Battery storage in Spain becomes unviable beyond 32 GWh of cumulative capacity, study finds

Traditionally, storage planning has relied on production cost models or capacity expansion models. The former optimize dispatch based on levelized costs, while the latter assess investment decisions in a marginal pricing framework, typically assuming that thermal generation sets market prices. In both approaches, however, storage is imperfectly represented, particularly in terms of its real interaction with market prices.

Researchers from the University of Seville propose an alternative methodology based on a Real-Time Optimization (RTO) model, which uses actual day-ahead market clearing curves as a proxy for demand elasticity. The objective is to estimate expected net revenues from new battery energy storage system (BESS) installations and to assess how incremental capacity additions affect wholesale prices and storage profitability. The findings are presented in “Storage deployment and its impact on wholesale electricity prices,” to be published in June in Energy Reports.

The methodology is applied to the Spanish electricity system using 2024 day-ahead market data. Two operating strategies are examined: a price-taker strategy, in which each installation maximizes its own revenue, and a price-maker strategy, which seeks to maximize the aggregate profit of a storage portfolio. In both cases, the model maximizes EBITDA while accounting for efficiency losses, variable operating costs, and battery degradation.

The results indicate that increasing BESS capacity significantly narrows the spread between daily peak and trough prices – the primary revenue source for energy arbitrage. For capacities below 15 GWh, storage assets are fully utilized and remain profitable. Between 15 GWh and 32 GWh, profitability becomes increasingly dependent on market competition and strategic behavior. Beyond 32 GWh, the reduced price spread means revenues no longer cover variable costs, discouraging further investment in the absence of external support.

In particular, expanding Spain’s storage capacity to the planned 30 GWh would reduce the average daily price differential from €70.68/MWh to €32.56/MWh, implying that for roughly 130 days per year, part of the additional BESS capacity would remain idle due to insufficient arbitrage opportunities.

The study also shows how the model can be integrated into financial assessments to evaluate project viability and potential public support requirements. For example, an additional 6 GWh investment at a cost of €109,000/MWh would generate an estimated return of around 4%, suggesting that subsidies or further cost reductions may be needed to attract private capital.

Finally, the authors conclude that BESS profitability is highly sensitive to cycle efficiency and capital cost trajectories. The RTO model is presented as a valuable tool for anticipating economically viable deployment levels and for designing support mechanisms that enable storage targets to be achieved without distorting market operations.

From pv magazine Spain