Levelized cost of storage estimation in merchant vs long-term strategies considering BESS operativity and aging

This study examines the techno-economic feasibility of BESS in the context of Europe's growing RES integration. Two business models are explored: the administered model, based on long-term contracts, and the merchant model, focused on spot and ancillary services markets. A detailed BESS model, considering efficiency, aging, and market variability, was used to assess the potential profitability and financial stability of each approach. Results show the administered model offers more predictable returns, with IRR ranging from 3 to 10% for DAM prices increasing from 100 to 150 €/MWh. Conversely, the merchant model presents higher volatility but significantly higher returns, with IRR rising from 1.5 to 15% for the same DAM price variation. Oppositely, the LCOS is generally lower in the administered model, since the obligation to perform services increases the performed cycles (+10% cycles with respect to merchant model), reducing their specific cost. This study provides insights for investors and policymakers to support BESS deployment and enhance financial stability during the energy transition.