optimum operation of bulk energy … operation of bulk energy storage systems in contemporary spot...

OPTIMUM OPERATION OF BULK ENERGY STORAGE SYSTEMS

IN CONTEMPORARY SPOT ELECTRICITY MARKETS

D. Zafirakis, K. Chalvatzis

Norwich Business School

University of East Anglia

Norwich, NR4 7TJ, UK

email: [email protected]

INTRODUCTION

During the recent years, there has been

considerable interest in the R&D of energy storage

systems

Among the most established services that such

systems can provide, are spinning reserve,

arbitrage, transmission system stability, voltage

regulation and peak shaving

On the other hand, increased investment costs and

inherent energy conversion losses attached to them

lead to increased production costs that discourage

investment in such projects

An effort is made to develop an arbitrage model for

two different bulk energy storage technologies;

pumped hydro storage (PHS) and compressed air

energy storage (CAES), operating in contemporary

electricity spot markets

NORD POOL MARKET

The two energy storage systems are set to

operate in two different Nord Pool regions,

i.e. of West Denmark and Finland

Nord Pool is the leading market for buying

and selling energy in the Nordic region,

Estonia, Germany and Great Britain, with

74% of the Nordic region energy

production traded on its basis

Contribution of wind energy in the Danish

market exceeds 20%, complementing

operation of CHP units. On the other hand,

the fuel mix of Finland is much more

diverse, with nuclear power holding the

greatest share

Electricity Fuel Mix of Denmark (2010)

21,4%

78,3%

0,3%

Wind CHP Other

Electricity Fuel Mix of Finland (2010)

28,2%

16,0%

0,4%17,8%

24,6%

0,1%13,0%

Nuclear Hydro Wind Comb. Fuels CHP Other Net imports

SPOT PRICE PATTERNS

The two regions selected present different

market patterns, thus allowing to obtain the

market impact on the performance of an

energy storage system adopting arbitrage

The time-series of market clearing price for

year 2010 for both markets is used

The West Denmark market is found to be

less volatile, despite the large scale

contribution of wind power, regulated

through the balancing option of large-

volume imports and exports

The Helsinki market is determined by both

extreme spikes, reaching 1500€/MWh, and

pronounced seasonality reflected by long-

term periods of high and low prices

Hourly Variation of MCP for West Denmark (2010)

-30

-10

10

30

50

70

90

110

130

150

0 1000 2000 3000 4000 5000 6000 7000 8000 9000

Hour of the Year

MC

P (

€/M

Wh)

Hourly Variation of MCP for Helsinki (2010)

0

150

300

450

600

750

900

1050

1200

1350

1500

0 1000 2000 3000 4000 5000 6000 7000 8000 9000

Hour of the Year

MC

P (

€/M

Wh)

PUMPED HYDRO STORAGE (PHS)

PHS is the most mature bulk energy

storage technology, with more than

120GWs worldwide

Energy surplus or cheap energy appearing

during low demand exploited to pump water

into an elevated (upper) storage reservoir

During peak demand, water is released

from the upper reservoir in order to operate

hydro-turbines for electricity production

Cycle efficiency of a typical PHS ranges

between 65% and 75%

Much dependent on the existence of

appropriate reservoirs

COMPRESSED AIR EN. STORAGE (CAES)

In a CAES system, off-peak power is taken

from the grid or other generation sources

to compress air into an underground

cavern

During times of peak demand, the required

amount of air is released from the cavern,

heated with natural gas and then supplied

in the form of gases to a gas-turbine where

expansion takes place as in a typical

Brayton/Joule cycle

Consequently, what seems to be as much

as 66% of fuel consumption for the

compressor in a typical Brayton/Joule

cycle, is not the case in the CAES cycle,

although fuel is still required (HR of ~1.2)

DISPATCH STRATEGY

To take advantage of potential arbitrage opportunities, a deterministic dispatch

strategy is developed for the ESSs

Energy storage units are assumed to be price-takers, i.e. their size is limited

enough so as not to affect the spot market price

Buying and selling decisions with regards to the hourly spot market price "Pspot"

are based on the introduction of an upper and a lower spread (USP and LSP

respectively), resulting from the comparison with the long term (annual) average

spot price "Pav" of the market

If Pspot ≤ (1-LSP)∙Pav; then decision made is "Buy"

If Pspot ≥ USP∙Pav; then decision made is "Sell"

If USP∙Pav ≥ Pspot ≥ (1-LSP)∙Pav; then decision made is "Remain Idle"

The trading strategy currently adopted is based on an ex-post approach, using

actual recorded spot market prices for year 2010, or equivalently assuming perfect

prognosis

PROBLEM PARAMETERS

The main technical characteristics of the

energy storage units are also taken into

account

Maximum power input and output values,

along with the corresponding efficiency

rates and the system storage capacity

In the case of the CAES system, there is

also need to define the unit heat rate

Variation of all parameters evaluated on

the basis of maximum net cash flows

through arbitrage, varying at the same

time both USP and LSP values on a 10%

variation step

Power input (MW) 20-150

Power output (MW) 20-150

Storage Capacity (MWh) 150-1000

Input efficiency–PHS 75%

Input efficiency–CAES 85%

Output efficiency–PHS 85%

Output efficiency–CAES 120%

CAES heat rate 1.2

PRELIMINARY APPLICATION RESULTS

The practical trading strategy is applied

to the markets of West Denmark and

Helsinki for a representative PHS system

A 10% value is selected for both USP

and LSP, implying frequent system

operation since the system is allowed to

buy and sell when the price falls below

and increases above 10% of the long-

term average

The higher price concentration in the

case of West Denmark (STDV of

12€/MWh) -compared with Helsinki

(STDV of 50€/MWh)- encourages

adoption of narrower spreads

Hourly Storage Level Variation Vs Revenues/Expenses;

Np=20MW; Nt=20MW; LSP-USP=10%; Ess=1000MWh;

West Denmark

-700

-500

-300

-100

100

300

500

700

900

1100

1300

1500

1 651 1301 1951 2601 3251 3901 4551 5201 5851 6501 7151 7801 8451

Hour of the Year

Revenues (

€/h

)

0

100

200

300

400

500

600

700

800

900

1000

1100

Sto

rag

e L

eve

l (M

Wh

)

Revenues/Expenses

Storage Level

Hourly Storage Level Variation Vs Revenues/Expenses;

Np=20MW; Nt=20MW; LSP-USP=10%; Ess=1000MWh;

Helsinki

-2000

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1 651 1301 1951 2601 3251 3901 4551 5201 5851 6501 7151 7801 8451

Hour of the Year

Reve

nu

es (

€/h

)

0

100

200

300

400

500

600

700

800

900

1000

1100

Sto

rag

e L

eve

l (M

Wh

)

Revenues/Expenses

Storage Level

PARAMETRICAL ANALYSIS (1)

Subsequently a parametrical investigation is

carried out with the impact of input power, output

power and energy storage capacity variation first

examined

Increase of pumping power allows for the increase

of annual net revenues, provided that sufficient

energy storage capacity is employed

Increase of pumping power under a restricted

output power and storage capacity eliminates any

further opportunities for the increase of net

revenues

Operation difference between the two markets

seems to also affect net cash flows, with the

Helsinki market producing maximum net revenues

of approximately 1.45M€/year

Net Revenues from PHS Operation; LSP-USP=10%;

Nt=50MW; West Denmark - Storage Capacity Variation

0,0

0,4

0,8

1,2

1,6

2,0

20 30 40 50 60 70 80 90 100 110 120 130 140 150

Pumping Power "Np" (MW)

Ann

ua

l N

et

Reve

nu

es (

M€

)

Ess=1000MWh

Ess=500MWh

Ess=300MWh

Ess=150MWh


Nt=100MW; West Denmark - Storage Capacity Variation

0,0

0,4

0,8

1,2

1,6

2,0

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Ann

ua

l N

et

Reve

nu

es (

M€

)

Ess=1000MWh

Ess=500MWh

Ess=300MWh

Ess=150MWh


Nt=100MW; Helsinki - Storage Capacity Variation

0,0

0,4

0,8

1,2

1,6

2,0

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Ann

ua

l N

et

Reve

nu

es (

M€

)

Ess=1000MWh

Ess=500MWh

Ess=300MWh

Ess=150MWh


Next, variation of the LSP value is studied under

a power output of 100MW, a USP value of 10%

and a storage capacity of 500MWh, afterwards

increased to 1GWh

According to the results, increase of the LSP

leads to less buying decisions, that restricts the

opportunities for increased annual net revenues

At the same time, both the market and the

energy storage capacity impact are again

illustrated

Owed to the fact that in the case of West

Denmark negative price events appear, the LSP

of 100% does not imply zero net revenues

Net Revenues from PHS Operation; USP=10%;

Nt=100MW; Ess=500MWh; West Denmark -LSP Variation

0,0

0,4

0,8

1,2

1,6

2,0

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Ann

ua

l N

et

Reve

nu

es (

M€

)

LSP=10%LSP=20%LSP=40%LSP=60%LSP=80%LSP=100%

Net Revenues from PHS Operation; USP=10%;

Nt=100MW; Ess=500MWh; Helsinki - LSP Variation

0,0

0,4

0,8

1,2

1,6

2,0

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Ann

ua

l N

et

Reve

nu

es (

M€

)


Net Revenues from PHS Operation; USP=10%,

Nt=100MW; Ess=1000MWh; West Denmark -LSP Variation

0,0

0,4

0,8

1,2

1,6

2,0

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Ann

ua

l N

et

Reve

nu

es (

M€

)



The variation of the system capacity

factor (CF), is also estimated for a

capacity of 500MWh, USP=10%, and

output power of 100MW

Greater STDV for Helsinki has a direct

impact on the deriving CF values, which

do not exceed 2.1% on an annual basis

On the other hand, the considerably

lower STDV, encountered in West

Denmark, allows for more frequent

system operation, with the CF values

reaching 8% for the current set of

parameters

Capacity Factor Variation for PHS; USP=10%; Nt=100MW;

Ess=500MWh; Helsinki - LSP Variation

0,0%

0,5%

1,0%

1,5%

2,0%

2,5%

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Capacity F

acto

r


Capacity Factor Variation for PHS; USP=10%; Nt=100MW;

Ess=500MWh; West Denmark - LSP Variation

0%

2%

4%

6%

8%

10%

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Capacity F

acto

r



Next, variation of the USP parameter is also

undertaken

Increase of the USP value has an adverse

impact on the annual net revenues for West

Denmark, while the opposite happens for

Helsinki, for the lower values of pumping

power

Increase of the USP value to 100% implies

maximum net revenues for 0-40MW input

power, justified on the basis minimum CF

values, with parallel exploitation of prices that

exceed by far the respective average

As the pumping power increases and more

energy is being bought, the requirement for

energy sales increases, designating that USP

of 10% ensures greater net cash flows

Net Revenues from PHS Operation; LSP=10%;

Nt=100MW; Ess=500MWh; West Denmark - USP Variation

0,0

0,4

0,8

1,2

1,6

2,0

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Annual N

et R

evenues (

M€)

USP=10%USP=20%USP=40%USP=60%USP=80%USP=100%

Net Revenues from PHS Operation; LSP=10%;

Nt=100MW; Ess=500MWh; Helsinki - USP Variation

0,0

0,4

0,8

1,2

20 30 40 50 60 70 80 90 100 110 120 130 140 150


Annual N

et R

evenues (

M€)

USP=10%

USP=20%

USP=40%

USP=60%

USP=80%

USP=100%

OPTIMUM RESULTS (1)

Finally, by screening the entire range of variation for both USP and LSP and PHS-

CAES, the global maximum for different storage capacity cases is given

For CAES two sets of curves are provided; the first corresponds to net arbitrage

revenues and the second considers also expenses required for fuel consumption

under 25€/MWhf

Global Maximum Net Revenues in Relation to the Storage

Capacity Variation for West Denmark and Helsinki (2010)

0,4

1,2

2,0

2,8

3,6

4,4

5,2

6,0

0 1000 2000 3000 4000 5000

Storage Capacity (MWh)

Net

Reve

nu

es (

M€

/Ye

ar)

PHS-DK1 PHS-HelsinkiCAES-DK1CAES-HelsinkiCAES-DK1+FuelCAES-HELS+Fuel

OPTIMUM RESULTS (2)

CAES is found to produce higher net revenues in the case of the Helsinki

market -in comparison to PHS- even when fuel expenses are taken into

account

On the other hand, in the case of West Denmark, CAES although ensuring

greater net arbitrage revenues than PHS, is considerably affected by the fuel

factor, resulting to lower net cash flows in comparison to PHS

Recall that West Denmark is characterized by a significantly higher frequency

operation, which also implies higher fuel consumption

It is noteworthy that there is a critical storage capacity (in the order of 1GWh)

above which the Helsinki market presents greater net revenues than West

Denmark

That is owed to the fact that by exploiting extreme storage capacities, large

amounts of energy stores may be sold during the appearance of price spikes

CONCLUSIONS

Based on the development of a practical arbitrage trading strategy for bulk energy storage, investigation of two different spot market patterns was undertaken According to the results obtained, the less volatile price pattern of West Denmark market encourages operation of smaller capacity systems, while in the case of the more volatile Helsinki market, both CAES and PHS systems perform better if a storage capacity of more than 1GWh is employed At the same time, increased CF of systems operating in West Denmark is also responsible for the considerable reduction of net cash flows in the case of CAES, owed to the increased fuel consumption On the other hand, extremely low CF values noted in the case of ESSs operating in the Helsinki region, also have a direct impact on CAES fuel consumption As a result, CAES is found to be more suitable for the Helsinki market, while PHS is the most appropriate solution for the West Denmark market Examination of investment and maintenance costs, as well as economic evaluation on a long-term basis for both systems examined is required

Thank you for

Your Attention

optimum operation of bulk energy … operation of bulk energy storage systems in contemporary spot...

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