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The Profitability of Energy Storage in European Electricity Markets

Petr Spodniak, Valentin Bertsch, and Mel Devine

Year: 2021
Volume: Volume 42
Number: Number 5
DOI: 10.5547/01956574.42.5.pspo
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Abstract:
In this work, we study the profitability of energy storage operated in the Nordic, German, and UK electricity day-ahead markets during 2006–2016. During this time period, variable renewable energy sources (vRES) have been rapidly penetrating the markets and increasing the volatility of the residual load, which is often assumed to be associated with improving financial viability of energy storages. However, storage operator profits are not publicly available, in particular not at plant level. We therefore develop a linear optimisation model which maximises profits from arbitraging hourly prices and use the model output of profits and storage operating hours in further econometric analyses. This is a novel approach merging two strands of literature (optimisation and econometrics) in a single energy storage study. Specifically, we quantify and disentangle the effects of electricity demand, solar and wind generation, the spread between gas and coal prices, carbon emission prices and structural breaks on profits and operation of 1–13MWh/MW energy storages. Among others we find that solar generation is associated with lower profits but higher operating frequency of energy storages in Germany. Wind power generation is associated with positive effects on profits in the UK and Germany. vRES does not affect profits or operation of new Nordic energy storages.



Oil Company Investment in Offshore Windfarms: A Business Case

Petter Osmundsen, Magne Emhjellen-Stendal, and Sindre Lorentzen

Year: 2024
Volume: Volume 45
Number: Number 2
DOI: 10.5547/01956574.44.6.posm
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Abstract:
European petroleum majors have moved into offshore windfarm projects, with large investments and ambitious capacity and production targets. In aggressive bidding for Contracts for Difference in the UK, where oil companies have played a key part, we have seen the inflation-adjusted strike price fall 65% from 2015 to 2019. Researchers question whether LCOE will fall to the same extent and would like to see more research on the economic return of the companies making offshore wind investment. We address this by a transparent project economics analysis of the UK bottom-fixed Dogger Bank project. It is the largest offshore windfarm project in the world under development and the UK is the country with highest offshore wind capacity. The project is owned by Equinor, SSE Renewables and ENI. Our analysis shows that the project is expected to be unprofitable. Several of the input variables, however, are subject to considerable estimation uncertainty. We also present a low case and a high case scenario. Decomposition of the high case reveals factors that can contribute to a profitable wind power industry. We discuss financial issues facing oil company investment portfolios combining low return/low risk renewables and high return/high risk petroleum. Offshore windfarms are organised as special purpose vehicle (SPV) companies. We analyse the economic interactions between the SPVs and the oil companies, and address accounting and financial issues.





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