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Beyond optimizing self-consumption: How companies can generate additional revenue with battery storage

Kristina Boschenriedter

Content Manager

Published

The expansion of battery storage is currently making great strides. While many companies have primarily used battery storage systems for self-consumption optimization, peak load capping, or procurement optimization, front-of-the-meter (FTM) storage systems are opening new, previously underutilized revenue opportunities. These storage solutions enable direct participation in arbitrage trading and the provision of grid services, thus providing additional sources of income beyond conventional energy cost reduction.

What to expect from this article

First, we explain the term “front-of-the-meter" storage and distinguish it from the classic “behind-the-meter” approach. We then show the revenue potential that FTM storage offers in grid services and arbitrage trading, and how specifically companies can benefit.

Two storage strategies compared: BTM vs. FTM

When it comes to the economic use of battery storage systems, there are basically two types of application:

“Behind-the-meter” (BTM) storage systems are directly integrated into the company's consumption. They are located “behind” the electricity meter. They are used in combination with a PV system to optimize self-consumption, optimize procurement on the spot market, and cap peak loads to reduce grid fees.

In contrast, “front-of-the-meter” (FTM) storage systems are installed outside of a company's direct consumption. Conceptually and in accounting terms, they are positioned in the grid before the electricity meter, i.e., “in front of” the consumer. They are primarily used for arbitrage trading or the provision of grid services and are connected to the distribution grids. We will take a closer look at these two use cases below.

Provision of balancing power

Companies can profitably use their battery storage systems in the energy market by making their storage capacity available for rapid feed-in or absorption of balancing energy. Since renewable energy sources like wind and solar make up an increasingly large share of the power grid but are not equally available at all times of the day, these additional storage capacities are used to stabilize grid frequency and ensure reliable supply.

The frequency of the European power grid must remain constant at 50 Hz. Even the smallest deviations of +/- 0.2 Hz can lead to instability. In return, the operator of the battery storage system receives remuneration from the grid operator for providing the capacity.

How does participation work?

Before a storage system can participate in the balancing energy market, it must be prequalified by the relevant transmission system operator (TSO). To do this, an application must be submitted to the appropriate TSO (50Hertz, Amprion, TenneT, or TransnetBW), along with proof of the battery storage system’s technical capabilities. This includes, among other things, metering and communication technology, remote controllability, and fast response times. Once a series of live operation tests have been successfully completed, the operator receives a prequalification certificate.

Large companies with their own energy market expertise can participate directly in the tenders on the balancing energy platform www.regelleistung.net. Regular auctions are held there, where companies submit bids indicating the price per MW they are willing to accept. If awarded a contract, they are obligated to provide and, if necessary, activate the agreed capacity.

For smaller companies without own energy market expertise, this process can be handled by a so-called aggregator. The aggregator pools several smaller systems into a virtual power plant and manages the processes for prequalification, market participation, control, and settlement. In return, the company receives a share of the revenue.

The compensation consists of two components: first, a capacity price for providing the capacity (€ / MW / period), and second, an energy price (€ / MWh) in the event of actual usage - i.e., charging or discharging energy.

Example of possible revenues

A company provides 2 MW of primary control power. Trading takes place in 4-hour time blocks. The company receives a power price of €20 / MW / hour for this. If one time block is won per day, this corresponds to daily revenues of €160 (€20 x 2 x 4). This results in annual revenues of approximately €58,400. Occasionally, smaller additional amounts are earned through actual energy usage.

Engaging in arbitrage trading

Another way to generate revenue is to engage in arbitrage trading, particularly on the spot market. Similar to stock trading, arbitrage trading is based on price fluctuations in the electricity market: electricity is purchased when prices are low and stored temporarily - when prices rise, it is fed back into the grid and sold. Trading takes place via special marketplaces such as the European Power Exchange (EPEX Spot).

How does participation work?

As with the provision of balancing power, companies can either participate directly in trading with their own exchange access or do so via a service provider, e.g., an aggregator or direct marketer. The latter then shares the revenues generated with the company.

There are different contract models that vary significantly in terms of risk, responsibilities, and revenue potential. Two common examples are the fixed-price and market-based models:

Fixed-price model (tolling): The direct marketer pays the battery operator a fixed annual amount per MWh of capacity provided, regardless of the actual market success. The risk for the operator is minimal, as there is no downside potential if trading is unsuccessful. This risk is borne entirely by the marketer. At the same time, however, market opportunities are less likely to be exploited, as there is no upside potential for the operator if the storage facility outperforms.

Market-based model (fully merchant): In this model, the revenues are divided between the operator and the marketer in fixed proportions, e.g., 90% for the operator and 10% for the marketer. In this model, both parties are equally exposed to market opportunities and risks.

Depending on the provider, there are various hybrid forms of these models with revenue floors (floor prices) or caps, which weigh risks and revenue opportunities differently.

Indicative potential revenues

Revenues depend heavily on the respective market conditions, the size of the storage facility, and the chosen strategy. Annual revenues of between €80,000 and €160,000 can be achieved per MWh of storage capacity.

Multiple use is possible

A battery storage system can generally be used for both the provision of balancing power and arbitrage trading - this model is known as “stacking.” However, it should be noted that both applications cannot be used in parallel in the same time window. Implementation also requires careful coordination of technical, organizational, and regulatory requirements.

Conclusion

The use of an FTM battery for the provision of balancing energy and engaging in arbitrage trading offers an attractive addition or alternative to classic BTM applications, which are primarily aimed at cost savings. FTM systems make it possible to activate previously unused space to generate additional revenue. Whether the provision of balancing energy or engaging in the spot market makes more sense - and whether this is done independently or via an aggregator or direct marketer - depends on various factors, such as one's own electricity trading expertise, risk appetite, the technical flexibility of the storage facility, and the current market potential.

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Content Manager

Kristina Boschenriedter

Kristina Boschenriedter is Content Manager at ENVIRIA and specializes in the development of content in the field of renewable energies. Her aim is to make it easier for companies to get started with sustainable energy solutions by providing practical and informative articles about the energy transition. Her previous experience in B2B marketing in various industries helps her to respond to the specific requirements and needs of companies.

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