Optimizing Quantile-based Trading Strategies in Electricity Arbitrage

TL;DR

This paper develops and evaluates quantile-based trading strategies for electricity arbitrage, demonstrating how high-frequency, multi-market participation with battery storage can maximize profits and improve market efficiency.

Contribution

It introduces novel quantile-based optimization approaches for electricity trading, incorporating practical constraints and high-frequency strategies to enhance profitability.

Findings

Simultaneous day-ahead and balancing market participation increases profit potential.

Larger battery storage systems yield shorter ROI in scenario analysis.

High-frequency trading strategies significantly boost profits despite higher costs.

Abstract

Efficiently integrating renewable resources into electricity markets is vital for addressing the challenges of matching real-time supply and demand while reducing the significant energy wastage resulting from curtailments. To address this challenge effectively, the incorporation of storage devices can enhance the reliability and efficiency of the grid, improving market liquidity and reducing price volatility. In short-term electricity markets, participants navigate numerous options, each presenting unique challenges and opportunities, underscoring the critical role of the trading strategy in maximizing profits. This study delves into the optimization of day-ahead and balancing market trading, leveraging quantile-based forecasts. Employing three trading approaches with practical constraints, our research enhances forecast assessment, increases trading frequency, and employs flexible timestamp orders. Our findings underscore the profit potential of simultaneous participation in both day-ahead and balancing markets, especially with larger battery storage systems; despite increased costs and narrower profit margins associated with higher-volume trading, the implementation of high-frequency strategies plays a significant role in maximizing profits and addressing market challenges. Finally, we modelled four commercial battery storage systems and evaluated their economic viability through a scenario analysis, with larger batteries showing a shorter return on investment.