Getting paid to charge a battery is an attractive but limited opportunity, analysts say
While Tesla's Australian energy storage facility apparently made a windfall from negative prices, analysts say such prices are too rare to be reliable.
A lot of analysis has been done around the variety of revenue streams an energy storage system can earn by providing products and services such as energy, capacity or frequency regulation, but what if a storage system can be paid for charging?
System operators could utilize storage to prevent putting more power on the grid than needed, which leads to negative prices. When generators put in a negative bid they are actually offering to pay to ship their power to the grid, and storage could help mitigate the oversupply.
That apparently happened earlier this year at the Hornsdale Power Reserve facility in South Australia, and it paid off handsomely.
Hornsdale is a 100 MW, 129 MWh lithium-ion battery facility owned and operated by the independent renewable energy company Neoen. The project first entered the spotlight last summer when Tesla CEO Elon Musk promised that his company could build a 100 MW storage facility and have it running in 100 days or it would be free. More recently, Musk told analysts on a conference call that Tesla could announce in a matter of months an even larger project, a "gigawatt-hour scale" storage facility.
If the Hornsdale project is any indication, an even larger project could have an even bigger payoff.
"Not only are you being paid to do something you'd normally do anyway, but you're being paid to do something you'd normally have to pay for."
Senior energy storage analyst, GTM Research
The Hornsdale facility made an estimated $800,000 in a few days, according to reporting by Electrek and RenewEconomy. The Hornsdale facility was paid $790/MWh to charge itself during periods when excess electricity on the grid pushed prices into negative territory, according to Electrek.
Tesla said it was unable to comment on the matter at this time. Neoen did not respond to a request for comment by press time.
Battery storage could be used to mitigate the oversupply of energy that leads to negative pricing. But is the issue prevalent enough to act as an incentive for more storage?
"In principle, negative price signals are even more than a win-win for energy storage," Daniel Finn-Foley, senior energy storage analyst at GTM Research, told Utility Dive in an email exchange. "Not only are you being paid to do something you'd normally do anyway, but you're being paid to do something you'd normally have to pay for."
When negative prices do occur, energy storage could be more valuable because it can help system operators balance the system more easily, Johannes Pfeifenberger, a principal at The Brattle Group, told Utility Dive via email. But that opportunity does not come without hurdles. The battery would have to be ready to charge, requiring a certain state of charge, which would essentially preclude a variety of other value streams, and that limits the opportunity for storage, Finn-Foley said. "No one wants a battery that is sitting around waiting unless it's being paid to sit around waiting."
That could "potentially work with storage systems that provide peak capacity or time-shifting renewable energy as they would presumably be able to choose to charge when they want or be required to charge when price signals would go negative anyway," Finn-Foley said.
However, Finn-Foley said his analysis on negative price signals in the U.S. ISO markets found the opportunity was "insignificant."
Negative prices do not occur very often, "so building an energy storage facility just to capture negatively priced energy is typically a bad idea," Lux Research analyst Tim Grejtak told Utility Dive via email. Nonetheless, Finn-Foley said, it is "an exciting prospect either in regions with high renewable penetration or if wind and solar penetration increases dramatically."
Negative power prices have been around for years, as have debates about their causes and about who benefits from them.
They have been a heated topic in the Midcontinent ISO where owners of fossil fuel and nuclear plants said such prices were pushing them out of business and could harm reliability in the long run. They blamed wind farms for being able to afford to bid their output into the wholesale market at zero as they would still earn revenues from the production tax credit, even if prices turned negative.
The American Wind Energy Association offered a counter to those claims in a white paper by AWEA analyst Michael Goggin. The paper argued that nuclear power, which is expensive to ramp down, is often responsible for negative prices.
Solar power has also come under fire, particularly in California, for contributing to negative power prices. But an analysis by the Energy Institute, from the Haas School of Business at the University of California, Berkeley, found that plentiful hydro resources are at least as important a contributor to negative prices as is solar power.
While they are more frequent in some markets, negative prices are not a real problem, Pfeifenberger told Utility Dive. "They just indicate over-supply conditions just like airlines give away flights when they are overbooked."
Negative prices usually occur when the system hits a flexibility limit, as "the ISO cannot dispatch down anything without letting prices go negative to penalize those still running and reward anybody for taking power off the system," Pfeifenberger said.
Pfeifenberger also noted that negative prices mostly occur in real-time markets. They have only begun to show up in the day-ahead market in the California ISO, Pfeifenberger told Utility Dive, adding that most conventional power plants derive about 95% of their revenues from the day-ahead market.
Negative prices are "terrible for the market and project owners," Lux Research's Grejtak wrote. They add volatility to markets and create disincentives for additional renewable energy build out, he said.
Energy storage, on the other hand, helps buffer against flooding the grid with cheap wind or solar power, stabilizing electricity prices and helping project owners maintain margins. But it is critical that a storage asset is co-located with the renewable energy facility, Grejtak said.
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