Together with enspired GmbH, ISEA is developing an index for the German battery market that is intended to transparently map the revenue potential for large-scale storage systems with regard to grid services. The index is currently under development and will be finished in the coming months (Date: 09.2024).
The index was developed by Jonas Brucksch and Jonas van Ouwerkerk. The index takes into account the spot markets (day-ahead auction, intraday auction, intraday continuous trading) as well as the balancing markets (FCR, aFRR). The index is intended to help increase market transparency and provide a basis for investors, project developers and traders to better evaluate potential revenues. The index is intended to create comparability, but not to reflect the actual maximum achievable proceeds. Rather, the index should be designed so simply that it is comprehensible and can be calculated in Excel, for example.
Revenue potential for Grid-scale batteries
The index developed is based on weighting the individual markets’ revenues. The revenues of the individual markets are shown in the upper figure as an example week for a 2-hour system with a 2 cycles per day limit. High revenues can be generated, in particular, on continuous intraday trading and with aFRR market participation. For spot market trading, the current status for calculating individual market revenue potentials does not take into account financial trades but only asset-backed trades with actual physical delivery. The virtual trades are included in cross-market trading.
Abbreviations:
DA: Day-ahead market
IDA1: Intraday auction (calculation with averaged indices one hour prior to delivery)
ID1: Intraday continuous trading (calculation with averaged index one hour before delivery)
FCR: Primary control reserve (Frequency Containment Reserve)
aFRR: Secondary control reserve (Automatic Frequency Restoration Reserve)
Cross-Market: In this marketing, the battery is active on several markets simultaneously (aFRR Capacity + DA + ID1)
The next plot shows how revenues are composed in the current cross-market trading approach (see more in the methodology below).
Interactive graphic: Click on the legend.
Methodology
The index developed is based on a simple and comprehensible calculation that can be downloaded as an Excel file once the index has been completed. The methodology is based on the revenue potential of the individual markets, which are then combined using suitable assumptions. Currently, 1 and 2 hour systems are considered, each with a limit of 1 or 2 equivalent full cycles per day.
The following assumptions are made to calculate the potential revenues of the individual markets:
Day-ahead/intraday trading: the power limit (Pmax) and state-of-charge limits (0-100%) of the battery must not be exceeded.
Frequency Containment Reserve (FCR): maximum marketable capacity is reduced by 20% according to the pre-qualification (PQ) conditions.
Automatic Frequency Restoration Reserve (aFRR): symmetrical bidding is assumed for the positive and negative capacity market (state of charge: 50%). The energy market is not taken into account in the current status. We assume that the marketable power is reserved for 1h delivery. Thus, a 2h-system can offer 0.5 MW in each direction while the 1h-system offers 0.25 MW. The market entry barrier of 1 MW is neglected.
Round-trip efficiency: 90.25%
Cross-Market: In this approach, the revenues from the parallel offer of aFRR capacity in both directions are combined with trading on the wholesale market. For trading on the wholesale market, it is assumed that trading first takes place on the day-ahead market and then, taking into account the results from the day-ahead market, the remaining capacity is offered on the intraday market (ID1). Here, 50% of the available capacity and 50% of the capacity is reserved for the aFRR offer (following PQ regulation). This leaves 50% of the power to be used on the DA- and ID1-markets. For the DA-market, 20% of the available capacity and in the ID1-market 50% of the capacity is traded. In addition, a purely virtual trade between DA and ID1 positions is calculated based on the price differences between the markets. Finally, it is assumed for all wholesale markets that only 90% of the calculated revenue can be realised in order to reduce the overestimation of revenue by Perfect Foresight.
Detailed documentation of the calculation methodology can be found in the document linked below.