Energy storage profit mainly consists of energy arbitrage at different time periods and payments for various regulation services such as frequency regulation. Existing congestion in a power system can positively impact energy arbitrage opportunities and thereby increase the profit of energy storage.
Building upon both strands of work, we propose to characterize business models of energy storage as the combination of an application of storage with the revenue stream earned from the operation and the market role of the investor.
Although academic analysis finds that business models for energy storage are largely unprofitable, annual deployment of storage capacity is globally on the rise (IEA, 2020). One reason may be generous subsidy support and non-financial drivers like a first-mover advantage (Wood Mackenzie, 2019).
Where a profitable application of energy storage requires saving of costs or deferral of investments, direct mechanisms, such as subsidies and rebates, will be effective. For applications dependent on price arbitrage, the existence and access to variable market prices are essential.
We also find that certain combinations appear to have approached a tipping point towards profitability. Yet, this conclusion only holds for combinations examined most recently or stacking several business models. Many technologically feasible combinations have been neglected, profitability of energy storage.
However, the value of joint transmission and energy storage investments is much higher than the value of each of them separately. Thus, the Regulator should ensure through incentive regulations or other means that independent transmission investments considers non-transmission assets in order to achieve the most favourable outcome.