More electricity price arbitrage through batteries could reduce Europe's reliance on natural gas peaking power plants. The economics of batteries and other clean energy storage technologies have improved against the backdrop of high carbon prices. In addition, prices have also fallen in the European ancillary services market, where battery storage was initially concentrated, reducing the use of gas-fired power plants. Power spreads are widening under the combined effects of high carbon and natural gas prices, bringing additional and timely benefits to batteries.
However, the impact on the European Emissions Allowance (EUA) depends on the circumstances. If the battery is charged from renewable electricity, this will reduce European emissions and EUA demand, helping to curb the rise in carbon prices; if the battery is charged from coal, this will in turn increase European emissions and EUA demand, It will also promote the continued rise in carbon prices. Bloomberg New Energy Finance predicts that batteries will be charged more with renewable energy in the future, which is not conducive to rising carbon prices in the long run.
The power sector has been a decarbonisation success story for the European Emissions Trading Scheme (EU ETS). Emissions from the European power sector have been reduced by more than 40% since the program was launched. Renewables currently play an important role in replacing baseload power, but peak power demand still relies heavily on fossil fuel power plants, especially natural gas power plants.
The key to a battery arbitrage strategy is price, charging when electricity is cheapest and discharging it when electricity is most expensive. As recent EU ETS trends show, rising carbon prices have led to higher peak electricity prices, as the gas-fired power plants that determine peak electricity prices are suffering from higher costs. At the same time, rising carbon prices have little impact on off-peak electricity prices (usually determined by renewable generation capacity). Taken together, rising carbon prices tend to lead to a wider spread of electricity prices, which means that there is more room for profit from battery arbitrage.
At present, the reduction in natural gas use comes at a time when European countries want to reduce the amount of natural gas imports. However, it is important to align the profitability of battery arbitrage with emissions reductions. In the short term, the support of carbon prices helps to ensure that there is a good reason to stimulate battery development and that there will be no increase in emissions due to the recovery of coal power. In the long term, Europe will need to build more renewable energy capacity, which will naturally increase the frequency with which batteries are charged with clean energy.
