What is energy arbitrage?

Why do energy prices differ during the day?

Electricity prices are determined by supply and demand. At times when there is a lot of solar and wind energy, more electricity is available. If demand is low at the same time, the market price falls and with a large surplus the price can even become negative.

Demand often increases during the morning and evening hours, while production from solar panels is usually lower. More expensive production must be used to meet demand, causing the price of electricity to rise.

On the day-ahead market, electricity is traded one day before delivery. The intraday market makes it possible to adjust positions closer to the delivery time. This creates price differences between hours and trading moments, and it is precisely these differences that make energy arbitrage possible.

How does energy arbitrage work with a battery?

A battery moves electricity over time. The battery absorbs energy when it is cheap or widely available, and later delivers that energy to the company building or to the electricity grid. An energy arbitrage strategy usually consists of four steps:

1. The system receives current and expected energy prices.
2. It monitors consumption, generation and battery status.
3. It determines when charging or discharging is financially interesting.
4. It controls the battery within the technical and contractual limits.

The battery does not always need to be charged with mains power. A surplus from solar panels or wind turbines can also be stored. That energy later acquires a higher value when local consumption or the market price increases.

A practical example

A company has solar panels, a battery and a dynamic energy contract. Around noon, solar production is high and the building does not use all the electricity generated. Instead of immediately returning the entire surplus, the battery stores some of the energy.

At the end of the afternoon, solar production decreases and business consumption increases. The electricity price is also rising. The battery now delivers the stored energy to the building, so that the company has to purchase less expensive electricity from the grid.

If feed-in is permitted and is financially more attractive, the energy can also be supplied to the grid.

Where does the return on energy arbitrage come from?

The return does not arise from the high sales price alone. It is the net difference between all revenues, losses and costs.

A large spread between the low and high energy prices is favorable. However, a transaction may yield little if the battery loses a lot of energy during charging and discharging. Taxes, contract costs and restrictions on returns also influence the result.

For a realistic calculation, a system must therefore take into account:

• the purchase and sales price;
• the efficiency of the battery;
• the remaining battery capacity;
• charging and discharging costs;
• battery degradation;
• the expected operating consumption;
• available solar or wind energy;
• purchase and return limits;
• contractual and market conditions.

The highest energy price is not always the best time to discharge

Completely discharging a battery during the most expensive hour seems logical, but is not always the best choice. A power peak may occur later in the day, requiring the battery to prevent exceeding the connection capacity.

A more favorable trading moment may also follow, or capacity must remain available for an external flexibility service. A smart strategy therefore reserves battery capacity for different applications. The highest current price is only one of the factors in the decision.

Three ways to apply energy arbitrage

1. Arbitrage on dynamic energy rates

With a dynamic energy contract, the price changes during the day. The battery charges during cheap hours and discharges when the rate is higher.

This form is especially suitable for locations with a clear consumption profile. The EMS can combine the known prices with the expected consumption and local generation.

2. Arbitrage with own sustainable energy

A company can store a surplus from solar panels or wind turbines. The energy is used locally later, when generation is lower and the electricity price is higher.

This strategy increases self-consumption. Less energy is also returned at times when the compensation is low or negative.

3. Arbitrage on multiple energy markets

Batteries can be used on the day-ahead market, the intraday market or other flexibility markets under the right conditions. Each market has its own trading time, risk profile and technical conditions.

The day-ahead market provides more certainty about prices. The intraday market makes adjustment possible closer to the time of delivery. A combined strategy takes advantage of more opportunities, but also requires accurate predictions and automatic control.

The profitability of energy arbitrage

Energy arbitrage is not a guaranteed revenue model. Small price differences can disappear due to charging losses and other costs. When is it beneficial, and when not?

Energy arbitrage is interesting for:

• a dynamic energy contract;
• regular differences between low and high prices;
• a battery with sufficient capacity and power;
• a lot of own solar or wind energy;
• a predictable consumption profile;
• few restrictions on loading and unloading;
• access to relevant energy markets;
• automatic control via an EMS.

Energy arbitrage is less interesting if:

• price differences are structurally small;
• the battery has little free capacity;
• charging and discharging losses are high;
• battery degradation is not included;
• return supply is limited or unfavorably priced;
• the connection has insufficient charging capacity available;
• fixed business processes offer little flexibility.

Why is an EMS needed for energy arbitrage?

Fixed charging and discharging times do not take into account changes in prices, consumption and generation. This limits returns and can even cause new power peaks.

An energy management system processes the data of the entire installation. The system determines at any time whether loading, unloading, waiting or reserving capacity is the best choice.

Smartbox

Smartbox: the smart EMS for energy arbitrage

The Smartbox is an energy management system that automatically controls batteries and other energy assets based on real-time data, energy prices and available grid capacity. The system continuously coordinates consumption, generation and storage.

At low energy prices, Smartbox can charge a battery or activate flexible consumption. If the price rises, the stored energy can be used. At the same time, the system monitors the connection and keeps capacity available for critical business processes and peak shaving.

What does Smartbox yield?

• Automatically controls batteries based on real-time energy data and market prices.
• Responds to changes in load and external control signals within 20 milliseconds.
• Combines energy arbitrage with peak shaving and power monitoring.
• Optimizes charging and discharging based on price, capacity and local consumption.
• Take into account your own generation and available battery capacity.
• Limited unfavorable return delivery with automatic curtailment.
• Integrates batteries, solar panels, wind turbines, charging infrastructure, generators and cooling.
• Provides real-time insight into energy flows via the Smartbox Portal.

Everything about SmartboxBecome a partner

Make energy arbitrage profitable for your customers

As an installer or energy company, do you want to prepare your customers for an energy system in which netting disappears and smart management becomes more important? With Smartbox, generation, consumption and storage are automatically coordinated. Your customers increase their own consumption, limit unfavorable feed-in and get more value from their energy installation.

At the same time, you expand your services with intelligent energy management and new revenue models. Within our partner structure, both you and your customer benefit from flexible energy management, market optimization and better utilization of energy assets.

Interested in an introductory meeting? Call or email us, or fill in our contact form.