“Value stacking” can make battery storage profitable

According to the Norwegian Energy Regulatory Authority (RME), Norway needs more batteries to increase liquidity in balancing markets. Batteries provide flexibility that is crucial for balancing the power grid, especially with a growing share of solar and wind energy.

Despite this, Norway has only 50 MW of installed battery capacity, far behind countries like Sweden and Germany. One reason is low profitability due to stable electricity prices and good access to hydropower.

Three Revenue Streams

Researchers at NORCE worked on a case where a company with significant energy consumption wants to invest in a battery. They simulated 250,000 hypothetical scenarios using real price and consumption data and found that value stacking—combining the following three revenue streams—is necessary for profitability:

1. Energy Arbitrage – The battery shifts electricity purchases to hours with lower prices.
2. Demand Charges – Reducing peak loads lowers grid tariffs.
3. Flexibility Market (Nodes Longflex) – Income from making consumption available when the grid needs it. Activation can yield payments of up to NOK 15,000 per MWh.

The results from the Norwegian case align well with data from other countries, where battery growth is based on multiple revenue streams. Although national electricity markets differ, there is a cross-border trend showing that battery flexibility is key to the business model.

By tapping into multiple markets simultaneously, batteries can become economically viable. However, there are uncertainties, particularly related to the flexibility market.

– Our focus has been on what uncertainties mean for investment decisions. The main finding is that you need three pillars to have a good chance of profitability. It’s not enough to just shift consumption and reduce peak loads, says Chief Researcher Jan Kocbach at NORCE. As an alternative to Nodes Longflex, the third pillar could also be participation in Statnett’s reserve markets to generate income through frequency regulation and system stabilization, or providing emergency power or backup supply—but care must be taken to ensure the different revenue streams don’t interfere with each other.

Interactive Tool

In the project, researchers developed an interactive tool that can be used to explore how uncertainties in battery prices, battery size, future electricity prices, and participation in the flexibility market affect profitability and the distribution of income among the three revenue streams. Decision-makers can adjust these uncertainties to gain a deeper understanding of their impact. Is battery price or electricity price more influential on earnings given my consumption pattern? Should I invest in a large or small battery to be less dependent on profitability in the flexibility market?

– Being able to ‘play around’ with such ‘what-if’ analyses fosters good reflection processes among decision-makers. My experience is that it provides a completely different type of understanding—and more ownership—than just reading an analysis, explains Kocbach.

The tool will initially be used in research and development projects.

Video:interactive tool

Barriers to Increased Battery Use

Despite the great potential of battery technology to support the energy system, several barriers hinder its adoption and use. To realize the potential of batteries, stakeholders like RME call for technology-neutral regulations and more collaboration between actors. This could help batteries gain a clearer role in the Norwegian power system—both as a flexibility resource and as a source of income.

One of the biggest challenges today is unstable framework conditions, where frequent changes in policy and regulations create uncertainty for stakeholders. This leads to regulatory uncertainty, which negatively affects investment decisions—many hesitate to invest when future revenue streams are unclear.

There is also a risk that revenue streams may disappear, either due to changes in market mechanisms or regulatory interventions. Additionally, the maturity of flexibility markets varies significantly, making it difficult to predict the profitability of battery investments.

Knowledge barriers among stakeholders are another important factor. Many lack insight into how batteries can be used effectively and have limited understanding of the uncertainties involved—and how these can be mitigated. There is therefore a great need for increased knowledge and sharing of success stories, especially related to combining different revenue streams and alternative use cases.

Finally, both installation and operation of battery systems require significant technical expertise, which can be a hurdle for many stakeholders, especially smaller businesses or municipalities without specialized technical personnel.

(Top photo: Pixii)