Batteries, why the heat is driving up usage costs

In Italy, battery owners are seeing increased profitability due to higher electricity prices, as reported by Swiss energy analysis firm Pexapark. This trend is particularly notable in the north of the country, where electricity costs have surged by 50% compared to last year. The increase is attributed to higher gas prices, increased electricity demand, and a decrease in renewable energy usage.

The daily spread between high and low electricity prices in northern Italy has grown to approximately 262 euros per megawatt-hour, up from 175 euros a year ago. In the south, the spread has risen to 289 euros from 232 euros, a 25% increase. However, the south's spread remains larger than that of the north, but its acceleration is more significant.

Pexapark attributes this to the impact of the heatwave and drought on the power grid. With higher temperatures, solar power generation increases, causing prices to drop, especially during peak solar hours. After sunset, when solar power is unavailable, demand remains high, creating a gap where battery storage can become highly profitable.

Gas prices have also risen, reaching a monthly high of 56.61 euros per megawatt-hour in July. This, combined with reduced water levels in northern regions due to drought, exacerbates the problem. Approximately 20 gigawatts of thermal power plants in Italy could be affected by these constraints, particularly in the Po basin and its tributaries.

These conditions have led to a 10% increase in the prices offered for flexibility purchase agreements (FPAs) by a major battery operator. FPAs allow battery owners to sign contracts with buyers to utilize their energy storage capabilities, providing more predictable revenue. The gap between peak solar hours and nighttime peaks is expected to widen in the coming years, further boosting the profitability of battery storage systems.