Powering up profits - Integrating Power Purchase Agreements and Battery Systems for Nordic Power Futures

Sammanfattning: This master’s thesis aims to assess the profitability and the factors impacting the profitability of entering a short position in financial derivative contracts on the Nordic power market while procuring electricity through a pay-as-produced power purchase contract and on the day-ahead (DA) market, simultaneously the strategy utilizes a battery storage system to mitigate the effects of price spikes. The research adopted a mixed-method approach by combining quantitative analysis with qualitative findings. First, a qualitative pre-study was conducted, followed by the development of a mathematical model to simulate the strategy's energy and cash flows to quantify the investment's financial viability. The qualitative pre-study provided additional context and understanding of the simulation model results. Results from multiple scenarios were generated by varying input parameters within the mathematical model to assess the impact on profitability. The findings highlighted key factors impacting the profitability of the examined strategy, including the price levels of power purchase agreements that emerged as a critical determinant, along with the risk premium associated with financial futures contracts and the investment costs of battery storage systems. These factors were found to have the most substantial influence on the financial outcomes of the implemented strategy. Several limitations exist regarding how the system was simulated, such as inherent biases in the chosen input parameters. Therefore, future research should address these gaps in understanding by developing the accuracy of the simulation, as well as by conducting more in- depth simulations specifically focused on the battery storage component and delving into the exploration of future market behaviors such as volatility and cannibalization. Such research efforts will contribute to a more robust understanding of the profitability and viability of short positions in financial derivative contracts in conjunction with power purchase agreements and BESS, ultimately aiding in informed decision-making within the energy market.