Energy Arbitrage - Part 2: Technical Aspects

     When you account for distribution fees, trader margins, amortization, and battery efficiency, the entire model changes significantly. It is also necessary to define a healthy margin for electricity traded in this way. For example, with a 30% margin, the required price spread comes to about CZK 4/kWh. This condition significantly narrows the space for price arbitrage.

Additionally, if you use the battery in combination with a renewable energy source (RES), other factors limit you, such as the currently available capacity in your battery when the price is low and your own consumption needs when the price is high. With our clients, covering their own energy needs from their own sources usually takes priority, and energy arbitrage is handled with lower priority as a nice bonus.

     Back to our question. Is the battery worth it? Is it economically viable to use it for energy arbitrage? The answer has very significant technical aspects, but ultimately it is an economic question. It is always necessary to create a model that can consider these aspects. Sensitivity to input costs, energy prices, but also distribution fees and the client's operational profile is high. Therefore, it cannot be universally stated that a battery always pays off or not.

     There is no universal answer to the question of whether a battery storage system is worthwhile. If you are considering implementing a battery storage system, we recommend starting with a data-based feasibility study that takes into account all the technical and economic aspects specific to your operation. We will be happy to help you with such an analysis. We use real data, forecasts, and experience from other projects. The result will be a decision that makes not only technological sense but above all economic logic.

The first step towards effective energy management starts with a quality analysis and model – contact us.

Below we summarize the key technical aspects that influence the modeling results and the final decision:

Battery Storage Size (Capacity in kWh)
   
     Determines the amount of energy that can be stored and subsequently used. Capacity influences the ability to cover peak consumption or absorb surpluses from own production and also defines the possible capacity available for arbitrage. That means how much energy you can charge from the grid when the price is low and discharge when the price is high. The calculation of optimal size must always align with the consumption profile and production sources (e.g., PV).

Number of Cycles and Lifespan

     You will find this information in the datasheet of your planned battery storage system. It expresses how many full charge and discharge cycles the battery can handle during its lifetime. Typical values range between 6000 - 8000 cycles. This is a key figure for predicting replacement costs and optimizing investment return.

A higher number of cycles allows for more frequent battery use and thus higher arbitrage revenue, but more frequent cycling also accelerates degradation, especially if not properly managed.

Rated Power of the Battery

     Indicates how fast the battery can be charged or discharged. It is expressed in multiples of battery capacity, e.g., 0.5C, which is typical for standard applications we commonly design for clients. For applications requiring higher dynamics, such as grid frequency regulation, we talk about using 1C or 2C batteries. If the value is 0.5C, it means, for example, that a 100kWh battery can be charged or discharged at 50kW power, reaching full charge from zero in 2 hours.

Round-trip Efficiency

     Indicates how much energy returns compared to what was put into the battery. High efficiency is key for operational economics. In our models, we currently work with values of 91-93% for the entire battery system.

Depth of Discharge (DoD)

     Higher DoD means the ability to use a larger part of the capacity but shortens battery life. Li-ion batteries typically operate at 80–90% DoD, but these values may differ across various BESS technologies.

Battery Degradation Over Time

     Battery capacity decreases over time and with the number of cycles, which must be reflected in the final model when choosing the most economically advantageous battery size.Including the non-linearity of this degradation and factors such as operating temperature, depth of discharge, and charging/discharging rates is challenging.

Charging and Discharging Management Strategy

     Control logic can be a simple static one fixed to a time window or even spot electricity prices. However, this approach typically shows very poor economic results. Much more effective are dynamic strategies – with adaptive decision-making mechanisms, including the use of predictive models. A well-chosen strategy not only maximizes economic benefits (e.g., from arbitrage) but also extends battery life through optimized cycling and minimized unnecessary losses.

We are preparing the third and final part of our topic on using batteries for energy arbitrage just for you.

If you want to be truly clear when making your decision, be sure not to miss it. We will discuss key economic indicators that usually have the greatest impact on making the right choice.