Determining the minimal Battery Storage System subsidy: The Internal Rate of Return-based optimisation approach

Decarbonization efforts aimed at tackling the cli-mate change issues rely on increasing use of renewable energy sources (RES) in the power system. In order to maximise their integration, significantly higher rollout of the battery storage systems (BSS) is necessary, even in the EU which set ambitious goal of achieving carbon neutrality by 2050. EU goals will be difficult to realize without incentives to battery storage. In this paper direct subsidies reducing the installation cost of BSS are considered. We use German power market data for the 2017 and 2021: intraday prices, day-ahead prices and primary reserve markets in particular. Battery storage is integrated with photovoltaics (PV) in order to provide electricity to small and medium sized industrial plants. In this setup the multi- objective optimisation (MOO) method to optimise the annual BSS operation is applied and internal rate of return is used to assess profitability. Since the BSS cycle lifetime (determined by market conditions) often exceeds the calendar lifetime, a fall in the profitability occurs which is used to calculate the subsidy level. The results suggest that the obtained subsidy range is within the range reported in practice considering the perfect foresight assumption used in the analysis. Also, lower subsidies are obtained for 2021 due to conditions more favourable for BSS operation.