Contents lists available at ScienceDirect Applied Energy journal homepage: www.elsevier.com/locate/apenergy Impact of battery technological progress on electricity arbitrage: An application to the Iberian market Ángel Arcos-Vargas ⁎ , David Canca, Fernando Núñez School of Engineering, Department of Industrial Engineering and Management Science, University of Seville, Spain HIGHLIGHTS • A Mixed-Integer Linear Programming arbitrage model has been proposed. • Given hourly electricity prices, the optimal battery configuration is obtained. • Li-Ion arbitrage will be profitable after 2024, thanks to technological progress. • Public Research Funds should encourage research aimed at reducing battery costs. ARTICLE INFO Keywords: Electricity markets Arbitrage business BESS Mixed-integer programming Technological progress ABSTRACT Recent technological advances in power electronics and electrical storage have increased interest in the arbitrage business based on Battery Energy Storage Systems. With this objective, the present work develops a Mixed- Integer Linear Programming model for obtaining optimal electricity sale\purchase strategies with batteries. For each configuration (battery size /inverter size), the model provides an optimal trading strategy. Using this strategy for different configurations and with the current market prices, some financial indicators are calculated in order to select the optimal configuration. Finally, our analysis considers the significant technological progress that has occurred in recent years, the effects on profitability of a reduction in the battery cost, and of an im- provement both in the round-trip efficiency and in the battery's lifetime (in terms of the number of cycles). The results indicate that, with current technology, the optimal inverter size for a 10 MWh battery is 3 MW, although, if technological progress continues at the current rate, the arbitrage of electricity by using batteries is expected to be viable from 2024 onwards. Additionally, the effects that different technological improvements (cost, useful life and losses) will have on profitability are calculated,; for example, it is observed that an improvement of 1.6% of the round-trip efficiency and an increase of 1000 life cycles will provide an average increase of 16,000 € and 75,000 €, respectively, in terms of Net Present Value. 1. Introduction The electrical system configuration, since its creation in the 19th century, has been responsible for ensuring a continuing balance be- tween electricity supply and demand. On the one hand, demand can present great variations associated with the time of day, season, tem- perature or economic activity. On the other hand, supply can be man- ageable (thermal plants), unmanageable (hydraulic, wind, etc.) or dif- ficult to regulate (nuclear). In those countries where equilibrium is reached by market mechanisms, the daily market (day ahead) gets hourly prices, which are adjusted by technical restrictions (restricted market) due to the fact that the system is not an ideal network, as well as by variations in demand and supply in the short term (intra-day market), thereby ensuring the appropriate functioning of the system through the provision of ancillary services. These price variations send signals to the agents to modulate their demand or orient their supply, as appropriate. In recent years, concerns for the environment have introduced changes in production technologies controlled by governments, in- creasing the contribution of renewable sources which, being un- manageable, have increased price volatility. These have led to negative prices at times, making the demand management or arbitrage through storage even more attractive. On the other hand, there has been an important technological change, with the appearance of several tech- nologies that can operate the market, obtaining an economic benefit and providing stability and reliability to the system. https://doi.org/10.1016/j.apenergy.2019.114273 Received 28 August 2019; Received in revised form 25 November 2019; Accepted 27 November 2019 ⁎ Corresponding author. E-mail address: aarcos@us.es (Á. Arcos-Vargas). Applied Energy 260 (2020) 114273 0306-2619/ © 2019 Elsevier Ltd. All rights reserved. T