Being in the storage industry as an early disruptor means growing it. A specialist in battery optimization, enspired consults with companies that want to use their flexibility to contribute to the energy transition while maximizing their revenue. From these companies, we learn about the projects they intend to bring to the market and the challenges they face along the way, including warranty terms and battery dimensions. Two of the most pressing questions we get asked are:
This article has the answers, complete with examples and illustrations.
Revenue capture with cycles
Chart 1 shows 24 months of revenue for a 10 MW/10 MWh battery. In simpler terms, this asset has a storage capacity of 10 MW, which would be depleted within approximately one hour upon discharge. Keeping in mind this configuration and presupposing 2021-2022 market conditions in Germany, we are capturing roughly € 3.1 million for one cycle. Increasing the cycle rates to 1.5 equates to an additional 29% of revenue capture, up to € 4 million. As you would expect, it keeps going up as you increase the cycles. Two cycles come with a plus of 15%, to € 4.6 million, and 2.5 cycles bring it up by an additional 6.5%, to € 4.9 million.
Evidently, more revenue is captured as cycles increase, but the graph also shows that the growth is not linear. Even with more cycles, it eventually phases out. For this reason, we at enspired say there is a sweet spot for cycle rates: two per day. And this is starting to reflect in the warranty terms. There are specs for the annual average of two cycles per day, and sometimes they give the option to increase it to four cycles.
Chart 2 depicts monthly spreads, with the triangular illustrations showing percentage increases of up to 50%. This is the market impact two cycles can have. Through upcycling, more options to combine and stack revenue streams become accessible to you.
We generally say that two cycles are a good choice for your asset. Even if those two cycles aren't run every day, having them available to capture market opportunities is the best way forward. This approach gives you more options to combine, stack, and optimize revenues in aFRR (automatic Frequency Restoration Reserve), FCR (Frequency Containment Reserve), and the wholesale market.
Additional noteworthy factors that influence cycles are temperature (don’t let poor air conditioning limit your revenues!) and annual throughput (must match the number of cycles and MWhs), both of which are often backdoor restrictions in warranty terms. There is no point in having a theoretical availability of capacity if you have to let your 2-cycle battery sit idle to cool back down to permissible temperatures for two hours after one cycle of use. That is why we advise you to invest in a good HVAC system.
What happens when duration becomes part of the equation? Cycles and duration go hand in hand. Chart 4 below depicts two intraday snapshots, one from January and one from June 2023, with January emphasizing the importance of duration. The green dots are where you would ideally start charging your asset, while the red dots are where you would discharge it. By following this pattern, you take advantage of the early morning prices when charging and of the evening peaks when discharging. While cycle requirements are kept to a minimum in this example (only one cycle), duration really comes into play. In fact, a 5-hour duration system would be ideal to capture the entire market value. This works well for pumped storage, but batteries are more limited in this regard. A 2-hour duration still allows you to capture a lot of that market value. Six months later in June, the intraday scenario is much better suited for cycle rates. In this case, two cycles will capture the entire market value, while duration is less relevant. The relative importance of battery duration and cycling capability depends on market conditions. Longer duration is particularly valuable when price spreads extend over several hours, while stronger cycling capability allows batteries to capture multiple shorter trading opportunities throughout the day.
Let’s revisit our earlier chart with duration added to it. Chart 5 below shows you different optimization strategies. For 1.5 cycles over the course of 24 months with a 10 MW/10 MWh battery, you are catching a revenue of € 4 million. Doubling the duration to 10 MW/20 MWh will not double revenue, but it will give you an increase of 40% to € 5.6 million. Long story short, the maximum is reached when you increase duration and cycles. A 10 MW/20 MWh asset with two cycles will increase the revenue capture by 55% to € 6.2 million.
All in all, duration should be considered for battery configuration, especially if you want to access aFRR for more monetization opportunities. Generally speaking, a 2-cycle/2-hour-duration asset will give you the best return on your investment (ROI).
Degradation is crucial for the lifetime and ROI of a battery. A longer duration gives you the freedom to market the asset in a preferred SOC (State of Charge) range. Together with clients, we work on finding this optimal range to maximize revenues while keeping the battery healthy. This allows us to adapt trading strategies to limit degradation and optimize the SoH (State of Health). In the chart below, you can identify the battery’s capacity retention. If we run 7,000 cycles with a preferred SoC range of 75-25%, the asset retains a capacity of 90%.
Duration & cycles
2-hour batteries with 2 cycles
Degradation
Asset degradation is kept low by
Warranty
For your battery warranty, make sure that