Battery valuation on electricity intraday markets with liquidity costs

Enzo Cognéville; Thomas Deschatre; Xavier Warin

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Need to know

We propose a comprehensive modeling framework to value battery storage on intraday electricity markets.
The framework jointly captures both price volatility and market liquidity costs.
Liquidity costs are shown to have a significant impact on battery valuation.
Our liquidity modeling approach helps prevent substantial trading losses.

Abstract

We propose a complete modeling framework to value several batteries in the electricity intraday market at the trading session scale. The model consists of a stochastic model for the 24 midprices (one price per delivery hour) combined with a deterministic model for the liquidity costs (representing the cost of going deeper in the order book). A stochastic optimization framework based on dynamic programming is used to calculate the value of the batteries. We conduct a backtest for the years 2021–23 for the German and French markets. We show that accounting for liquidity is essential, especially when the number of batteries is large: it leads to significantly higher profits and prevents substantial losses under our liquidity model. Our stochastic model for the midprice also gives better results than a deterministic framework where the midprice forecast is the spot price.

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