Future scenarios for the benefit of battery storage in the German day-ahead electricity market

Volatility of electric power prices in Germany has seen an unprecedented increase since 2022, and the ongoing rapid expansion of renewable energy sources (RES) is likely to further reinforce this development. The recent emergence of large-scale battery storage (BESS) is expected to mitigate volatility and enable competitive electricity prices with high RES shares. This paper quantifies the impact of BESS on the day-ahead (DA) electricity price within a backtesting simulation study using econometric methods. We consider two scenarios with perfect and imperfect foresight and distinguish between two types of storage. We find that an additional 10 GWh BESS would have reduced the average electricity price by 2.94 EUR/MWh and the 99%-quantile by 27.7% in 2024. Conversely, even moderate capacities (like 5 GWh) trigger significant self-cannibalization of BESS returns. This implies a missing incentive to invest in BESS, although an extensive expansion of electricity storage is inevitable to reach climate goals. Nevertheless, BESS could improve the efficiency of the DA-market from a holistic macroeconomic perspective, but a change in market conditions would be required to obtain the optimum. Our findings motivate a contemplation of public subsidies for BESS or the introduction of a new “storage levy”.