Europe's Battery Storage Problem Turns into Opportunity for Traders

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a day ago

In 2024, total battery storage installations in Europe went up by 11.9 GW to a total of 89 GW. Yet periods of negative prices in the wholesale electricity market became more frequent, despite this increase. For some in commodity trade, the solution is building even more battery storage—and making good money from it.
'It is the ultimate fast and scalable way to pick those instances of extreme volatility and address that volatility,' the head of principal investments at trading firm Castleton Commodities International told Bloomberg in an interview this week. 'You don't see Brent moving from minus $50 a barrel to plus $3,000 a few times every week. And that's what power allows you to do,' Arie Pilo added.
Indeed, fluctuations in wholesale electricity markets during peak generation periods for wind and solar are not for the faint of heart. For the few hours a day—as long as the day is sunny—when solar installations produce at peak capacity, the amount of electricity available can vastly exceed demand, leading to intraday price drops, including all the way below zero. Then, once the sun sets or the wind dies down, prices often rebound sharply.In some places, grid operators act pre-emptively to avoid an occurrence like the blackout in Spain and ask solar generators to turn some of their panels off before peak generation. In others, generators curtail their own output to avoid having to pay to have their electricity taken into the grid. Yet the price swings remain an increasingly frequent occurrence in the European electricity market and, from the perspective of Castleton Commodities and larger players such as Vitol and Trafigura, a lucrative opportunity, because of battery storage.
Storage is the only way to use electricity later than the moment it was generated, which is how electricity is normally used. Indeed, critics of the current energy transition scenario that Europe is following often note that this is one of the biggest drawbacks of electrification, not least because the amount of batteries needed to back up a grid predominantly reliant on wind and solar would be huge—and rather costly.
The current numbers speak for themselves. Europe has almost 90 GW in battery storage. Negative electricity prices have not only declined in frequency of occurrence, they have actually increased. This is because wind and solar capacity is growing much faster than battery storage. Battery storage literally cannot keep up. The question, however, is whether it would ever be able to catch up.
Per Bloomberg, Castleton Commodities, Vitol, and Trafigura, among others, are investing in various battery storage projects across Western Europe as they try to grab a piece of the electricity market pie with its tempting price swings. It is probably one of the safest investments one can make in energy in Europe right now, with returns basically guaranteed.
'You're starting to see viable reasons to invest in battery energy storage projects in Europe,' according to BloombergNEF analyst Nelson Nsitem. 'That's caused by a lot of renewable capacity, big differences in swings in prices across the day and battery prices coming down.'
From a trading point of view, the case for batteries is clear and quite simple. From a consumer perspective, however, things are a bit different. The current battery storage is nowhere near sufficient to ensure an uninterrupted supply of electricity from wind and solar alone. Batteries are also risky business, as evidenced by the February fire at the Moss Landing battery site in California. Finally, rather like solar, battery installations take up quite a bit of space. They have certainly come down in size as well as cost over the last decade, but they still have significant land demands. That could curb the growth prospects of the burgeoning battery storage business—or prompt farmland reductions to build more batteries.
By Irina Slav for Oilprice.com
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