Battery Payback Period in the Frequency Reserve Market

The payback period for batteries used in the frequency reserve market largely depends on the future volatility of electricity prices and is, therefore, somewhat speculative. However, the significant and continuous fluctuation in electricity prices over recent years has become the new normal. The main reasons for this are the ongoing increase in overall consumption (e.g., heat pumps, electric cars) and the transition of electricity production to renewable energy technologies, which leads to greater variability in generation.

According to the Estonian Competition Authority, the average electricity exchange price in the Estonian price area in 2024 was 8.73 s/kWh. However, prices were highly volatile: the most expensive average electricity exchange price was in January (12.65 s/kWh), and the minimum exchange price was recorded on August 25th (-1.996 s/kWh). The maximum exchange price even reached 189.6 s/kWh on January 5th. Such significant daily and monthly price fluctuations enable the recouping of battery acquisition costs within a relatively short period, provided there is smart management.

We estimate the payback period for participating in the frequency market with a battery to be 6–8 years. This result is based on previous simulations and market situation analyses, which assume the battery is used for one cycle per day. It’s important to note that a battery’s lifespan is considerably longer; most manufacturers guarantee that after 6,000 cycles, the battery’s capacity will still be at least 70–80% of its original capacity.