Battery boom faces a risk that could weaken its business case - Big Tech and the digital economy

Batteries can earn money by storing electricity when prices are low and releasing it when prices rise. But as more systems enter the market, that price gap may shrink, complicating long-term revenue forecasts and project financing.

The growth of renewable energy, particularly solar power, has created opportunities for battery operators. When electricity prices fall to zero or below, companies can charge their batteries cheaply and sell or release the stored power when prices rise. The strategy can be profitable, but its returns may change as storage capacity expands.

Electricity is traded in a daily market for each hour of the following day. Offers are accepted according to factors including economic merit and available interconnection capacity, with the results then checked by the system operator for technical feasibility. Intraday markets let participants adjust their positions as forecasts for demand, renewable generation and other system conditions change.

One measure of the opportunity is the intraday spread: the difference between the day’s lowest and highest electricity prices. Prices are often lower around midday, when solar output is high, and higher as evening approaches while demand remains strong. A wider spread can make it more attractive to charge batteries during cheaper hours and discharge them when electricity costs more.

According to El Periódico de la Energía, Spain’s average one-hour intraday spread reached €215.37 per megawatt-hour in September, up from €195.29/MWh in August. The figures point to attractive conditions for battery projects, but they do not guarantee that today’s revenues will persist over a system’s lifetime.

AleaSoft Energy Forecasting says storage profitability also depends on factors such as how much energy can be shifted, battery degradation and lifespan, and operational constraints. A further risk is cannibalization: as more batteries charge during low-price periods, electricity demand rises; when they discharge during expensive periods, available supply increases. Both effects can narrow the price gap.

If project forecasts rely on current spreads continuing, they may overstate long-term returns and make it harder for lenders to assess some investments as viable. This does not mean batteries will cease to be profitable or that deployment should stop. It does mean that financing plans need realistic assumptions about installed capacity and how batteries will operate, alongside hourly forecasts that account for different possible paths for the electricity system, including less favorable conditions.

Sources: Xataka.