Cost-Saving Synergy: Energy Stacking in Battery Energy Storage Systems

Despite the great potential benefits of battery energy storage systems (BESSs) to electrical grids, most standalone uses of BESS are not economical due to batteries’ high upfront costs and limited lifespans. Energy stacking, a strategy of providing two or more services with a single BESS, has been of great interest to improve profitability. However, some key questions, for example, the underlying mechanism by which stacking works or why and how much it may improve profitability, remain unanswered in the literature. Using two popular battery services, we analytically show that there often exists cost-saving synergy—the cost of performing both services at the same time (simultaneous stacking) is smaller than the sum of individual costs if we had performed each service alone—which allows for bigger profits. Furthermore, we perform comparative statics on the optimal mix of the services to systemically characterize grid/market conditions that maximize/minimize this synergy. We also derive a theoretical upper bound on simultaneous stacking’s benefits, showing that it can approximately double the profit of the best standalone service. Several generalizations of the base model not only show that the main lessons continue to hold but also that stacking’s benefits may become even stronger. This paper was accepted by Jayashankar Swaminathan, operations management. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2022.03477 .