Environmental arbitrage with battery storage: Reducing emissions from electricity generation

Although the power industry has significantly reduced its emissions in recent years, society’s environmental concerns continue. Likewise, the technological and economic progress experienced and expected in energy storage systems has allowed them to be incorporated as one more tool for electricity system operations. This work develops a model that, using utility-scale energy batteries, intends to carry out an environmental arbitrage in the wholesale electricity market consisting of buying energy in those hours in which the marginal technology is non-polluting and selling it in those hours with highly polluting marginal technologies. To solve this social arbitrage problem, a mixed-integer linear programming model has been proposed. Since the problem depends on the ratio between battery and inverter sizes, without losing generality, the model is solved for a battery of 10MWh by parametrically fixing the inverter size from 1 to 8 MW, considering the battery degradation due to charge/discharge cycles and a planning horizon of 25 years. For each inverter, the optimization model provides the optimal strategy to avoid emissions. Finally, the net present value of each investment alternative is calculated by including in the positive cash-flow of each year the implicit value that society obtains from each ton of CO₂ emissions avoided in that year. Our results suggest that this type of investment is socially desirable, given the current prices of emission allowances. The rate of 10 MWh/6 MW offers the most promising results in environmental temrs. Purely economic arbitrage destroys net value, with the 2 MW inverter destroying the least value.