Aurora Energy Research , a global provider of bankable long-term energy price forecasts, indicates that the internal rate of return (IRR) for battery energy storage (BESS) projects could vary between a decrease of 4 percentage points and an increase of 1 percentage point compared to the baseline scenario. Aurora emphasizes the importance of analyzing both risk and opportunity scenarios and notes that dry hydrology could improve the revenue of some BESS projects.
Aurora's new Chile Flexible Energy Market Outlook report analyzes the complete economics of BESS, incorporating arbitrage, capacity payments and ancillary services, as well as sensitivity scenarios to assess investment risks.
The analyses show that actual operations matter as much as the model. Differences between theoretical dispatch and dispatch performed by the Coordinator can reduce arbitrage revenues for a battery, although participation in ancillary services allows for the recovery of a significant portion of that difference.
In this respect, ancillary services are becoming a key component of the battery business. Aurora estimates that not participating in these markets could mean forgoing up to 11% of revenue, while early entrants capture the greatest opportunities before the market becomes saturated.
Aurora evaluates asset profitability under three scenarios: Coordinator operation, battery over-installation, and dry hydrology. A scenario with higher battery penetration could compress spreads and reduce project returns, reinforcing the need to incorporate sensitivities into financial evaluations.
Aurora also identifies the areas with the best prospects for new developments and shows significant differences between nodes in terms of spreads, revenue, and expected IRR. Cardones, for example, presents some of the best returns among the investment cases analyzed.
The Chile Flexible Energy Market Outlook report analyzes the evolution of the flexibility market, projects BESS project revenues until 2060, and incorporates new methodologies to assess the economic viability of investments under different market scenarios.
Raúl Urtubia, Product Manager at Aurora Energy Research, commented: “While much of the market has focused its attention on the risk of increased battery penetration, there are other variables that can significantly modify a project's profitability. A drier hydrology scenario, for example, can create favorable conditions for storage systems by increasing price volatility.”
"Chile is entering a new phase for energy storage where understanding how to maximize its value, considering different factors such as arbitrage, capacity payments, ancillary services, and the risks associated with the market's accelerated growth, is crucial. With more than 2 GW of batteries already in operation and a pipeline of nearly 7 GW under construction, the market is beginning to evolve from a stage focused on capacity installation to one where profitability will increasingly depend on operational optimization and proper risk assessment," he added.