GridStore

Integral Analytics (IA) appraisal software values grid-scale battery technologies

Overview

Can your current valuation model accurately capture the full lifetime value of a grid-scale storage asset in real-time energy markets?
 

Precisely determine the complete business value of battery technologies by modeling day-to-day technological and market-based risks, development and operational costs, net present value, and lifetime revenue potential.

Grid-scale storage assets are increasingly considered to be cost-effective alternatives to traditional fossil fuel generation, not only for managing the intermittency of renewable resources, but also for managing voltage fluctuations within the system. And with steady advances in renewable generation and market pressures from FERC Order #755 (which says ISOs must fairly compensate quick-responding resources such as electrochemical batteries and other storage methods), the need for accurate valuation of grid-scale storage technologies grows stronger all the time.

The Problem with Standard Models

But traditional production cost models are not well-suited to accurately valuing time arbitrage of storage assets because future trading values are tied to uncertain price spreads that change every hour or less. Traditional models only calculate values based on system averages rather than considering extreme peak days, which is when storage is most valuable. This makes traditional models highly sensitive to input assumptions and causes them to generate widely different results based upon small price changes. As a result, battery technologies are regularly undervalued or incorrectly valued because the models are not designed to assess storage assets.

The Importance of Time Arbitrage

In order to accurately capture extreme arbitrage values you must understand both the intrinsic and extrinsic value of a storage time spread. While calculating intrinsic values is as straightforward as determining today's known price, extrinsic valuation must consider all the uncertain potential spreads from today to the end of the life cycle of that product. When combined, the intrinsic and extrinsic values equal the total revenue that you can achieve by owning or holding that storage asset.

Unlike traditional integrated resource planning models that look at average values and impacts of an overall portfolio within a system, Gridstore accurately values storage assets using the same supply side methods that are used to price traditional energy resources, contracts, supply options and derivatives. So you can turn your storage assets and combinations into fungible products that can be traded in energy markets. This creates new opportunities for realizing revenue and cuts your risks by using traditional energy markets to buy, sell, and hedge the output of your storage assets.

How to Use GridStore

Specifically, GridStore simulates the operation of a battery in day-to-day energy markets to calculate the potential of technological and price constraints associated with operating in that market and the total potential revenue from having that resource. So you can build an accurate business case that considers the intrinsic and extrinsic value of storage and the full spectrum of risks and opportunities associated with the storage asset.

For example, suppose a subdivision wants to develop its own small-scale microgrid with a photovoltaic system and battery large enough to supply a group of houses. GridStore can help you to understand if the benefits will outweigh the costs by modeling to determine who benefits, how much they benefit, and whether or not the community can support the costs associated with building that technology. Gridestore clarifies the full business value, including revenue potential, net present value, risks, distribution of value, and costs associated with developing such a microgrid system.

What is more, GridStore helps you understand how regulators will consider that technology compared to supply side products that are traded on open markets, so you’ll know early on if you have an effective cost recovery or rate case should you develop a storage-based portfolio.

A Broader Valuation Product

But GridStore isn’t only designed to value batteries. Its basic underlying algorithms are good for valuing all kinds of energy assets. It’s a powerful tool for understanding how much the time arbitrage is worth from any type of storage asset. So you can use it to precisely and accurately determine the revenue potential, risks and value associated with purchasing, operating, or hedging any grid scale asset. 

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How Does GridStore Work?

How GridStore Works

The GridStore methodology uses many of the same methods deployed in the natural gas industry to value gas storage assets, but with additional emphasis on weather related value-at-risk over the life of the battery asset. So you can understand the intrinsic and extrinsic value of the storage asset and the full spectrum of risks and opportunities associated with it.

The GridStore model simulates the behavior of a rational operator when faced with market prices and technology constraints. Its highly consistent and replicable modeling gives you a full distribution of precise and accurate values by considering the real values and probabilities associated with hour-by-hour cash flow potentials for good days, bad days, high-price days, low-price days, and everything in between. This becomes the basis of understanding the asset’s extrinsic value, which is then comparable to values used to price hedges and insurance products.

But Gridstore doesn’t only look at arbitrage values. It also considers technological constraints, such as how quickly the battery can receive power or how quickly it can provide power, and also the constraints associated with the markets that the battery is being used in. If you’re operating in a regulated market, you can also consider how regulation signals will impact the state of charge of the battery. And if you’re working with a photoelectric or wind resource, GridStore considers how the battery will respond to the output of these renewable resources and how quickly its state of charge will be impacted.

GridStore also considers the impact of the market and the market conditions, including: the behavior of independent system operators and integrated ISOs; the rules associated with how energy can be entered into and traded within markets; and how the risks, changes and uncertainty around market prices impact the overall valuation.

GridStore explicitly values each of these complex factors on an hourly basis (or every five seconds in the case of a regulated market). It also looks at the impact of these markets on the battery itself, and how the battery constraints will impact overall value. The resulting output is a complete valuation of the intrinsic and extrinsic value of the storage asset that enables you to compare it with fossil fuel generation assets or trade on open energy markets.

Why Use GridStore?

Why Use GridStore

GridStore is founded on the same highly-detailed financial-engineering methods used to value complex energy assets and traded commodity contracts. This empowers GridStore to deliver the most accurate financial pro-forma estimates available in the industry today. Without precise detailed financial valuations, you risk under-valuing or incorrectly valuing many types of storage applications.

Other significant advantages include:

Price Spread-Option Forecasts Using Causal Simulation of Weather Risk

  • Using GridStore’s proprietary casual simulation, forecasting and valuation systems, complex price scenarios are simulated over multiple years of historic weather data to assure all possible conditions, extreme or mild, are included in the valuation process.
  • An efficient and accurate price spread-option approach is used by many utilities for traditional storage applications and is used in battery valuation applications.
  • Our spread-option valuation of storage assets is a well understood and documented method that uses stochastic calculus to measure the present and future cash flow probabilities.
  • Accurately characterizing the extreme price spreads is critical in the valuation. These price spreads occur in the tails of the probability distribution, not the averages, so detail matters.

Optimization Consistent with Battery Technologies

  • The GridStore modeling and valuation framework forecasts and simulates the behavior of rational dispatch decisions, when faced with market prices and technology constraints.
  • Both complex battery ramp rates and depth-of-discharge degradation constraints are modeled.
  • The IA valuation approach considers several benefits of grid-scale storage, some of which can be monetized today. These include:
    • The ability to shift energy from off-peak to peak hours via price arbitrage
    • The ability to provide quick ancillary services for the frequency regulation market
    • The ability to firm renewable resources
    • The ability to absorb unused wind generation during periods of oversupply

 

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