Bidding Wars: How TWAICE informs energy arbitrage with battery analytics

In our Bidding Wars series, we will look at the BESS operators and optimizers that are playing (and winning) in the evolving energy market and grid services game.

The optimization of energy arbitrage from battery storage is inextricably tied to highly informed battery analytics in the pursuit of maximized performance and revenue, according to Ryan Franks, a senior technical solution engineer at TWAICE.

Failing to consider the myriad data points of a fleet of batteries can result in a single performance incident like an Australian storage operator that was fined AU$520,000 for failing to meet its energy supply obligations.

“The thing that is most impactful in our experience with energy storage systems is imbalance,” says Franks. “Different areas of the battery system have different state of charge levels, and consequently, when those all run together, you have a bunch of batteries in series and in parallel in an energy storage system. If they’re reaching 100% — or 0% — at different time points, that will provide a cut off that doesn’t allow you to use the full [fleet] capacity.

“So you’re either not going to be able to do a scheduled charge or discharge or market operation, or you’re not going to have the power set point correct for the entire duration of the market operation, and then you’re going to be assessed penalties.”

Avoiding stacked penalties

A single fine may not be the full extent of a BESS supply failure.

“There are three ways that the penalties can have an impact monetarily. First, depending upon the market, you can be taken off the system, essentially disconnected, and not have the ability to earn revenue,” Franks says. “The second way is liquidated damages. If you have a power purchase agreement or virtual tolling agreement or some other resource adequacy agreement, then you are assessed contractually for [fixed] liquidated damages for not being able to provide the services that the system was built for.

“The third mechanism is the penalties that are assessed from the market operator, which varies enormously based upon the market,” he adds. “In ERCOT, for example, if you’re not able to provide the instantaneous supply of electricity that you bid into the market for the operator’s use to avoid having a brown out or blackout or having to shed load, you’re responsible for paying the market operator to go find the electricity, which is, of course, at a much higher price than if it were procured in a stable environment.”

Franks notes that maintaining a storage fleet’s health through battery analytics can help reduce the cost of securing critical performance.

“One thing that we’re attempting to identify is usable and recoverable energy,” he says. “In a battery storage system, you have losses in capacity due to a variety of factors including imbalance from weak cells. So, you can take an action like replacing a module or altering a control scheme or something of that nature to rectify that problem. What we’re serving up are the insights to be able to pinpoint that.”

Battery analytics from both buyer and seller POVs

“If you look at who is valuing the operational data of an energy storage system, you have a variety of actors,” Franks says. “You have staff level, associate engineers, asset managers, CFOs and CEOs and investors. And if you look at that top level, they want a system level or fleet level picture of what the impact is on my bottom line.”

As the battery storage market grows, asset owners increasingly wind up with a fleet composed of multiple array locations, all tied to a given ISO under a single contract. Market operators will want a full picture of not only that fleet, but also all the other fleets serving the load.

“As the energy storage systems become larger in the mix of the electricity generation base, market operators will want to have a really clear picture of what the state of charge levels are of the fleet of energy storage within a market,” Franks says. “Because if there’s misreporting by a couple of percentage points, and you scale that to gigawatt hours of capacity, that’s going to be a tough situation.”

Thinking localized

Investors are particularly keen on holistic, localized information for a new storage investment. A June 2024 EY study of the battery storage market noted that BESS investments are a long-term commitment, with projects typically running for 20 years or more with battery upgrades, according to “Four factors to guide investment in battery storage,” by authors Arnaud de Giovanni and Ben Warren.

“They are also highly localized and carry more risk than some other clean energy investments,” the study says. “Success requires understanding the dynamic interaction of regional variations, electricity market design, technology and financing — as well as an acceptance of volatility.”

The study adds that batteries typically earn revenue through “stacking” returns, which the authors describe as the accumulation of revenue from multiple sources.

“These sources are drawn from participation across three main markets — ancillary, energy arbitrage and capacity — which operate with different processes across different timescales,” the study states.

The study suggests the right approach can enhance the return on investment.

“In the future, optimization and the right bidding strategy will be critical to ensure maximum returns on storage assets,” the study explains.

Integrating battery analytics and arbitrage systems

Indeed, integrating a battery analytics system, like TWAICE, and a market analyst like Modo Energy into a single enterprise platform may be the way of the future in battery storage markets. In March, the two companies announced plans to work together in ERCOT, following Modo’s European and Australian market entries.

“What they [Modo] make money on is providing information on market pricing and advice on market pricing,” Franks notes.

Apart from its current market intelligence capabilities, Modo Energy in 2022 launched the Modo Energy GB BESS Index, a benchmark for tracking energy storage asset performance in Great Britain. In 2024, the company launched indices for ERCOT and CAISO. Australia and other European markets indices will follow this year, the company indicates.

Among the 2024 improvements to the Index include calculation changes for:

• Wholesale revenues,
• imbalance settlement,
• virtual balancing measurement units,
• frequency response services, and
• quick reserves

“The primary concern of most of our customers and most of the marketplace now is performance, and so our tie up with Modo is the first step in really providing a picture of potential financial losses so that you are able to react and capture the most revenue and prevent the most loss of revenue that is possible,” Franks says. “It’s an evolution towards providing a more holistic software stack that speaks to performance.”