Battery storage systems (BESS) are poised for significantly higher profits across Europe, with Rystad Energy analysis suggesting potential increases of over 15% in some countries.
The positive shift follows changes to the European Union’s (EU) power pricing structure introduced in October, making the economics of BESS projects much more attractive.
The European Union’s updated power system now determines electricity prices every 15 minutes, a shift from the previous hourly system.
Shift to 15-minute trading intervals
This change offers Battery Energy Storage System (BESS) operators enhanced opportunities for arbitrage—buying electricity during low-price periods and selling it when prices are higher.
Since its implementation, this new system has led to an average increase of 14% in arbitrage potential across European power markets.
While some countries, like Austria and Slovakia, saw substantial battery price gains exceeding 20%, others, such as Portugal, Norway, and Sweden, experienced only modest increases.
These annual price fluctuations, if they yield an approximate 20% increase in battery earnings, can elevate the total return on investment by about 3% over a two-decade period, according to the analysis.
“In countries with less flexibility in power generation and consumption, high share of intermittent renewables can cause large price swings,” Sepehr Soltani, senior analyst, energy storage at Rystad Energy, said in the analysis.
Rapid changes in wind or solar generation mean electricity prices can shift noticeably even within a single hour. Shorter 15-minute trading intervals capture these quick shifts, creating more opportunities for flexible assets.
Moving from the traditional hourly setting of EU electricity prices to 15-minute trading intervals, or 15-minute Market Time Units (MTUs), opens up new avenues for revenue generation.
Quantifying arbitrage gains across Europe
The shift in Europe’s day-ahead electricity market during October, changing from hourly to 15-minute MTUs, facilitated quarter-hour energy trading. This change proved to be significantly more profitable than trading over a full hour.
Arbitrage opportunities proved more profitable with shorter trading intervals, as demonstrated in Lithuania and Germany.
In Lithuania, shifting energy over 15 minutes yielded approximately $263 per megawatt-hour (MWh), which was a 14% increase compared to hourly trading.
Similarly, in Germany, quarter-hour arbitrage was 16% more lucrative than hourly arbitrage.
“In contrast, in places with a flexible electricity supply, such as Norway with hydropower and Portugal with hydropower and gas, prices are more stable over an hour,” Soltani said.
As a result, the difference between profits from 15-minute and hourly trading is much smaller.
A comparison by Rystad Energy examined the potential profits from 1-hour energy arbitrage in European power markets across two distinct scenarios, suggesting a potential revenue boost for European storage operators by adopting shorter trading intervals.
The analysis found that an arbitrage cycle under the 15-minute market scenario necessitates four charging and four discharging steps.
In contrast, the same arbitrage cycle in the 60-minute markets scenario requires only a single charge and discharge step.
Long-term revenue projections and operational factors
While current energy arbitrage margins are exceptionally high (approximately +$150 per MWh), this level is unsustainable in the long term.
A more pragmatic long-term average revenue projection is around $60 per MWh. This average would yield an estimated Internal Rate of Return (IRR) of about 6% from pure energy arbitrage.
However, enhancing market granularity could potentially increase average revenues to roughly $70 per MWh, consequently boosting the IRR by about three percentage points, according to Rystad.
“The biggest challenge for earning money through arbitrage is that price volatility is unpredictable. In Europe, 15-minute markets only started two months ago,” Soltani added.
Australia, however, switched from 30-minute to 5-minute markets in 2021 and since then, the finer time intervals have consistently increased arbitrage profits.
Arbitrage opportunities ultimately offer a valuable gauge for estimating the potential maximum profitability of a BESS project.
Considering factors such as efficiency losses, system availability, market liquidity, and hedging strategies—which reduce dependence on isolated extreme price spikes—the actual arbitrage revenues realised in real-world day-ahead markets will be lower.
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