Arbitrage in an Electricity Market with a High Share of Renewables

The increase in solar and wind generation carries flexibility problems for electrical systems, which could be solved by implementing large-scale energy storage plants. Arbitrage buying energy, storing it, and then selling it at a higher price is one of the primary sources of revenue for large-scale storage plants. To financially evaluate an arbitration project, it is necessary to estimate hourly spot prices for time horizons comparable to the project's lifespan, which is a very complex task due to the multiple variables that affect the price of electricity. This paper seeks to answer the following questions: will arbitration be enough to make large-scale storage projects viable in Colombia, assuming a massive incursion of solar and wind energy And which variables affect the arbitrage potential We developed a dynamic simulation model to estimate hourly spot prices over a 12-year horizon. We find that the massive incursion of solar and wind generation will decrease the arbitrage potential, making the storage projects that depend exclusively on this income unfeasible. This result implies that project developers and regulators must structure other remuneration mechanisms to incentivize large-scale storage construction.