EIA Inquiries Reveal That Arbitrage and Frequency Regulation Are the Most Common Functions of Batteries on the Power Grid

     Arbitrage refers to the practice of buying low and selling high. In the context of energy storage, it means charging batteries when energy prices and demand are low and discharging them when prices and demand are high. This is one way that batteries can help offset their high upfront costs. Dynamic energy pricing has resulted from the changing availability of resources during daily cycles and seasonal cycles, mostly with variable generation such as solar and wind. Natural gas can have some changing availability in high-demand times due to pipeline constraints. Solar and wind variability are predictable enough that dynamic pricing can be supported. This allows battery owners to charge low and sell high. The EIA gives the following definition for arbitrage: “The simultaneous purchase and sale of identical or similar assets across two or more markets in order to profit from a temporary price discrepancy.” The key here is “the ability to profit.”

     EIA reports that as of the end of 2023, U.S. utilities operate 575 batteries with a collective capacity of 15,814 megawatts (MW). This is expected to possibly triple by 2028 if all proposed projects get built. The data from the graph below comes from a preliminary release of EIA’s Annual Electric Generator Report.

 

     To recap, the main uses of grid-scale batteries, chiefly lithium batteries, is in arbitrage, providing grid stability through ancillary services such as frequency regulation and demand response services peak shaving, and in storing excess wind and solar generation.

 

References:

Utilities report batteries are most commonly used for arbitrage and grid stability. Energy Information Administration. Today in Energy. June 25, 2024. Utilities report batteries are most commonly used for arbitrage and grid stability - U.S. Energy Information Administration (EIA)