Unlocking the Potential of Battery Energy Storage Systems in the Nordic Frequency Regulation Markets : A techno-economic analysis to evaluate long-term profitability

Sammanfattning: As the Swedish power system has increased its shares of production coming from intermittent renewables, the production coming from large rotational units as nuclear, and hydropower, has decreased. Thereby, the power system has become more sensitive to sudden changes between production and consumption of electricity, increasing the risk of disruptions in the electricity grid. To cope with this, the Swedish transmission system operator Svenska Kraftnät has introduced different frequency regulation (FR) markets. The FR markets are designed to rapidly handle sudden fluctuations between production and consumption in the grid. This is done by having an operator change its consumption or production at a given frequency interval. To guarantee the operator is available if it is needed, it is compensated for staying ready to act, no matter if the service is needed or not. Currently, prices on the FR markets are very lucrative and this has led to a large interest in investments in units which have the capabilities to participate in the markets. Traditionally, FR in Sweden has mainly been provided by hydropower, however due to the new markets and the high profitability related to them, operators have also started to invest in Battery Energy Storage System (BESS) to participate on the FR markets. Other than operating on the FR markets, the BESS can also generate revenues by doing energy arbitrage. The aim of the study is to perform a techno-economic analysis to examine if using a BESS primarily for frequency regulation and secondarily for energy arbitrage and peak shaving can be economically profitable under different integration strategies and cost scenarios. BESS operating as Stand-Alone, as a Hybrid-Park with wind production, and with an Industry will be tested. By developing an optimization model using Python, an optimal dispatch schedule which maximizes profits from BESS is decided. Different future price scenarios are tested on the model to test the investments sensitivity to price changes. In general, the results showed high long-term profitability when investing in BESS to primarily participate on the FR markets. BESS was found to be highly profitable with current market prices and remained profitable even with drastically lowered prices. Stand-Alone BESS was established to have the highest profitability with current market prices due to no restrictions by grid connection. The Industry case was found to be most profitable with lower market prices due to its lower fixed costs, indicating it is the most resistant to price changes. Sensitivity analysis was also performed which showed the starting year of operation being the most crucial parameter in a future where market prices gradually are decreasing. To conclude, BESS was found to be an effective and profitable solution to primarily provide FR and secondarily energy arbitrage, energy shifting, and peak shaving. Connecting a BESS in combination with energy production or consumption leads to more potential applications, making it less sensitive to changes in individual markets. As the future market conditions are uncertain, increasing the potential applications can lead to a less risky investment, although limiting the profitability with current market conditions. With the addition of new intermittent renewable energy in the Nordic Grid, BESS has the potential to become an important part of the future power system.