ESS is Enabling Energy Trading Like Never Before

The Biggest Batteries (and the ones you’ll never see): The Rise of Energy Arbitrage

Let’s do a word association. When I say “lithium-ion batteries,” what do you picture them powering? Your phone, your car, laptop, watch, your kid’s (or your) GameBoy? In all likelihood, you just thought about something portable. Makes sense – portability is usually why we need batteries in the first place. If we didn’t need the electricity to move with us, we’d just plug in to an outlet. This line of thinking isn’t wrong. Battery technology has been advancing to meet the demand for portable power from its beginnings, but this technology has a quieter cousin that is no less important, easy to miss, and is in the middle of a renaissance. Often referred to as BESS (Battery Energy Storage Systems – sometimes dropping the “B”), these batteries are stationary and help make sure your outlet has power in the first place. These systems are heavier, bigger, and store more energy than their portable counterparts and keep the electricity flowing.

The “Duck” shows the effect of solar energy on system demand. Solar floods the grid midday forming the ducks body. The absence increases demand and forms the evening “head”. Source.

Achieving Grid Resilience and Balancing the Solar Energy “Duck”

Grid-scale units are typically housed in shipping containers (or something similar) and store 3-5 MWh (>300 times greater capacity of typical residential units). What are these giant batteries doing? To maintain an electrical grid, supply and demand must match perfectly every second or the grid risks failure – quickly becoming catastrophic. Power supply isn’t flexible enough. Fossil fuel plants (thermal plants) can dynamically change their output, but far from second-to-second, and the plants that offer dynamic production rates charge a premium. Renewables (generally solar and wind) output what they can depending on conditions. On the other hand, demand for power is dynamic. To oversimplify, you turn on a light switch and the grid must adapt. Enter batteries. They can pull or push electricity from the grid in milliseconds and account for your light switch until the supply can adapt. Collectively labeled ancillary services, these batteries help regulate the frequency of your electricity to 60 Hz, voltage to 120 V (in the U.S.), and make quick adjustments to power (load following). Preventing deviations that quickly cause damage to both the grid and your appliances. BESS also provides a critical role in backing up the grid during times of stress.

There are benefits beyond second-to-second grid management. Over one 24-hour period, both supply and demand follow predictable trends. There are generally two demand peaks centered in the morning and evening. Discharging batteries to the grid at peak times (known as peak shaving) decreases the required supply from generators. The effect of solar only complicates things as solar generation ramps with the sun and peaks midday. While battery scientists might be familiar with “the duck” in cyclic voltammetry, grid managers have their own “duck”. The morning demand peak is more than met with solar as the sun begins to shine and non-solar demand fades into the afternoon (the duck’s torso). The evening peak on the other hand, is not aided by the sun as it sets and the demand from other generators soars (the duck’s head). To flatten this curve (sorry duck), we can load shift by storing excess capacity from solar during the day and discharging it throughout the evening. A flatter curve is easier to manage. While less diurnal, the same principles apply to wind power, where excess power generated when it is windy can be stored and collected during calmer periods. In this way, BESS empowers renewable energy as it mitigates the intermittency of solar and wind.

Buy Low and Sell High

Hopefully the batteries themselves aren’t as hot as the market because this segment is booming. While the residential segment installed ~200 MW in the first quarter of 2024, grid-level storage installed nearly 4,000 (20x). From 2021 to 2022, investment in BESS tripled to $5 billion and is expected to reach $120 billion by 2030 (Source).  While long forecasted, the prevalence of BESS is driven by lowering costs of Li-ion batteries and increasing prevalence of renewables. Despite being political opposites, California and Texas lead the way in this shift as the largest American renewable adopters. BESS operators generate profit through grid maintenance services at shorter timescales, but a new paradigm is emerging: energy arbitrage. In 2023, of the almost 16,000 MW capacity reported by American utility providers, more than 10,000 MW are primarily used for this service (Source). In this practice, energy is stored when rates are cheap and sold during peak rates. As the financial side of load shifting, this allows BESS operators to reap the highest profit from their stored energy.

Increasing Storage Time

Lithium-ion batteries are the technology of choice for shorter timescales due to their energy density, fast response times, and relative efficiency, but they are still cost prohibitive and aren’t technologically matched for applications that require longer term energy storage (>10 hours is considered long in this industry). Battery stability when charged is an ongoing challenge and that leaves a large gap. There are profits to be reaped for those that can practice arbitrage over a longer time scale. Discharging over multiple days or even storing cheap summer solar energy and discharge it in the winter at a premium. Hydrogen, compressed air, and the classic pumped hydropower storage are presently matched to this application, but will batteries find market share? Maybe - significant advancements would need to occur. Sodium ion batteries are cheaper relative to lithium, but both would require electrolyte modifications (i.e. stabilizing additives) to reduce self-discharge (losing charge over time) and stable coatings to prevent corrosion. Solid state or gel electrolytes may also extend shelf life. Alternatively, we could look to emerging technologies: redox flow batteries, or metal-air batteries, designed for relatively few cycles, higher capacity, and more stable in the charged state. Form Energy’s iron-air and Zinc8’s zinc-air batteries promise 100+ hours of storage. LiNK-BT is investing in advanced electrolytes for lithium-ion, sodium-ion, and beyond to prevent self-discharge and extend storage times. Will electrolyte additives make batteries last 100+ hours? 1000+? Will we start to see arbitrage at the month time scale? Technology will drive us.