# Life cycle economic viability analysis of battery storage in electricity market

**Authors:** Yinguo Yang, Yiling Ye, Zhuoxiao Cheng, Guangchun Ruan, Qiuyu Lu, Xuan Wang, Haiwang Zhong  
**arXiv:** [2305.15079](https://arxiv.org/abs/2305.15079)  
**Date:** 2023-05-24  
**Summary page:** https://www.summarizepaper.com/en/paper/2305.15079v2/

## Key points

- Battery storage is crucial for enhancing flexibility and reliability of electric power systems
- Charging and discharging can lead to battery degradation, impacting its lifetime
- Cost of battery degradation should be incorporated into operation simulations to prevent overestimation of profits
- Study focuses on simulating daily operations including participation in frequency regulation, spinning reserve, and load shifting
- Optimization problem solved to maximize income generated by battery storage considering factors like temperature, current rate, average state of charge, and depth of discharge (DoD)
- Life cycle economic viability analysis model proposed for lithium-ion batteries used in battery storage
- Internal rate of return (IRR) calculated based on cash flows throughout the battery's lifespan using clustering method and method selecting typical days
- Electricity market landscape discussed with focus on US and Europe where battery storage provides auxiliary services like frequency regulation and spinning reserve
- Payment mechanisms outlined to show how battery storage can benefit from participating in these markets
- Study offers insights into optimizing economic viability of battery storage projects by considering degradation costs and operational strategies

## Summary

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Battery storage is essential for enhancing the flexibility and reliability of electric power systems by providing auxiliary services and load shifting. However, frequent charging and discharging can lead to battery degradation, impacting its lifetime. To address this issue, this paper incorporates the cost of battery degradation into operation simulations to prevent overestimation of profits resulting from aggressive bidding strategies. The study focuses on simulating daily operations of battery storage, including participation in frequency regulation, spinning reserve, and load shifting. An optimization problem is solved to maximize the income generated by the battery storage, considering factors such as temperature, current rate, and average state of charge in addition to depth of discharge (DoD). A life cycle economic viability analysis model is proposed for lithium-ion batteries used in battery storage. The internal rate of return (IRR) is calculated based on cash flows throughout the battery's lifespan. Two methods are employed for IRR calculation: a clustering method and a method that selects typical days to account for variations in demand. The paper also delves into the electricity market landscape, particularly in the US and Europe where battery storage primarily provides auxiliary services like frequency regulation and spinning reserve. The payment mechanisms for these services are outlined to illustrate how battery storage can benefit from participating in these markets. Overall, this study offers insights into optimizing the economic viability of battery storage projects by considering degradation costs and operational strategies. By evaluating different types of batteries and identifying critical factors that influence their performance, investors can make informed decisions regarding their investment portfolios in energy storage technologies.