merchant energy

Using AI to Mitigate Merchant Energy Storage Risks

Most businesses and homeowners add on-site battery storage because they:

  • Need emergency backup power for when the grid goes down
  • Want to save money by storing unused solar power in their batteries
  • Live off the grid and need to store power from a generator or solar panels

However, the ability to scale battery storage solutions and integrate them with other distributed energy resources (DERs) like solar and wind allow non-utilities to generate and sell power. Known as “merchant energy” stakeholders, these DERs aggregators sell the power they produce on spot energy markets.

Because batteries can store electricity, they play a crucial role in profit maximization by enabling energy merchants to time their buys and sells whenever market conditions are optimal. In fact, the most basic form of this arbitrage strategy involves buying grid electricity during the cheapest times of the day, and selling it back during peak hours (at a profit).

However, storage can also be used to mitigate (or even take advantage of) pricing volatility. As more intermittent power sources like solar photovoltaics (PVs) and wind come online, both energy prices and the grid as a whole will become more volatile.

Just to highlight the growing importance of battery technology, energy storage deployments enjoyed 93% growth year-over-year up to the start of Covid-19. And the market is expected to enjoy an 8-fold increase in value from 2020 to 2024.[i]

Interestingly, this latter forecast predates Order 2222 from the Federal Energy Regulatory Commission (FERC).

When aggregators of solar, wind, electric vehicles, and batteries are allowed to openly compete on wholesale energy markets, there will be even more opportunities to generate returns through intelligent battery storage management. In fact, FERC Order 2222 is expected to reshape America’s energy landscape by attracting more actors, investment, and innovation to the country’s decarbonization efforts.

However, this rapid growth presents certain challenges for merchant energy storage projects.


Why Are Merchant Energy Storage Projects Even at Risk?

Our previous blog covered what’s at stake for utility operators and independent power producers once FERC Order 2222 opens up the wholesale markets to more competition. But just to recap, there will be:

  • More behind-the-meter energy and storage assets outside of utility operators’ direct control.
  • More need to use distributed energy resource management system (DERMS) technology to manage the sheer volume of energy generation, storage, and transmission data being generated in real-time.
  • Less grid reliability – resulting in shortages, surges, equipment degradation, transmission losses, congestion, and blackouts.

At first glance, battery storage is a simple solution for managing the above. After all, you can store energy (from any source) and deploy it instantly, either:

  • Into the electricity grid, if you’re a utility or independent power producer
  • Into the wholesale energy market, if you are a DERs aggregator

However, energy storage alone isn’t sufficient for managing this complexity. This is true even when using state-of-the-art DERMS platforms to receive data from and send instructions to distributed energy assets throughout the network.

And here’s why.

Although batteries are infinitely scalable and deploy rapidly, the sheer amount of data generated as the grid becomes more decentralized makes it impossible to accurately time when to store, buy, or sell energy. A passing cloud, for example, can create a momentary dip in solar output at a nearby PV farm. Most utility operators and DER aggregators lack the technological or analytical capabilities to relay stored electricity quickly enough to cover that dip in solar production.

Moreover, merchant energy storage projects are normally financed privately – without the assurances and protections that were historically granted to utility operators under the older centralized power generation model. But how can one forecast returns or attract investors when the future price of energy is unknowable?

DNV’s Principal Subject Matter Expert on Energy Storage, Brian Warshay, offers a list of prescriptions and recommendations to address this very issue. And anyone starting a new energy storage project should read his analysis.

When FERC Order 2222 introduces unprecedented competition into the wholesale energy marketplace, however, many current energy storage operators will soon be asking a new question. Namely – how do you know when to buy, sell, or store electricity at the most profitable times?

At Veritone Energy, we believe the solution lies in artificial intelligence (AI).


The Role of AI in Managing Merchant Energy Storage Risks

Computers are purpose-built to handle massive amounts of data. And through continuous learning, machines can spot patterns and make far more accurate decisions than human actors ever could:

  • When applied to energy generation, artificial intelligence can analyze grid conditions, PV production levels, and local weather patterns to accurately predict future energy needs and make adjustments across the entire grid.
  • When applied to energy storage, AI can dynamically optimize batteries to automatically dispatch or charge – based on real-time market conditions. A well-designed algorithm can even factor in things like the operational limitations, warranty constraints, and temperature levels when optimizing each individual battery in the network.

This technology already exists.

And it’s currently being used by a growing number of utilities and merchant energy project developers as the country’s grid becomes greener and more decentralized. To learn how our AI-driven Energy Solutions can help you gain a competitive edge in the wholesale energy markets, contact us today for a free demonstration.