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US storage providers often use price arbitrage tactics to increase revenue: EIA

Dive Brief:

  • According to the US Energy Information Administration, utility-scale energy storage on the US grid rose from 1.4 GW at the end of 2020 to 4.6 GW last year. Annual Electric Generator Report. About 60% of installed utility-scale storage capacity in 2021 was used for price arbitrage, up from 17% in 2019. EIA found.
  • In California, which has more energy storage than any other state, the buy-low, sell-high strategy is playing an important role. Added more than 80% of battery capacity California independent system operator service area last year was used to Price Arbitrage.
  • More than 90% of storage installations last year were coupled with large-scale solar energy facilities because of the substantial federal tax credit such installations receive., The EIA observed.

Dive Insights:

Large battery storage helps grid reliability by providing ancillary services, particularly frequency regulation to keep the grid at a safe bandwidth. Frequency control is even more so A common battery application in the U.S. is because batteries ignite instantly and “absorb power surges quickly,” the EIA said. But energy storage is increasingly used for price arbitrage strategies and to provide power to the grid, not ancillary services.

The takeaway from the EIA’s report is that “a storage resource can operate in ancillary services or energy markets,” said Jin Noah, policy director for the California Energy Storage Alliance.

Noah said storage is playing a bigger role in the energy market, replacing the ancillary services market. A large amount of collection is used for arbitration in CaliforniaIt tells us that the ancillary services market in the state is largely saturated, Noah added. That’s a change from 2018, when the first large storage system was connected to California’s grid, and “everyone was lamenting that storage was only acting as an ancillary service, not providing greenhouse gas reduction benefits or energy mediation,” he said.

Now the batteries “absorb excess solar or wind generation when demand is low and then discharge it when demand is high,” according to the EIA. Storage in California has grown from 172 MW at the end of 2020 to 2,419 MW by the end of 2021.

Additionally, batteries are increasingly being co-located with large solar plants because when they are charged entirely or predominantly by on-site renewables, they may qualify for federal tax credits. Up to 30% depending on the facility, said Susan Schneider, a primary consultant and founder of Phoenix Consulting. Those credits also apply to co-located storage with wind generators, the EIA notes.

The EIA reports that more than 93% of the battery capacity that came online last year across the US was co-located with solar power plants.

Price arbitrage by storage providers improves the economics of energy storage, although those receiving the tax credit must be charged by the connected solar facility, Schneider said.

“[E]Battery operation, except in emergencies or out-of-market shipments [in California] CAISO’s market is largely based on market prices for batteries in the market, Schneider said. Payments for out-of-market and emergency shipments may increase during that time, he said.

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