A report from US ratings agency Fitch said battery energy storage systems could face faster asset degradation and higher capex volatility than renewables and thermal peaking plants. This is especially if they use arbitrage strategies.
“Although the operational risk profiles of battery storage are generally lower than those of thermal assets, we may raise our metrics thresholds for BESS to reflect risks related to volatility of arbitrage margins, use profiles and capex,” it said in its report.
It added that arbitrage strategies – buying energy when prices are low and selling when high – are riskier and require active management. They imply margin volatility and it will be less clear when and how much the battery is being charged and discharged.
It said batteries are subject to fast degradation with the useful life of utility-scale lithium-ion versions far below the estimate for solar panels.
That mainly depends on frequency of use, depth of discharge and operation, as well as battery chemistries and external conditions, such as temperature.
Batteries need replacing more frequently than other energy technology main equipment to mitigate potential underperformance, according to Fitch. A high proportion of arbitrage could spur degradation at a pace difficult to predict.
“BESS are, therefore, exposed to higher capex volatility compared to other energy technologies, including renewables or thermal peaking plants. Since battery degradation is affected by use, we will assess BESS operators’ strategies for the replacement of degraded units (augmentation strategy),” Fitch said.
Batteries that provide ancillary services for short-duration grid frequency regulation may face a different degradation rate than those providing reliable capacity for longer periods, it added.