Energy arbitrage sends big battery revenue to new record high in 2022

Large-scale batteries in Australia’s National Electricity Market (NEM) earned record high revenue from energy market arbitrage during 2022.

Calendar 2022 was probably the most dramatic year in the history of the NEM. The year saw record high wholesale electricity prices due to the global fossil fuel crisis along with numerous outages at domestic thermal generators.

The situation got so bad that the Australian Energy Market Operator (AEMO) at one point determined that the market was “impossible to manage”, leading to an unprecedented suspension of the energy market from 15 June to 24 June 2022.

However, high energy prices on their own are not enough for batteries to make a profit. The greatest potential for energy arbitrage occurs when there is a high spread in prices.

This increases the difference between the charge (buy) price and discount (sell) price. Data from the Energy Sinaps Platform shows that the spread between the 10th and 90th percentile of wholesale energy prices during 2022 was well above normal levels.

It is this spread in prices that accounts for grid-scale batteries earning record high energy arbitrage revenues.

Batteries across the NEM earned the highest energy arbitrage revenue from both a total dollar perspective as well as a percentage of “market revenue”.

As can be seen from the chart below, in previous years energy arbitrage contributed an average of 12% to total BESS market revenue, with the remainder coming from frequency control ancillary services (FCAS). In 2022, the energy arbitrage share rose to 40%.

Batteries that have longer storage times (eg two hours) have been able to obtain significantly more arbitrage income than batteries with shorter storage times (eg one hour or less).

Despite unprecedented volatility in the energy market, FCAS continued to provide the largest share of total battery market revenue (60%).

The biggest FCAS gains came in November 2022, when South Australia separated from the rest of the NEM for a whole week. The Hornsdale and Dalrymple batteries did particularly well in this event.

FCAS continued to be a strong revenue stream despite building out new battery systems. See our previous blog on the status of BESS in the NEM.

Marija Petkovic is founder and managing director of Energy Sinapse. To read the original version of this article, click here.