Future Outlook

The Future of Power Prices

How Batteries and Renewables Could Reshape Electricity Markets

As battery storage technology continues to advance, it is poised to dramatically change the way we buy and sell electricity. On one hand, large-scale batteries can smooth out daily price swings by buying energy during cheaper periods and selling it when prices peak. At the same time, however, these very actions may trigger more frequent and sharper price spikes within each hour. Below is a closer look at why this “flattening” of overall daily prices can coincide with greater volatility on shorter timescales—and what it all means for the future of power markets.

Flattening the Daily Price Curve

Traditionally, prices have been highest in late afternoon or evening, when demand spikes. During midday—particularly in regions with a lot of solar power—electricity can become very cheap or even near zero if the sun is strong. Batteries take advantage of these patterns through a practice called arbitrage:

1. Charging in Cheaper Hours: When solar production outstrips demand, power is plentiful and prices fall. Batteries charge up during these low-price windows, increasing demand slightly and nudging prices upward.

2. Discharging in Expensive Hours: Later in the day, when demand and prices climb, batteries release their stored energy. This extra supply helps lower the peak price, preventing extreme highs.

Over time, as more batteries enter the market and engage in similar tactics, the net effect is a smoother daily price curve: midday lows are less dramatic, and evening peaks are more contained.

Why Intrahour Volatility May Increase

While batteries help flatten price differences between one hour and the next, they can also cause more rapid price swings within each hour. Several factors contribute to this phenomenon:

1. High Transaction Volume: When many batteries (and other market participants) act at once—either to charge or discharge—these sudden bursts of buying or selling can momentarily overwhelm the market’s available supply or demand.

2. Competition for the Same Spread: If multiple storage systems target the same low-price windows to charge and the same high-price windows to discharge, everyone tries to buy or sell in the same moments. This clustering can create brief price “spikes” or “dips” within a single hour.

3. Algorithmic Trading: Advanced software and automated trading strategies can react instantly to any price movement. A single large trade might trigger a chain reaction of other algorithms jumping in, amplifying the volatility in seconds or minutes.

Even if the average hourly price remains relatively stable, these rapid, short-lived surges or drops can stretch the price range (often seen on trading charts as tall “wicks”).

Batteries vs. Renewables: A Growing Interplay

As the share of renewable energy—particularly solar and wind—continues to rise, the system’s overall variability increases. Clouds rolling in or sudden wind changes can lead to unexpected shifts in supply, causing temporary price spikes or drops. Batteries can help stabilize some of this volatility by storing excess energy and releasing it during shortages, but they also introduce more activity into the market, which can push intrahour volatility higher.

A useful way to track this balance is to compare total battery storage capacity to the region’s renewable generation capacity. If storage expands quickly, daily price fluctuations might smooth out faster, but the intrahour swings could remain pronounced while the market adjusts. If renewables grow faster than storage, intermittent power can lead to unexpected price movements that batteries alone may struggle to mitigate.

Potential Future Scenarios

1. Initial Phase: As battery use scales up, we may see a clear reduction in day-to-night price spreads. Peak prices decline, and midday lows rise. However, the scramble to buy and sell within narrow windows can lead to more “flash” volatility during each hour.

2. Market Maturity: Over time, trading algorithms may become more sophisticated and learn each other’s patterns. As batteries, renewable operators, and traders adapt, intrahour price swings could moderate—though they may never fully disappear.

3. Stable Equilibrium: Eventually, the market could reach a new equilibrium with flatter daily prices overall and some manageable level of intrahour volatility. The exact balance will depend on how quickly renewables and battery storage both grow, as well as the trading strategies used.

Looking Ahead

Ultimately, battery storage and increasing renewable generation are reshaping electricity markets in a way that reduces long-term price extremes while adding an element of short-term turbulence. This dual dynamic presents both challenges and opportunities: system operators must handle rapid swings, while traders can seize profit chances in these short bursts of volatility.

In the years to come, two key factors will likely determine how prices evolve:

1. The Ratio of Storage to Renewables: More storage capacity relative to renewable generation should further “flatten” daily price patterns while still driving some intrahour volatility.

2. Algorithmic Sophistication: As batteries and traders become more advanced, we may see new strategies that reduce or delay short-term price spikes, though they may also create new patterns of volatility.

For investors, policymakers, and anyone involved in energy markets, understanding this interplay is essential. The transition to a cleaner, more flexible grid brings the promise of stable, affordable power—but with the added twist of fast-moving price changes within each hour. Navigating this evolving landscape will require both technical insight and strategic foresight, ensuring that we capture the benefits of renewables and storage while keeping market volatility in check.