In the future, an increasing share of electricity will be produced from solar and wind power. As the focus of electricity production shifts to renewable energy sources, electricity markets will be more dependent on the weather.
Cactos' head of energy markets, Tatu Kulla, provides an overview of the current state of the electricity markets and explains how battery energy storage systems are becoming an integral part of the new normal of energy production.
The Nordic electricity markets are undergoing a transformation, driven by the rapid growth of renewable energy production. Wind power has already become the largest production form, with a massive increase in solar power installations as well. On calm days this summer, solar power even surpassed wind power production.
The impact of increased wind power capacity is particularly noticeable in the electricity spot prices. The following day’s electricity price has seen extremely high and low peaks. Statistically, wind power growth has brought volatility to the market, meaning price fluctuations. Occasionally, the daily average price of electricity has even been negative, with consumers being paid for using electricity.
The spot price reflects the balance of supply and demand. A high price indicates demand exceeding supply, while a negative price signals surplus production. Price fluctuations effectively guide consumption: high electricity prices encourage consumers to reduce usage, while negative prices encourage more usage.
Even small changes in the weather can quickly drop the production of renewable energy sources very radically.
A key challenge in maintaining the stability of the electricity grid is balancing production and consumption: electricity must be generated and consumed exactly at the same rate, every moment.
Twenty years ago, this balance was easier to predict and maintain. Large spinning generators and turbines in traditional power plants helped stabilize the system by providing inertia during minor fluctuations.
Now, with wind and solar power playing significant roles, fluctuations are inevitable and faster.
Even small changes in the weather can drastically reduce the production of renewable energy sources. Unlike traditional power plants, solar and wind power plants lack large generators that continue spinning when the wind calms or the sun goes behind clouds. This lack of inertia is already visible in the electricity grid.
Fortunately, in the Nordics, the transmission system operators have long been open to new technologies. The grid is currently stabilized through various methods, including adjusting industrial and household consumption in response to spot-market prices. Hydropower remains a crucial stabilizer for the system, and batteries have also found their place in balancing the grid.
The technologies that increase the flexibility of the electricity grid ultimately revolve around energy storage. Different technologies have varying abilities to store energy, but each has its own strengths, and all find a place within the electricity system.
In hydropower, water is stored in reservoirs and lakes, then used later for electricity production by running it through turbines. District heating companies, for example, can store industrial waste heat in hot water tanks and later feed it into the district heating network. In electricity storage, the most direct and least loss-prone method is to store energy electrochemically in batteries.
Batteries have advantages such as rapid response, precision, and reasonable investment costs. They also offer versatility in terms of installation locations.
The energy storage capacity of batteries is limited, so they are best used for balancing the electricity system by leveraging their strengths. Batteries are most effective where speed and accuracy are needed to manage short-term fluctuations in the electricity grid.
Compared to other flexibility-providing technologies, batteries stand out for their rapid response, precision, and reasonable investment costs.
Their versatility in installation sites is another clear advantage. Batteries installed at customer locations can form large, geographically distributed virtual power plants, leveraging digitalization.
Large energy storage systems can also be built from batteries, which can be directly connected to the electricity transmission grid or power plants.
To secure the quickest resources to maintain the stability of the electricity system, transmission system operators maintain so-called ancillary service markets.
In these markets, different actors can offer available adjustment capacity to the transmission system operator. The operator buys both electricity production and consumption capacity to keep supply and demand in perfect balance.
In addition to traditional power plants, batteries connected to virtual power plants can also participate in ancillary service markets.
Although using batteries for ancillary services limits their availability for other purposes, it does not prevent it. Even when part of the capacity is used for ancillary services, the battery storage system can still optimize the user’s electricity consumption and serve as a backup power source. A storage system can also help, for example, a wind power producer or electricity seller meet their delivery commitments and hedge against electricity market risks.
Lastly, it’s important to highlight the aspect of security of supply.
Geographically distributed energy storage systems offer services to ancillary service markets, digitally integrated. If an electricity grid area faces issues, such as from a storm, a distributed system can continue functioning almost as normal.
Batteries are multifunctional tools in the evolving energy system, simultaneously supporting the needs of the entire energy system as well as individual consumption points. Batteries do not replace existing adjustment technologies but complement them excellently.
