Electricity Market Bidding Strategies for Wind-Storage Hybrid Systems

Abstract

The largescale installation of wind energy will provide challenges, such as maintaining a stable grid, security of supply, and profitability of renewables. The unpredictable nature of wind energy will cause more imbalances between generation and consumption to occur, consequently increasing the demand for the balancing energy reserves that ensure the grid’s stability. The intermittent nature of wind energy necessitates the ability to time shift energy production from high to low periods of wind energy availability to retain the security of supply. Furthermore, generators can face imbalance costs due to errors in wind energy generation forecasts. They are already being confronted with the declining value of wind energy in energy systems with a high share of renewables. Storage capacity is widely perceived as a technologically possible solution to alleviate these issues. Additionally, storage capacity can be a carbon neutral alternative to the traditional power plants that currently provide the required flexible generation and balancing energy. However, the lack of economic benefits is the missing link between the technical benefits and mass implementation of storage capacity.

This study explores whether operating storage, collocated with a utility scale wind power plant, can solve these challenges while improving the bottom line for operators. Spot market arbitrage, providing balancing energy through the automatic frequency restoration reserve, and generator imbalance cost reduction are identified as possible strategies for operating storage that can add value whilst also alleviating the identified issues. Furthermore, this study explores if arguments for co locating storage with wind energy to form hybrid wind and storage power plants exist or if the business case for operating storage is independent of being collocated.

It was found that an 8-hour battery performs best when undertaking spot market arbitrage. Still, even with a perfect market forecast and no storage degradation costs, it will need at least a 65% decrease from current Li-ion storage costs to become profitable. The 8-hour battery outperforms the higher power batteries because the low volatility of the spot market doesn’t warrant the higher costs of 1 and 4-hour batteries. Additionally, it was found that providing non-contracted balancing energy to the grid with a 1-hour battery provides a potential 5-fold increase in profitability compared to having no co-located storage. However, the sensitivity analysis to storage degradation costs ultimately makes the case less profitable compared to having no co-located storage. The lower sensitivity to degradation costs of the 8-hour battery cause it to outperform the 1 and 4-hour batteries. Providing contracted balancing energy showed less potential than non-contracted balancing energy before the sensitivity analysis. However, the contracted balancing energy scenario is less sensitive to storage degradation costs. It was found that a 4-hour battery providing contracted balancing energy performed best. However, this strategy was ultimately 20% less profitable compared to not operating co-located storage. Furthermore, the results of the proposed strategies turned out to be independent of the storage being co-located. Therefore, no strong arguments for collocating storage could be made here.

The business case for storage, as put forth in this project, might not exist today. However, strong clues exist that it will in the future. The predicted drop in costs of storage and the increased volatility in electricity markets will provide opportunities for the profitable operation of storage systems. When that time comes WPP operators should also be interested to operate these storage systems to further their goal of competing with traditional fossil-fuel-fired power plants.