Battery Energy Storage Systems for Risk Mitigation in Pay-As-Produced Power Purchase Agreements

The increasing penetration of renewable energy sources in electricity markets has amplified exposure to market price volatility and production uncertainty, particularly for buyers engaged in Pay-As-Produced (PAP) Power Purchase Agreements (PPAs). This thesis investigates the potential of behind-the-meter (BTM) lithium-ion Battery Energy Storage Systems (BESS) as a hedging tool to reduce market and profile risk for industrial consumers bound by PAP PPAs. A techno-economic optimization framework is developed, integrating BESS operation, PPA contractual structures, spot market participation, and grid tariffs. Simulations are conducted for an industrial load profile resembling that of a steel manufacturer, across 33 historical weather years in a Swedish price zone, for the year 2030 using forecasted spot market prices from a capacity expansion model (CEM). A price risk premium is varied to resemble different levels of risk aversion on the part of the end user. Risk is quantified using Value at Risk (VaR), Conditional Value at Risk (CVaR), capture price metrics, profile matching, and mean–variance cost analysis.

Results for the chosen case show that BESS can decrease PPA-related risks across all evaluated metrics. Capture price and profile matching improve, while price variability decreases. VaR and CVaR results indicate that the most extreme price outcomes are reduced in an energy portfolio with BESS. The framework provides insight into how BESS can be optimized to mitigate risks in PPA-based energy portfolios, though factors such as risk aversion level, PPA price structure, capital expenditure of the BESS, and load profile have a significant influence on the results. This research enhances understanding of BESS use cases as both a risk management instrument and an enabler of higher renewable penetration. Moreover, combining PPA risk mitigation with stacked services such as ancillary market participation could further improve the economic viability and strategic value of BESS deployment.