Co-Optimization of Battery Energy Storage and Wind Power for Enhanced Market Value

Abstract

The increasing share of variable renewable energy sources in the Swedish power system has led to growing demand for flexibility and balancing services. Battery energy storage systems (BESS) are widely regarded as a key technology to meet these needs, yet their economic viability depends strongly on market design, geographical location, and operational strategy. This thesis assesses the revenue potential of a battery energy storage system across different market segments in Sweden’s four bidding zones.

An optimization model is developed to represent a battery co-located with a wind park operating under a shared grid connection. The model optimizes participation in the spot market and multiple ancillary service markets, including frequency containment reserves (FCR) and frequency restoration reserves (FRR), while accounting for grid and bidding constraints, and bid acceptance probabilities. The analysis is performed for each bidding zone to capture regional differences in prices, system conditions, and market outcomes.

The results show that ancillary service markets, particularly mFRR, constitute the dominant revenue source for battery energy storage systems in all bidding zones. Significant regional differences are observed, where northern Sweden relies primarily on reserve provision, and southern Sweden benefits from a combination of reserve markets and spot market arbitrage. Shared grid capacity enables selective wind curtailment that improves battery revenues without substantially reducing wind income, indicating that co-location can enhance overall system value. The analysis further shows that battery value is primarily driven by power-oriented services rather than long energy duration, suggesting that shorter-duration batteries are well suited to current Swedish ancillary service markets.

Overall, the findings demonstrate that battery profitability in Sweden is highly dependent on market structure, geographical location, and system integration. The thesis provides insights relevant to investors, developers, and system operators, and highlights the importance of reserve market design and future market developments for the economic deployment of battery energy storage systems.

Abstract (Swedish)

Den ökande andelen variabla förnybara energikällor i det svenska elsystemet har medfört ett växande behov av flexibilitet och balanstjänster. Batterienergilagringssystem betraktas som en nyckelteknik för att möta dessa behov, men deras ekonomiska lönsamhet är i hög grad beroende av marknadens utformning, geografisk placering samt vald operativ strategi. Syftet med detta examensarbete är att analysera intäktspotentialen för ett batterisystem inom olika marknadssegment i Sveriges fyra elområden.

En optimeringsmodell har utvecklats för att representera ett batterisystem samlokaliserat med en vindkraftpark och med delad nätanslutning. Modellen optimerar deltagande på spotmarknaden samt på flera stödtjänstmarknader, inklusive frekvenshållningsreserver (FCR) och frekvensåterställningsreserver (FRR). Samtidigt beaktas nät- och budbegränsningar samt sannolikheten för att inlämnade bud accepteras. Analysen genomförs separat för varje elområde i syfte att fånga regionala skillnader i priser, systemförutsättningar och marknadsutfall.

Resultaten visar att stödtjänstmarknaderna, i synnerhet mFRR, utgör den dominerande intäktskällan för batterisystem i samtliga elområden. Tydliga regionala skillnader identifieras, där norra Sverige främst gynnas av intäkter från reservleveranser, medan södra Sverige uppvisar en mer diversifierad intäktsmix med både reserver och energi-arbitrage. Delad nätkapacitet möjliggör selektiv nedreglering av vindkraftsproduktion, vilket förbättrar batteriets intäkter utan att nämnvärt minska vindkraftens lönsamhet. Detta indikerar att samlokaliserade anläggningar kan öka det totala systemvärdet. Vidare visar analysen att batteriets värde i huvudsak drivs av effektrelaterade tjänster snarare än av långvarig energilagring, vilket tyder på att batterier med ett C-värde under 1 är väl anpassade för dagens svenska stödtjänstmarknader.

Sammantaget visar resultaten att batterisystems lönsamhet i Sverige är starkt beroende av marknadsstruktur, geografisk placering och graden av systemintegration. Arbetet bidrar med insikter av relevans för investerare, projektutvecklare och systemoperatörer, samt belyser betydelsen av stödtjänstmarknadernas utformning och framtida utveckling för en kostnadseffektiv utbyggnad av batterienergilagringssystem.

Popular Abstract

Batteries aren’t just for storing electricity, they can generate revenue while keeping Sweden’s power grid stable. This thesis shows where batteries are most valuable and how they support the transition to renewable energy.

Sweden’s electricity system is changing fast. While the transition to renewable power is crucial for meeting climate targets, it also makes the electricity system more weather dependent with a growing share from wind and solar. To keep the system stable, flexibility is needed, and battery energy storage systems are increasingly seen as part of the solution.

This thesis investigates the revenue potential of a battery energy system in Sweden and explores what services they are actually paid for. The focus is on a battery located together with a wind farm, where they share the same grid connection. This setup allows existing infrastructure to be used more efficiently, while enabling the battery to assist the wind power and provide flexibility to the grid.

The results show that most battery earnings come not from buying and selling electricity at different prices, but from providing balancing services that help keep the grid stable in real time. In practice, this means the battery gets paid to be ready, within seconds, to either inject or absorb power when something unexpected happens in the grid. This highlights the growing importance of reserve markets as the share of variable renewable generation increases.

However, there are clear regional differences. In northern Sweden, where electricity production often exceeds local demand, battery revenues are almost entirely driven by reserve provision. In southern Sweden, where grid congestion and higher price volatility are more common, batteries benefit from a combination of reserve markets and spot market trading. This means that the same battery can have very different economic value depending on where it is installed.

An interesting finding is that co-location with wind power adds extra value. By temporarily reducing wind output at certain times, capacity is freed up in the grid, allowing the battery to operate and generate revenue without significantly reducing the wind farm’s income. Instead of building new power lines, existing grid capacity can be shared more intelligently.

Overall, batteries are more than a technical add-on, they are strategic tools for a fossil-free future. They improve system efficiency, create new investment opportunities, and help bridge the gap between climate ambitions and the infrastructure needed to reach them.

• author: Åkenes, Felix
• supervisor: Mirjam Särnbratt; Jens Klingmann
• organization: Department of Energy Sciences
• course: MVKM01 20252
• year: 2026
• type: H2 - Master's Degree (Two Years)
• subject: Technology and Engineering
• report number: LUTMDN/TMHP-26/5668-SE
• ISSN: 0282-1990
• language: English
• id: 9224043
• date added to LUP: 2026-03-17 14:32:36
• date last changed: 2026-03-17 14:32:36