Energy storage systems are increasingly becoming more common throughout the world as renewable energy becomes more widespread. A key part to making energy storage systems financially viable is energy arbitrage and peak shaving. Contact online >>
Energy storage systems are increasingly becoming more common throughout the world as renewable energy becomes more widespread. A key part to making energy storage systems financially viable is energy arbitrage and peak shaving.
Here, we give you a rundown of everything you need to know about energy arbitrage and peak shaving within the storage market.
Energy arbitrage entails the purchasing of energy commodities at times of low pricing and selling it during periods of high pricing, aiming to yield profits. It relies on exploiting variations in energy prices over time or location to take advantage of market discrepancies. The objective of it is to enhance the utilisation of energy resources, including energy generation facilities, or energy storage systems, with the aim of maximising financial gains.
The first step of implementing energy arbitrage is identifying price discrepancies. Energy markets need to be monitored to identify when prices are low and high. This can be on an hourly, daily or seasonal basis. For battery energy storage systems, arbitrage usually occurs on the short-term time scale typically in intra-day or day-ahead markets.
Secondly, deploying the storage asset. Most commonly, this is in the form of a battery, but could also be pumped hydro, flow batteries or any other energy storage asset. Once online it can start to capitalise on pricing discrepancies, buying and storing energy at low prices and selling when the price increases.
Finally, optimising the arbitrage process through algorithms that implement trading strategies streamlining energy asset management and maximise market potential.
In order to reach profitability, there are a number of challenges players need to overcome.
Energy markets can be highly volatile making it challenging to predict and capitalise on price differentials effectively while simultaneously increasing potential profits in the enlarged price differentials. In addition to this, a rapidly growing energy storage market means increased competition within energy markets. This can lead to the potential of squeezed profit margins.
Moreover, getting a grid connection can cause significant delays to projects, having substantial impacts on the industry.
Furthermore, building and maintaining energy storage infrastructure requires significant upfront costs. This can deter potential investors as there is no guarantee of profits from energy arbitrage. To address this, some counties have introduced cap and floor mechanisms that guarantee income to potential operators and investors.
Energy arbitrage and peak shaving are closely linked strategies within the sector of energy management. While they serve different purposes, they often complement each other and can be employed simultaneously by energy managers to optimise energy consumption and minimise costs.
Peak shaving strategically manages energy by reducing electricity consumption during periods of high demand. These periods often occur during certain times of the day, week, or year when electricity usage reaches its highest levels, typically due to factors such as extreme weather conditions, increased industrial activity, or high levels of residential consumption. In turn peak shaving contributes to maintaining grid stability, reliability and resilience.
Peak shaving is often achieved by implementing demand response strategies, such as temporarily reducing non-essential energy consumption or, increasingly more common, deploying onsite energy storage systems to meet peak demand internally without relying on the grid.
Peak shaving and energy arbitrage strategies contribute to the integration of renewable energy. Achieved by smoothing fluctuations of intermittent renewable energy, maximising utilisation, enhancing grid flexibility and resilience. This is done by aligning energy consumption with renewable generation peaks, storing excess renewable energy, and dynamically adjusting consumption patterns.
Rho Motion provides comprehensive, in-depth market analysis in battery and energy storage markets. For more information about energy storage markets and industry players see our Battery Energy Stationary Storage Outlook.
Peak shaving can help you better manage spikes in energy demand, reducing your energy bills and avoiding expensive surcharges.
Peak shaving, sometimes called load shedding, is the strategy used to reduce periods of high electricity demand.
In this blog, our Technical Sales Manager, Jonathan Mann, explains how battery energy storage systems can help with peak shaving.
Many businesses in the UK are susceptible to peak load spikes. This is where the electricity demand rapidly increases during a particular period causing a spike in demand on the grid. This can be due to a number of scenarios. It could be a daily occurrence as operations ramp up in the morning or when particular industrial processes start up. It could be as a result of seasonal demands – when additional cooling or heating systems are required. Or it could be down to increasing electricity demands caused by the electrification of vehicles or machinery on site.
Whatever the cause, peak shaving can help to mitigate these spikes, smoothing out the demand curve and avoiding sudden demand in electricity usage that can strain the grid, and lead to higher costs, potential power outages and increased carbon emissions.
There are lots of benefits to peak shaving. It helps businesses operate more efficiently, reduces the need for additional power capacity that is only then used during peak periods, and enhances the overall stability and reliability of the electricity grid.
A business on a variable tariff may see its energy costs increase at times of high demand. This is because electricity prices go up to disincentivise use, while during much quieter periods, prices are correspondingly lower. These prices per kilowatt (kW) are often referred to as peak and off-peak tariffs, reflecting those demand levels.
On top of this, there are two pricing mechanisms that apply to businesses. The Distribution Use of System (DUoS) is calculated by the amount of energy a business uses and businesses are incentivised to reduce their energy usage at key times of the day. The second mechanism is Transmission Network Use of System (TNUoS) and this is calculated on net consumption volumes to encourage businesses to become more energy efficient. Peak shaving is a key component in reducing reliance on the grid and therefore additional costs.
Peak shaving can also ensure that a company does not breach its maximum import capacity (MIC), also known as a kVA allowance. This is a limit on how much energy you can use and exists to ensure that every business gets a fair share of the total electricity available. If you exceed your MIC, you will face significant surcharges from your energy provider. We have worked with companies that were paying tens of thousands of pounds a year in MIC charges. You can read more about the importance of avoiding MIC charges in our dedicated article here.
By avoiding peak load spikes, a business can contribute to lower carbon emissions by using energy at less carbon-intensive periods and therefore reducing the reliance on fossil-fuel-based power plants. This is an important point for businesses motivated by net zero targets.
There are several ways to avoid peak load spikes:
Companies can put in place energy management measures or even a full energy management system (EMS). This can shift certain business activities to off-peak times or temporarily reduce energy-intensive processes. The advanced metering and monitoring offered by an EMS will enable a business to have better real-time control and management of electricity consumption, allowing for more targeted peak shaving strategies.
Companies are also increasingly turning to rooftop solar arrays as a way of peak shaving. Local power generation sources can supplement the grid''s power supply during peak hours, reducing the strain on the grid at times of high electricity use. However, maximising the use of solar will be key as part of an overarching peak shaving strategy.
The inclusion of battery energy storage alongside solar PV can help optimise generation. By storing excess energy during periods of low demand and releasing it during peak demand times, a business reduces the need to draw power from the grid. This ensures that a business can efficiently use every solar kilowatt it produces.
In addition, a BESS can act like an energy reservoir. It can be easily instructed to draw power from the grid during off-peak periods, and then provide that power to your premises during peak periods.
A BESS can be programmed to monitor loads and automatically kick in when needed. Good examples of this could be storing excess solar through the day for use in the morning as processes ramp up or in the evening when electric vehicles or machinery need to be charged.
Every business is different but in many cases a BESS can deliver a return on investment through peak shaving. At Connected Energy we offer feasibility studies to accurately demonstrate the savings you can make, giving you the confidence to invest in a battery energy storage system.
Connected Energy''s Head of Data Science, Frazer Wagg, outlines our free feasibility study at Connected Energy to help our potential clients realise the benefits of battery energy storage. ReadMore…
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