Two Ways to Use Grid-Tied Batteries: Energy Arbitrage and Grid Services

Michael Tobias
March 30, 2022
4 Minutes Read
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    KEY TAKEAWAYS

    - Energy storage systems can be combined with solar panels and wind turbines to achieve a dispatchable power supply. By themselves, these renewable sources can only provide a variable output.

    - Lithium batteries are characterized by their quick response. They can keep up with sudden changes in generation and consumption, which characterize modern grids.

    - The two main applications of grid-tied battery systems are energy arbitrage and grid services.

    - Energy arbitrage consists of storing surplus electricity at low cost, and using it when demand is high and prices increase.

    - Grid services are various functions that can be performed by batteries to keep the grid stable. Batteries can balance generation and consumption, and they can control voltage and frequency.

    You may have noticed that lithium batteries and energy storage systems in general have been getting plenty of media attention in recent years. Solar panels and wind turbines are being installed at a record pace around the world, and energy storage solves their main limitation: not being able to supply electricity on demand. While there are many forms of energy storage, lithium ion batteries have the response speed needed to keep up with modern grids. They also have a modular design, just like solar panels, which means they can be configured to match the scale of any project.

    There are two main ways to use grid-tied battery systems: energy arbitrage and grid services Energy arbitrage consists of storing large amounts of electricity when supply is high, and providing that energy when demand is high. Electricity prices drop with surplus production, and they rise during peak demand hours; this price difference represents potential profits or savings for battery owners. This is the most obvious application of grid-tied battery systems, but they can accomplish other useful functions.


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    Due to their fast response, battery systems can also be used to provide frequency control and other grid services. When power grids experience sudden changes in supply or demand, their voltage and frequency tend to become unstable. Battery systems can respond within fractions of a second, absorbing or supplying power as needed by the grid. A small home battery will not have a noticeable impact on the grid, but utility-scale batteries or thousands of small systems operating in coordination have a stabilizing effect.

    Using Battery Systems for Energy Arbitrage

    home battery

    Energy arbitrage is a simple concept: electricity is stored when kWh costs are low, and used or sold when kWh costs are high. This can be applied with small home batteries, medium-sized storage systems in commercial buildings, or utility-scale batteries. In all cases, the basic principle is saving the difference between low and high energy costs.

    As a quick example, let’s assume a large commercial building is charged 15 cents/kWh during off-peak hours, and 35 cents/kWh during peak hours. In this case, it’s possible to charge a battery system with off-peak electricity, and use that energy when the higher tariff is being applied. The consumption measured by the power company is shifted from hours with a price of 35 cents/kWh, to hours with price of 15 cents/kWh. In other words, you’re saving 20 cents for every kWh stored at low price and consumed at high price. 

    If the commercial facility in this example has a 1,000 kWh battery with 96% round-trip efficiency, energy arbitrage can provide the following savings on daily basis:

    • 1,000 kWh are stored each day at 15 cents/kWh, with a total cost of $150.
    • 960 kWh are used to avoid consumption at 35 cents/kWh, saving $336 per day.
    • This 1,000 kWh battery would be saving $186 per day, or $67,890 per year.

    This concept can also be applied at a larger scale in the wholesale electricity market. Generation companies who own wind turbines or solar farms must normally sell their electricity at spot prices, since they depend on wind and sunlight. With utility-scale energy storage, they can wait for hours when wholesale electricity prices are high, achieving maximum profits.

    Energy arbitrage becomes more lucrative as the price difference between off-peak and on-peak electricity increases. As this price difference becomes smaller, the potential savings and profits achieved with energy storage are less.

    Using Battery Systems for Grid Services

    utility scale battery

    We tend to focus on the storage capacity of battery systems, but their rated power is also important. There are times when the grid needs a large number of megawatts to be supplied or absorbed ASAP, and batteries are characterized by their fast response. Electrical faults and other grid events can cause a sudden imbalance between generation and consumption, causing voltage and frequency to become unstable. When this happens, power grid operators must balance supply and demand as quickly as possible to prevent blackouts.

    The potential applications of grid-tied battery systems also include frequency control and ancillary services. Actually, these applications are more lucrative in some energy markets, especially those that reward on-demand generation capacity. These batteries operate in short bursts of power, as opposed to the longer schedules in energy arbitrage applications. Of course, using the same battery system for energy arbitrage and grid services is also viable.

    When batteries are used for grid services, their electricity can come from any source, even variable renewables. Wind turbine and solar farm owners can increase their revenue by adding energy storage to their power plants. When batteries are used for grid services, they generate income with their capacity to provide megawatts in an instant, and shifting consumption schedules is less important.

    Tags renewable energy Energy Storage lithium batteries battery systems grid batteries

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