Citation: Ezennaya, S.O.; Kowal, J. Optimizing Energy Arbitrage: Benchmark Models for LFP Battery Dynamic Activation Costs in Reactive Balancing Market . Sustainability 2024, 16, 3645. https://doi.org/10.3390/ su16093645 Academic Editors: Zhiqiang Lyu, Renjing Gao and Longxing Wu Received: 20 March 2024 Revised: 17 April 2024 Accepted: 24 April 2024 Published: 26 April 2024 Copyright: © 2024 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/). sustainability Article Optimizing Energy Arbitrage: Benchmark Models for LFP Battery Dynamic Activation Costs in Reactive Balancing Market Samuel O. Ezennaya * and Julia Kowal * Department of Electrical Energy Storage Technology (EET), Institute of Energy and Automation, Technical University Berlin, Einsteinufer 11, 10587 Berlin, Germany * Correspondence: samuel.ezennaya@eet.tu-berlin.de (S.O.E.); julia.kowal@tu-berlin.de (J.K.) Abstract: This study introduces a novel benchmark model for lithium iron phosphate (LFP) batteries in reactive energy imbalance markets, filling a notable gap by incorporating comprehensive opera- tional parameters and market dynamics that are overlooked by conventional models. Addressing the absence of a holistic benchmark for energy-storage systems in electricity markets, this research focuses on the integration of LFP batteries, considering their unique characteristics and market responsiveness. Regression and regularization techniques, coupled with temporal cross-validation, were employed to ensure model robustness and accuracy in predicting energy trading outcomes. This methodological approach allows for a nuanced analysis of battery degradation, power capacity, energy content, and real-time market prices. The model, validated using Belgium’s system imbalance market data from the 2020–2023 period, incorporates both capital and operational expenditures to assess the economic and operational viability of LFP battery energy-storage systems (BESSs). The find- ings reveal that considering a broader range of operational parameters in energy arbitrage, beyond just the usual energy prices and round-trip efficiency, significantly influences the cost-effectiveness and performance benchmarking of energy storage solutions. This paper advocates for the strategic use of LFP batteries in energy markets, highlighting their potential to enhance grid stability and energy trading profitability. The proposed benchmark model serves as a critical tool for energy traders, providing a detailed framework for informed decision making in the evolving landscape of energy storage technologies. Keywords: reactive balancing; imbalance market; LFP batteries; dynamic pricing; operational performance 1. Introduction The integration of renewable energy sources into modern electricity grids is a pivotal advancement in the pursuit of sustainable energy. However, it introduces significant challenges in maintaining grid stability, particularly in balancing supply and demand in real time. This paper focuses on the evolving landscape of electricity grids, emphasizing the integration of renewable sources like wind and solar power. The central challenge lies in ensuring efficient real-time grid balancing amidst the dynamic nature of energy markets, especially within the European context. Key players in this balancing act are the Balance-Responsible Parties (BRPs). BRPs are tasked with ensuring a harmonious equilibrium between energy supply and demand within their portfolios. This role has become increasingly complex due to the unpredictable nature of renewable energy outputs and fuel/gas costs for conventional energy sources. Their responsibility primarily involves managing day-ahead market (DAM) bids and making near-real-time adjustments via the intraday market (IDM) to counteract forecast errors. There is also an option of voluntarily reacting to the system imbalance in real time resulting from last-minute forecast errors. This voluntary reaction is settled via imbalance or day after market (BM). This flexibility, facilitated by transmission system operators (TSOs), Sustainability 2024, 16, 3645. https://doi.org/10.3390/su16093645 https://www.mdpi.com/journal/sustainability