Life cycle economic viability analysis of battery storage in electricity market

TL;DR

This paper assesses the long-term economic viability of battery storage in electricity markets by integrating degradation costs into operation simulations, using IRR analysis, and validating with case studies on NCM and LFP batteries.

Contribution

It introduces a novel simulation model that incorporates battery degradation costs and develops methods to reduce computational complexity for life-cycle economic analysis.

Findings

Degradation costs significantly impact profitability assessments.

NCM batteries show higher IRR compared to LFP batteries.

Sensitivity analysis identifies key factors influencing future viability.

Abstract

Battery storage is essential to enhance the flexibility and reliability of electric power systems by providing auxiliary services and load shifting. Storage owners typically gains incentives from quick responses to auxiliary service prices, but frequent charging and discharging also reduce its lifetime. Therefore, this paper embeds the battery degradation cost into the operation simulation to avoid overestimated profits caused by an aggressive bidding strategy. Based on an operation simulation model, this paper conducts the economic viability analysis of whole life cycle using the internal rate of return(IRR). A clustering method and a typical day method are developed to reduce the huge computational burdens in the life-cycle simulation of battery storage. Our models and algorithms are validated by the case study of two mainstream technology routes currently: lithium nickel cobalt manganese oxide (NCM) batteries and lithium iron phosphate (LFP) batteries. Then a sensitivity analysis is presented to identify the critical factors that boost battery storage in the future. We evaluate the IRR results of different types of battery storage to provide guidance for investment portfolio.