What is Energy Arbitrage?
Energy Arbitrage for battery storage systems is a process of storing excess solar PV energy in a battery during hours when it’s less valuable to sell to the grid, and discharging it to meet home loads when it’s more valuable to offset home consumption, or even selling energy to the grid.
See the below flow chart for more detail:
While a battery operating in Energy Arbitrage mode will generally increase the amount of PV energy that is consumed on site, it differs from Aurora’s Self-consumption operating mode, which attempts to maximize the usage of PV energy on the property and thereby minimize energy sent to the grid. Energy Arbitrage will attempt to minimize utility bills by only discharging energy when it provides a good monetary benefit, and will even discharge energy to the grid if doing so will reduce bills even though this reduces self-consumption.
Important terms:
- Import Cost is how much the customer pays per kWh of electricity imported from the grid. It can vary throughout the day and between seasons, although it’s typically higher in evening or morning hours when demand on the electric grid is the greatest
- Export Credit is how much the customer pays per kWh of electricity exported to the grid. It can vary throughout the day or even on an hourly basis. Energy Arbitrage models provide the most benefit when the export credit during PV production hours is lower than the import cost during later hours in the day.
- Flat Rates are utility rates where the import cost is flat throughout any given day, although the rate may vary seasonally
- Time-of-Use (TOU) Rates are utility rates where the import cost is higher during certain hours, usually in the morning or evening. The rates and peak pricing periods may also vary seasonally. The export credit is typically tied to the TOU rate
- Time-of-Day (TOD) Export Rates are export credit rates that vary substantially throughout the day, but aren’t associated with the TOU import rates
- Net Metering is when the import cost and the export credit are the same.
- Net Billing is when the import cost and the export credit are different, with the export credit typically being lower than the import cost
When to use Energy Arbitrage
The scenarios where Energy Arbitrage provides monetary benefits:
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Net Metering or Net Billing with TOU Rates: the battery stores energy during the day when export prices are low, and discharges it during the peak TOU pricing to reduce grid consumption. This scenario doesn’t involve selling energy from the battery to the grid
- Note: the Energy Arbitrage model may avoid using the entire battery capacity if it is not worth discharging during non-TOU hours
- Net Billing with TOU Rates and high TOD Export Rates: the battery stores energy during the day when export prices are low, and discharges it during the peak TOU hours to both offset grid consumption and sell energy back to the grid. This is the method in use for California’s Net Billing Tariff (NEM 3.0)
The scenario where Energy Arbitrage and Self Consumption are the same:
- Net Billing with Flat Rates and a lower export rate: In this case, the battery should always be charged when there is net production, and always discharge when there is net consumption
The scenarios where Energy Arbitrage may not provide monetary benefits:
- Net Metering with Flat Rates: In this scenario, the round-trip efficiency losses mean that the combined solar + storage system will output less total energy than a solar-only system. The flat rates mean there’s no advantage to storing energy and discharging it later
How does Aurora model Energy Arbitrage?
Aurora’s Energy Arbitrage model approximates the “bill savings” operating mode or a manually optimized schedule operating mode for battery dispatch controllers. It primarily considers the utility rate import costs and export credit value, but it also considers the cost of the battery and will avoid charging and discharging if the benefit of energy arbitrage is less than the lifetime cost of the battery.
Note: in the initial Energy Arbitrage release, the lifetime cost of the battery is hardcoded at $0.15/kWh. This will be editable in future releases
At a high level, the Energy Arbitrage estimator will attempt to do the following:
- Charge the battery from PV energy during hours when the export value is low, resulting in a small opportunity cost by not selling to the grid
- Discharge the battery to meet loads during hours with a high import value, resulting in a large amount of cost reduction by avoiding imports
- Discharge the battery at the system’s maximum discharge rate during hours with a high export value, which results in a large amount of energy credits
There are other nuances, like preserving some portion of the battery during high-cost import hours for use during later hours when discharging the battery will provide greater benefit.
Other feature notes:
- If the value gained per kWh (discharge value - charge value) is less than the lifetime battery cost, Aurora will not model battery activity.
- The battery behavior may change month-to-month as appropriate depending on what the electricity costs and export credits are modeled as. You may want to view different months in the daily usage chart to confirm behavior
- If our Energy Arbitrage model finds that there’s no monetary benefit to running the battery (for example, 1:1 Net Metering and flat utility rates, or if it’s never able to earn more from bill savings than the lifetime cost of the battery), it will fall back to a Self Consumption operation
- Aurora calculations assume a 2% degradation in battery capacity per year
How can I tell if Energy Arbitrage is working in my design?
- Energy Arbitrage will usually attempt to save energy and only discharge it during peak TOU hours, while Self Consumption will still allow the battery to discharge
- Energy Arbitrage will export to the grid in addition to offsetting consumption in evening hours; Self Consumption mode will only offset consumption
- Note that if you receive a message stating that the model fell back to Self Consumption, this is because Aurora did not find a method to substantially reduce the customer’s bill. If you believe this to be in error, please contact support@aurorasolar.com
What about Demand Charge management?
Certain utility rates have a $/kW demand charge in addition to $/kWh volumetric charges. Aurora’s Energy Arbitrage model does not currently attempt to manage demand charges; this will be a separate operating mode in the future.
What about Demand Response programs?
Demand Response programs are not included in our utility rate information, but they may be modeled as a storage-related incentive in the pricing section of the application