Publications Details

Energy storage price targets to enable energy arbitrage in CAISO

Barba, Pedro; Byrne, Raymond H.; Nguyen, Tu A.

Energy storage is an extremely flexible grid asset than can provide a wide range of services. Unfortunately, energy storage is often relatively expensive compared to other options. With the emphasis on decarbonization, energy storage is required to buffer the intermittency associated with variable renewable generation. This paper calculates the maximum potential revenue from an energy storage system engaged in day-ahead market arbitrage in the California Independent System Operator (CAISO) region and uses these results to estimate the distribution of break-even capital costs. Break-even cost data is extremely useful as it provides insight into expected market penetration given a target capital cost. This information is also valuable for setting policy related to energy storage incentives as well as for setting price targets for research and development initiatives. The potential annual revenue of a generic battery energy storage system (BESS) participating in the CAISO day-ahead energy market was analyzed for 2,145 nodes over a seven year period (2014-2020). This data was used to estimate the break-even capital cost for each node as well as the cost requirements for several internal rate of return scenarios. Based on the analysis, the capital costs of lithium-ion systems must be reduced by approximately 80% from current levels to enable arbitrage applications to have a reasonable rate of return.