Battery Degradation

As a battery cycles, its ability to store energy, its capacity, gradually decreases. This process, known as degradation, means that a battery that could initially store 100 MWh might only hold 80 MWh of usable energy after several years of operation. This reduction in capacity is a critical factor for asset owners to model, as it directly impacts potential revenues by reducing the energy a battery can cycle and the size of arbitrage spreads it can capture.

This document outlines how battery degradation is defined and modelled within the NEM dispatch model.

Defining a battery cycle

A "cycle" is a standardised unit of battery use, defined as the total energy discharged equal to the battery's initial nameplate capacity. For instance, a 100 MWh battery completes one cycle after discharging a cumulative total of 100 MWh. This could occur through one full 100 MWh discharge or, more realistically, multiple smaller discharges that sum to 100 MWh.

Throughput, measured in cycles, is a key indicator of a battery's operational history and is the primary driver of degradation in our model.

Modelling degradation

The electrochemical processes within a lithium-ion battery that cause degradation are complex. Our model represents this phenomenon through three interconnected mechanisms:

1. Capacity reduction: The most direct effect of degradation is the reduction of the battery's maximum energy capacity. For long-term forecasts, the model uses a degradation profile to calculate the remaining usable capacity based on the battery's cumulative cycles. This maximum energy capacity is then used as a parameter for each daily dispatch optimisation.

   • Repowering: The model also accommodates repowering via a user input that specifies the cycle count at which the battery's capacity is reset to its original value.

2. Short-run marginal cost (SRMC): Degradation is also monetised as a cost per megawatt-hour (MWh) of energy discharged. This cost, the SRMC, is factored into the dispatch model's objective function. By treating degradation as a marginal cost, the model will only cycle the battery when the revenue from an arbitrage opportunity exceeds the cost of degradation, ensuring economically optimal dispatch.

3. Daily cycle constraint: Finally, the model includes a constraint to limit the number of equivalent cycles a battery can perform each day. This acts as a hard limit on throughput, preventing strategies that would cause excessive degradation, regardless of potential revenue.

Configuring degradation in the model

The NEM dispatch model provides flexibility in how degradation is applied, allowing for different scenarios and custom inputs.

• Toggling degradation: The model allows degradation effects to be toggled on or off. When disabled, the simulation will not account for the physical reduction in capacity or the economic cost of cycling.