This competition makes it challenging for LDES to secure contracts that fully utilize its capabilities over longer durations.
- Market Structure and Remuneration:
- The current market structure often fails to fully remunerate the range of services that LDES can provide. For instance, mechanical energy storage systems offer grid inertia as a byproduct of providing voltage support, but contracts may not compensate for both services.
- Contracts are typically short-term (day-to-month), making it difficult for LDES owners to predict and plan for long-term revenue streams.
- Risk of Negative Returns:
- Price arbitrage involves risks if storage operators charge at high prices but cannot sell energy when prices are expected to be high, potentially leading to negative returns. Advanced forecasting tools are crucial to mitigate these risks.
- Market Mechanisms and Policy Support:
- Existing market mechanisms, such as capacity markets, do not adequately incentivize long-duration storage. New mechanisms are needed to support investment in LDES as it becomes more critical in a decarbonized grid.
- Policy and regulatory support are essential to create favorable conditions for LDES through adjusted market designs that ensure adequate remuneration.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-main-challenges-in-implementing-price-arbitrage-for-long-duration-energy-storage/
