Arbitrage in an electricity market with a high share of renewables
Keywords:
Electric Price Arbitrage, Energy storage, Hydropower, Pump Storage Hydropower, Renewable EnergyAbstract
The increase in solar and wind generation carries flexibility problems for electrical systems, which could be solved by implementing large-scale energy storage plants. Arbitrage — buying energy, storing it, and then selling it at a higher price— is one of the primary sources of revenue for large-scale storage plants. To financially evaluate an arbitration project, it is necessary to estimate hourly spot prices for time horizons comparable to the project's lifespan, which is a very complex task due to the multiple variables that affect the price of electricity. This paper seeks to answer the following questions: will arbitration be enough to make large-scale storage projects viable in Colombia, assuming a massive incursion of solar and wind energy? And which variables affect the arbitrage potential? We developed a dynamic simulation model to estimate hourly spot prices over a 12-year horizon. We find that the massive incursion of solar and wind generation will decrease the arbitrage potential, making the storage projects that depend exclusively on this income unfeasible. This result implies that project developers and regulators must structure other remuneration mechanisms to incentivize large-scale storage construction.
Downloads
References
B. Mohandes, M. S. El Moursi, N. Hatziargyriou, and S. El Khatib, “A review of power system flexibility with high penetration of renewables,” IEEE Transactions on Power Systems, vol. 34, no. 4, pp. 3140–3155, Jul. 2019, doi: 10.1109/TPWRS.2019.2897727.
M. I. Alizadeh, M. Parsa Moghaddam, N. Amjady, P. Siano, and M. K. Sheikh-El-Eslami, “Flexibility in future power systems with high renewable penetration: A review,” Renewable and Sustainable Energy Reviews, vol. 57, pp. 1186–1193, May 2016, doi: 10.1016/J.RSER.2015.12.200.
IRENA, “Power system flexibility for the energy transition, Part 1: Overview for policy makers,” 2018. Accessed: Mar. 08, 2022. [Online]. Available: https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2018/Nov/IRENA_Power_system_flexibility_1_2018.pdf
D. Pudjianto, L. Badesa, and G. Strbac, “Whole-system value of long-duration energy storage in a net-zero emission energy system for Great Britain.” 2021. doi: 10.13140/RG.2.2.33235.09768.
IRENA, “Electricity storage and renewables: costs and markets to 2030,” 2017. Accessed: Feb. 16, 2023. [Online]. Available: https://www.irena.org/publications/2017/oct/electricity-storage-and-renewables-costs-and-markets
B. Cárdenas, L. Swinfen-Styles, J. Rouse, A. Hoskin, W. Xu, and S. D. Garvey, “Energy storage capacity vs. renewable penetration: A study for the UK,” Renew Energy, vol. 171, pp. 849–867, Jun. 2021, doi: 10.1016/J.RENENE.2021.02.149.
IRENA, Electricity storage valuation framework. 2020. Accessed: Feb. 16, 2023. [Online]. Available: https://www.irena.org/publications/2020/Mar/Electricity-Storage-Valuation-Framework-2020
EIA, “Issues in focus: drivers for standalone battery storage deployment in AEO2022,” 2022. Accessed: Feb. 11, 2023. [Online]. Available: www.eia.gov
U.S. Department of energy, Pumped storage hydropower valuation guidebook. 2021. Accessed: Jan. 24, 2022. [Online]. Available: https://www.energy.gov/eere/water/pumped-storage-hydropower-valuation-guidebook-cost-benefit-and-decision-analysis
M. Castro Abril, “Intermittent renewable energy, hydropower dynamics and the profitability of storage arbitrage,” Washington, D.C., May 2020. doi: 10.18235/0002360.
J. Seel et al., “Impacts of high variable renewable energy futures on wholesale electricity prices, and on electric-sector decision making,” 2018, Accessed: Oct. 27, 2022. [Online]. Available: https://emp.lbl.gov/publications/impacts-high-variable-renewable
D. Zafirakis, K. J. Chalvatzis, G. Baiocchi, and G. Daskalakis, “The value of arbitrage for energy storage: Evidence from European electricity markets,” Appl Energy, vol. 184, pp. 971–986, Dec. 2016, doi: 10.1016/J.APENERGY.2016.05.047.
S. Osorio and A. van Ackere, “Arbitrage opportunities for pumped storage power plants in Switzerland,” SSRN Electronic Journal, Aug. 2016, doi: 10.2139/SSRN.2920529.
XM, “Reporte integral de sostenibilidad, operación y mercado 2021,” 2021. https://informeanual.xm.com.co/informe/pages/home.html (accessed Apr. 01, 2022).
UPME, “Capacidad acumulada de proyectos vigentes,” 2022. https://app.powerbi.com/view?r=eyJrIjoiODRjNWM2NmEtZDI5MC00OGJhLWFmMTItYmU3NTNiMDE4MTM2IiwidCI6IjUxYzFhOGQwLTMyYmQtNDZlYi05YmRlLTkxZTZlNGU3MDRmZCJ9 (accessed Apr. 02, 2022).
S. Zapata, M. Castaneda, M. Jimenez, A. Julian Aristizabal, C. J. Franco, and I. Dyner, “Long-term effects of 100% renewable generation on the Colombian power market,” Sustainable Energy Technologies and Assessments, vol. 30, pp. 183–191, Dec. 2018, doi: 10.1016/J.SETA.2018.10.008.
S. Zapata, M. Castaneda, A. J. Aristizabal, and I. Dyner, “Renewables for supporting supply adequacy in Colombia,” Energy, vol. 239, 2022, doi: 10.1016/j.energy.2021.122157.
S. Zapata, M. Castaneda, E. Garces, C. J. Franco, and I. Dyner, “Assessing security of supply in a largely hydroelectricity-based system: The Colombian case,” Energy, vol. 156, pp. 444–457, Aug. 2018, doi: 10.1016/j.energy.2018.05.118.
J. D. Morcillo, F. Angulo, and C. J. Franco, “Simulation and analysis of renewable and nonrenewable capacity scenarios under hybrid modeling: A case study,” Mathematics, vol. 9, no. 13, Jul. 2021, doi: 10.3390/MATH9131560.
F. Henao, Y. Rodriguez, J. Viteri, and I. Dyner, “Optimising the insertion of renewables in the Colombian power sector,” Renew Energy, vol. 132, pp. 81–92, 2019, doi: 10.1016/j.renene.2018.07.099.
F. Henao and I. Dyner, “Renewables in the optimal expansion of colombian power considering the Hidroituango crisis,” Renew Energy, vol. 158, pp. 612–627, 2020, doi: 10.1016/j.renene.2020.05.055.
A. F. Peñaranda, D. Romero-Quete, and C. A. Cortés, “Grid-scale battery energy storage for arbitrage purposes: a colombian case,” Batteries 2021, Vol. 7, Page 59, vol. 7, no. 3, p. 59, Sep. 2021, doi: 10.3390/BATTERIES7030059.
A. F. Penaranda Bayona, D. F. Romero Quete, C. A. Cortes Guerrero, and E. Moreno Restrepo, “Impact of grid-scale energy storage systems on energy and frequency regulation Colombian markets,” IEEE Latin America Transactions, vol. 20, no. 8, pp. 2054–2062, Aug. 2022, doi: 10.1109/TLA.2022.9853225.
J. Taborda and C. Franco, “Evaluación de esquemas de remuneración de sistemas de almacenamiento de energía con baterías a gran escala conectados a redes de transmisión en Colombia,” Universidad Nacional de Colombia, Medellín, 2021. Accessed: Mar. 26, 2022. [Online]. Available: https://repositorio.unal.edu.co/bitstream/handle/unal/81162/1152217935.2022.pdf?sequence=1&isAllowed=y
UPME, “Proyección de demanda de energía eléctrica, gas natural y combustibles líquidos,” 2021. Accessed: Sep. 03, 2022. [Online]. Available: https://www1.upme.gov.co/DemandayEficiencia/Documents/Informe_proyeccion_demanda_energeticos.pdf
UPME, “Plan de expansión de referencia generación - transmisión 2020 - 2034 - Volumen 2. Generación” 2019. Accessed: Apr. 01, 2022. [Online]. Available: http://www.siel.gov.co/Inicio/Generación/PlanesdeExpansiónGeneraciónTransmisión/tabid/111/Default.aspx
J. Vargas, C. J. Franco, and M. Jimenez, “Electricity pricing for renewable markets – a simulation approach for the colombian case,” IEEE Latin America Transactions, vol. 19, no. 12, pp. 1995–2002, Dec. 2021, doi: 10.1109/TLA.2021.9480140.
XM, “Sinergox.” https://sinergox.xm.com.co/Paginas/Home.aspx (accessed Feb. 12, 2023).
NASA, “NASA Power - Prediction of worldwide energy resources.” https://power.larc.nasa.gov/ (accessed Feb. 12, 2023).
XM, “Análisis energético de largo plazo MPODE - Resultado de estudios,” 2022. Accessed: Jan. 12, 2023. [Online]. Available: https://www.xm.com.co/operaci%C3%B3n/planeaci%C3%B3n/planeaci%C3%B3n-largo-plazo/an%C3%A1lisis-energ%C3%A9tico-de-largo-plazo-mpode-resultado-de-estudios
LAZARD, “Levelized cost of storage analysis - version 7.0,” 2021. Accessed: Feb. 03, 2023. [Online]. Available: https://www.lazard.com/media/451882/lazards-levelized-cost-of-storage-version-70-vf.pdf
V. Viswanathan, K. Mongird, R. Franks, X. Li, V. Sprenkle, and R. Baxter, “Grid energy storage technology cost and performance assessment,” 2022.
A. Perez and J. J. Garcia-Rendon, “Integration of non-conventional renewable energy and spot price of electricity: A counterfactual analysis for Colombia,” Renew Energy, vol. 167, pp. 146–161, Apr. 2021, doi: 10.1016/J.RENENE.2020.11.067.
A. Ciarreta, M. P. Espinosa, and C. Pizarro-Irizar, “Has renewable energy induced competitive behavior in the Spanish electricity market?,” Energy Policy, vol. 104, pp. 171–182, May 2017, doi: 10.1016/J.ENPOL.2017.01.044.
XM, “Resultados estudio de flexibilidad 2024-2027,” 2022. Accessed: Dec. 29, 2022. [Online]. Available: https://stdrupal01.blob.core.windows.net/temporalportalxm/Flexibilidad_2022_12964.pdf?sig=t2DmiJu3gMQdKEUK7hpUw9vGT5cFAtPr4hYU8Rbxy3U%3D&st=2022-12-30T20%3A12%3A25Z&se=2022-12-30T20%3A14%3A25Z&sv=2019-02-02&sp=r&sr=c
