Energy arbitrage means charging up a commercial battery with electricity when it is cheaper, and then using that stored electricity on site or exporting it to the grid when it is worth more.
In this article, we explain what energy arbitrage does and how it delivers savings for your business.
How energy arbitrage creates value
Energy arbitrage can create value in two ways:
- Use stored electricity on site when electricity from the grid is expensive, so the business needs to buy less
- Export the stored electricity when the business can receive a higher payment for sending it to the grid than it could receive now
The optimisation software controlling your battery compares the value of using or exporting the stored electricity now with keeping it in for later. It may hold on to its charge for later if the business can save more money by using the stored electricity at that point or earn more income by exporting it.
How much of the battery is genuinely available?
The full capacity of a commercial battery is rarely made available for energy arbitrage. That’s because the business may need some of it for the site and technical limits may restrict how much it can use at one time.
You may need to keep battery power or stored energy available for:
- A later period when electricity from the grid will cost more
- Higher site demand, including demand from EV charging
- Backup power, where the battery installation provides it
- Peak shaving, which means using the battery to reduce how much power the site takes from the grid at its busiest times
The amount you keep available for your site is known as the battery reserve.
There are also technical limits that affect the amount of stored electricity available for energy arbitrage, including:
- How much energy is currently stored in the battery
- The minimum and maximum charge levels allowed
- How quickly the battery and inverter can charge or discharge
- The site’s import and export limits
- Warranty limits on how often or how deeply the battery can charge and discharge
Kilowatt-hours, or kWh, measure how much energy the battery can store or supply. Kilowatts, or kW, measure how quickly it can charge or discharge.
A battery may therefore hold 50 kWh but be unable to release all of it during one short period because the battery or inverter caps how quickly it can discharge.
Only once you’ve taken into account your site’s needs and the battery’s technical limits will you know how much battery power and stored energy remain available for energy arbitrage.
How to calculate the real value of energy arbitrage
You lose a little bit of electricity every time your battery charges and discharges. This is called “round-trip efficiency”.
At 90% round-trip efficiency, you need to put more than 1 kWh into the battery to receive 1 kWh back. So, if the electricity used to charge the battery costs 18p per kWh, each kWh the battery later supplies has effectively cost 20p.
Here is a simple example. Suppose the battery charges with 10 kWh when electricity costs 12p per kWh. The charging electricity costs £1.20.
At 90% round-trip efficiency, the battery can later return 9 kWh. If the business uses that electricity when grid electricity costs 30p per kWh, it avoids £2.70 in grid imports.
Before allowing for any other costs, the energy arbitrage creates £1.50 of value:
- £2.70 saved by avoiding grid imports
- Less £1.20 for the electricity used to charge the battery
- £1.50 gross arbitrage value
That £1.50 is the gross arbitrage value. It does not yet include all the costs that may reduce the final return.
The business may also need to allow for the battery wear caused by the extra charging and discharging. If the business pays fixed annual software or service charges, these will reduce the return over the year.
Solar electricity may have no purchase price, but using it to charge the battery can still have a cost. If the business could have exported that electricity straight away, storing it means giving up the export payment it could have received.
Gross arbitrage value is the later saving or export income minus:
- The cost of buying the electricity used to charge the battery
- The export payment the business gives up when it stores solar electricity instead
Net arbitrage value is the amount left after deducting any other relevant costs, such as battery wear and software or service charges
The following example compares using the same stored electricity in the building with exporting it later:
| Use it in the building | Export it later under the ordinary export arrangement | |
|---|---|---|
| Cost of the electricity used to charge the battery | 18p | 18p |
| Later value | 30p avoided import | 21p export payment |
| Effective cost of each kWh returned by the battery | 20p | 20p |
| Gross arbitrage value | 10p | 1p |
| Illustrative cost linked to battery use | 3p | 3p |
| Result before fixed annual charges | 7p return | 2p loss |
The same stored electricity produces a 7p return when it avoids a 30p import, but a 2p loss when it earns only a 21p ordinary export payment.
The 3p figure is only an example. It is not a standard allowance for battery wear.
How to check whether your battery is being used well
A battery that follows the same timetable of charging and discharging every day is certain to miss chances to save or earn more. That’s because the key variables like site demand, solar generation, import prices, export prices, how full the battery is and reserve change every half hour.
That means a fixed timetable may tell the battery to charge too early, discharge too soon or release electricity that the business will need later.
If a provider controls and optimises your battery, check whether its reports show how it calculated the savings and income. Ask whether the provider can show:
- How much electricity the battery used for charging and what that electricity cost
- How much electricity the battery later supplied to the site or exported
- The savings from using stored electricity instead of buying electricity from the grid
- The income from exporting stored electricity
- The electricity lost during charging and discharging
- Any service charges or other deductions
- The net value left after these costs
- When the provider’s software kept electricity in the battery because the site needed it for something more valuable than energy arbitrage
The provider may not include every figure in its standard reports. Ask which costs and assumptions it used to calculate any headline saving or income figure.
Without this breakdown, you cannot see whether the provider is getting the best return from your battery or whether it is missing opportunities to save or earn you more.
How GridVolt manages energy arbitrage and trading
GridVolt’s Energy Manager uses site demand, electricity prices, solar generation, how full the battery is, reserve requirements, and operating limits to calculate when your battery should charge, supply the site, keep electricity for later, or export it. It does this 96 times a day to make sure the battery plan reflects changes in prices, site demand, solar generation, and available charge.
If you already have a solar and battery setup and you want to find out whether it could save or earn more, fill in the form on this page or visit our contact page.