Economics of energy storage in the German electricity and reserve markets

The new Electricity Market Act (2.0) in Germany is to increase the share of renewable energy through an efficient market design and new regulatory framework. This has paved the way for further participation of different flexibility solutions (such as distributed energy storage) in the German balancing market. This paper examines the market value of electrical energy storage (EES) in the German day-ahead and balancing markets. We present a simple but robust mixed integer optimization model for profit maximization of storage in the day-ahead market. We examine five different energy storage technologies, i.e., pumped hydro storage (PHS), compressed air energy storage (CAES), NaS, Lead-acid, and Li-ion battery energy storage systems. The results show that the benefits from price arbitrage can cover up to 25% of the life cycle cost of EES. However, inclusion of benefits from reserve markets suggests return on investment for some systems like PHS. Aggregation of benefits from energy and reserve markets may not realize profitability for high-cost batteries with cost data in 2016. The theoretical sum of benefits from reserve services, however, suggests a breakeven in the cost-benefit of low-cost batteries with a long discharge time.