Application of Economic Operation Strategy on Battery
Energy Storage System at Jeju
Seung-Wook Hwangbo
Hyundai Heavy Industries Co. Ltd.
Kyunggido Yongin 446-716, Korea
smhwangbo@hhi.co.kr
Abstract— This paper presents the economical operation
strategy to extend the lifespan of Battery Energy Storage
System (BESS) and achieve the maximum profits of BESS
under an uncertainty of wind power. The economical
operation strategy considers the optimal charge/discharge
schedule of BESS with battery physical constraints, a
probabilistic wind power forecast, local grid codes and
electricity trading prices. In Jeju Smart Grid pilot project,
855kWh Lithium-polymer and 250 kWh LiFePO4 type
BESSs were applied for smoothing intermittent wind
power and relieving a peak electricity load. After Energy
Management System (EMS) collects various data from
wind turbine, Battery Management System (BMS), Power
Conditioning System (PCS), a connected grid, electricity
market and weather forecast center, it decides the
charge/discharge schedule of BESS and the best bid price
in electricity market. Experimental results are then
presented to meet the required performance and quantify
the expected profits in terms of the life expectancy of
BESS.
Index Terms-- Economical Operation Strategy, Battery
Energy Storage System, Energy Management System,
Electricity Market
I. INTRODUCTION
In the recent years, renewable energy sources such as solar
and wind turbine are gradually spreading because of higher
harmful effects on environment and reduction of fossil fuels
by increasing energy consumption all around the world [1].
However, the power generation from renewable energy
sources is unpredictable and unstable due to their intrinsic
features. Therefore, when these energy resources are
connected on power grid, the design to manage them more
efficiently should be considered because of a higher level of
their penetration. The practical suitable way to overcome these
challenges is using Battery Energy Storage Systems (BESS)
[2]. Furthermore, BESS is one of the key technologies for
Smart Grid.
Beung-Jin Kim, Jung-Han Kim
Hyundai Heavy Industries Co. Ltd.
Kyunggido Yongin 446-716, Korea
itisme@hhi.co.kr
mandong@hhi.co.kr
Smart Grid is an electrical grid that uses information and
communication technologies to manage various energy
resources efficiently. Smart Grid technology is presented
method which is efficiently able to manage BESS with a wind
farm. Therefore, various pilot projects for Smart Grid are
being conducted using its concept and technology in many
countries [3].
The integration of BESS into wind farm can make
intermittent renewable energy sources more dispatchable.
Therefore, the BESS is increasingly being considered for
efficiency management of energy storage system on a wind
farm environment [4].
Battery technologies have been improved rapidly in order
to meet the challenges of applications in many parts such as
electric vehicle and controllable generation resource for utility.
As a result, recent advances in electric energy storage
technologies provide many opportunities to make the system
to be operated in more flexible and controllable manners [5]-
[6].
Since large-scale BESS is rather expensive, a control
strategy for optimal use of BESS becomes a critical design
issue. Some of optimal operation strategies for BESS with
regard to charge and discharge scheduling are proposed
through dynamic programming [7], nonlinear programming [8]
and multipass iteration particle swarm optimization approach
[9]. Also, the optimal operation of BESS is proposed to
achieve the maximum profits of BESS in relation to real-time
electricity price [12]. However, the above studies were applied
to the limited three different electricity prices based on the
time in a day. In this study, the economical operation strategy
is presented to extend the lifespan of BESS and achieve the
maximum profits of BESS under an uncertainty of wind
power on Jeju Smart Grid pilot project.
This paper is organized as follows. Firstly, a brief
overview of BESS is provided in Section II. Secondly,
electricity market model of the Jeju Smart Grid pilot project is
presented in Section III. The optimization methods and the
assumptions for the BESS are introduced in Section IV. A
case study for the Jeju Smart Grid pilot project is then
explained in Section V, and finally, section VI summarizes the
main conclusions and future work.
II. BATTERY ENERGY STORAGE SYSTEM
Since it is difficult to predict and control the output of
wind power generation, its potential impacts on an electric
grid are different from traditional energy sources. To enable a
proper management of the uncertainty, many researches
present various approaches to make wind power become a
more reliable source on both energy and capacity by using
energy storage devices. Combining the wind turbine
generation system with energy storage will reduce a
fluctuation of wind power.
A. Advantage
BESS can be used to reduce a peak demand and the plant’s
electricity bill by discharging the stored energy during load
peaks. Also, the combination of energy storage with wind
turbine improves an availability of wind power without risking
a voltage stability of grid, yields various ancillary benefits
such as reduced system losses and improved power factor
control, and increases throughput of existing grid
infrastructure.
B. Disadvantage
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C. Disadvantage
Figure 1. BESS life cycle function
BESS has a finite life depending on the application, which
is affected by a number of charge and discharge, a Depth of
Discharge (DOD) and an environment of the battery. Fig. 1
shows BESS life cycle depends on the DOD of Lithium
battery. For instance, if a battery provides 500-550 cycles at
95% DOD, it will provide many cycles at a lower DOD. This
curve is important information for system operators. By
restricting the possible DOD in the application, the system
operator can dramatically improve the cycle life of the battery
but the operation range will be dramatically reduced. This
paper has strongly considered the dominant parameters of
battery life as DOD and a rate of charge. As described in [17],
the lifespan of BESS depending on DOD can be calculated as
19 years when the DOD is 90%.
D. BESS Model
The stored energy of BESS can be calculated from the sum
of its output power [10]. Since Jeju electricity market price is
available on one day ahead, time step used in the study is one
hour. The energy stored in the BESS is expressed as follows.
When BESS is charging at hour t (Pt > 0),
𝐸 𝑡+1 = 𝐸 𝑡 + 𝑛𝑐 𝑃𝑡 × ∆𝑡 (1)
and when BESS is discharging at hour t (Pt < 0),
𝑃𝑡
𝐸 𝑡+1 = 𝐸 𝑡 + × ∆𝑡 (2)
𝑛𝑑
where 𝐸 𝑡 , 𝐸 𝑡+1 are the stored energy in BESS at hour 𝑡
and hour 𝑡 + 1 respectively, 𝑃𝑡 is the power output of the
BESS at hour t, 𝑛𝑐 is the charging efficiency of the BESS, 𝑛𝑑
is the charging efficiency of the BESS, ∆𝑡 is the time interval
(1 hour).
E. Economic Model
The cost of BESS must be considered in order to establish
an economic analysis. In generally, the total cost is divided
into capital and operating cost.
(1) Capital Cost of BESS
The capital cost is a function of storage device power and
energy capacities and their specific costs depending on the
chosen technology. BESS capital cost is defined as a function
of two main parts. The first part is related to the storable
energy; the second part depends on the peak power that the
storage must deliver and it is controlled by the
charge/discharge control system according to the demand
requirements. Therefore, BESS capital cost will be expressed
as
𝐶𝑖𝑛𝑠𝑡𝑚𝑙𝑙 = 𝐶𝑝 𝑃𝑚𝑚𝑚 + 𝐶𝐸 𝐸𝑚𝑚𝑥 (3)
where 𝐶𝑖𝑛𝑠𝑡𝑚𝑙𝑙 is BESS capital cost, 𝑃𝑚𝑚𝑚 [kW] is BESS
power and 𝐸𝑚𝑚𝑚 [kWh] is the energy capacity, 𝐶𝑝 [USD/kWh]
is the power cost coefficient, 𝐶𝐸 [USD/kWh] is the energy cost
coefficient [6], [11].
This study uses 855kWh Lithium-polymer and 250 kWh
LiFePO4 type BESSs. The technical characteristics of BESS
considered in this study are presented in Table I [14].
TABLE I. TECHNICAL DATA OF THE BESS
Coefficients Value
𝐶𝑝 (USD/kWh) 200
𝐶𝐸 (USD/kWh) 480
 (2) Operating Cost of BESS
The operating cost may be specified in dollars per hour.
The hourly operating cost is defined as a function of two main
parts: one related to the BESS rated power and the other
depends on its hourly charged energy. Therefore, BESS
operating cost will be expressed as
24/∆𝑡
𝐶𝑜𝑝 = � 𝑃𝑡 × 𝐶𝐸𝑡 × (𝑘𝑡 − 1)∆𝑡 × 365 (4)
𝑡=1
where 𝐶𝑜𝑝 is the annual operating cost of BESS, 𝑃𝑡 [kW] is
the charging power at hour t, 𝐶𝐸𝑡 [USD/kWh] is the energy
price at hour t, ∆𝑡 is the time interval (1 hour), 𝑘𝑡 is BESS
operation coefficient at hour t (charging case is 1 and the
other case is 0) [13].
(3) Energy Management Benefit of BESS
The power sold to the grid depends upon the available
power with BESS. In order to get maximum profit, the
operator of BESS may decide the charge/discharge schedule,
such as storing low-priced energy during light-load periods
and delivering high-priced energy during peak-load ones. As a
result of the reason, BESS profit will be pilled during the
discharge period. Therefore, the energy management profit of
BESS in a year can be written as
24/∆𝑡
𝐵𝑒𝑛𝑒𝑟𝑔𝑦 = � 𝑃𝑡 × 𝐶𝐸𝑡 × 𝑘𝑡 ∆𝑡 × 365 (5)
𝑡=1
where 𝐵𝑒𝑛𝑒𝑟𝑔𝑦 is the annual energy management benefit of stored in the BESS depends on DOD is discharged in the
BESS, 𝑃𝑡 [kW] is the charging power at hour t, 𝐶𝐸𝑡 [USD/kWh] same day.
is energy price at hour t, ∆𝑡 is the time interval (1 hour), 𝑘𝑡 is
BESS operation at hour t (discharging case is 1 and the other persistent method is the simplest but more accurate than most
case is 0).
III. JEJU ELECTRICITY MARKET
A. Financial-Binding Market
The Jeju electricity market is a temporary power exchange
market for Smart Grid pilot project. The Jeju financial-
binding market is a day-ahead market, and power contracts of
minimum 30 minutes duration are traded for delivery the
following day. Purchasing and selling curves are constructed,
and the point where they cross determines the electricity
market price and the volumes are traded during each 30
minutes of the next day. The time interval between biding and
trading is less than 12 hours.
B. Balancing Market
Due to the 5 minutes between electricity market price-
fixing and delivery, participants need market access in the Values (NPV). The NPV is the objective function of
intervening with each 5 minutes to improve their physical optimization method for the maximum revenue of the BESS.
electricity balance. The balancing market enables continuous BESS can be controlled to reduce the operating cost by
trading with contracts that lead to the physical delivery of the storing low-price energy during light-load periods and then
electricity. In other words, it is the same as real time market.
C. Electricity Bidding Type
The Jeju electricity market is consisted of two parts
according to generation resources such as the market of Non-
Dispatchable Generation (NDG) and Dispatchable Generation
(DG). NDG market is only operated at a financial-binding
market using the uncontrollable generation resources such as
wind power and solar but it is impossible to change the
amount of bidding in a balancing market. DG market is used
to controllable generation resources such as BESS and it can
be changed the amount of bidding in a balancing market.
IV. CONFERENCE PAPER PREPARATION
A. Limitations and assumptions
The following limitations and assumptions have to be
considered to achieve the maximum profits using the
operation strategy which can help optimize the life cycle cost
of BESS.
1) The charge/discharge power and the stored energy of
BESS should be less than BESS’s power and energy capacity
in order not to overload the system. This limitation can be
written as
−𝑃𝑚𝑚𝑚 ≤ 𝑃𝑡 ≤ 𝑃𝑚𝑚𝑚 (6)
0 ≤ 𝐸𝑡 ≤ 𝐸𝑚𝑚𝑚 (7)
where 𝑃𝑚𝑚𝑚 is the limit of BESS output power, 𝐸𝑚𝑚𝑚 is the
limit of BESS energy capacity.
2) The Jeju electricity market is consisted of the financial-
binding and balancing market. However, financial-binding
market is only applied for combining BESS and wind power
in this study. Since the financial-binding market price is only
available one day ahead, it is assumed that all the energy
3) In a variety of wind power forecast methods, a
of the physical and statistical method for very-short to short-
term forecasts [16]. Persistent method has been widely used
for energy storage sizing [14], [15]. The development of wind
power forecast will not be mentioned in this paper. However,
this study is utilized to the wind power forecast data which is
provided from the wind power forecasting system of Korea
Power Exchange (KPX) and KPX system have choose
persistent method to generate wind power forecast data.
Furthermore, KPX system provides to wind power forecast
data every half hour unit for one day ahead at AM 11:00 of
the previous day.
B. Optimization Methods
The objective of BESS is to achieve the maximum
revenue by deciding the charge/discharge schedule. The
economic evaluation of BESS is analyzed using Net Present
delivering it to load or selling it to grid during peak-load
periods. The optimization objective function is expressed as
(1 + 𝑖)𝑁 − 1
𝐵 = 𝐵𝑒𝑛𝑒𝑟𝑔𝑦 (8)
𝑖(1 + 𝑖)𝑁
 (1 + 𝑖)𝑁 (1 + 𝑖)𝑁 − 1
𝐶 = 𝐶𝑖𝑛𝑠𝑡𝑚𝑙𝑙 + 𝐶𝑜𝑝 (9)
𝑖(1 + 𝑖)𝑁 − 1 𝑖(1 + 𝑖)𝑁
𝑁𝑃𝑉𝑚𝑛𝑛𝑢𝑚𝑙 = 𝐵 − 𝐶 (10)
where 𝑁𝑃𝑉𝑚𝑛𝑛𝑢𝑚𝑙 is the annual NPV of the BESS,
𝐶𝑖𝑛𝑠𝑡𝑚𝑙𝑙 (Eq. (3)) is the BESS capital cost, 𝐶𝑜𝑝 (Eq. (4)) is the
BESS operating cost, 𝐵𝑒𝑛𝑒𝑟𝑔𝑦 (Eq. (5)) is energy management
benefit of the BESS, 𝑖 is the annual bank interest rate, 𝑛 is
lifetime of BESS depends on DOD.
V. CASE STUDY IN JEJU PILOT PROJECT
A. The Configuration of Smart Grid Demonstration Center
The demonstration center is composed of two containers
for short-term and long-term BESS, EMS room, an office
room, warehouse room, electric room and EV (Electric
Vehicle) charger. It was built in Jeju island to make and install
its constituent devices and perform the feasibility study of the
various functions of Smart Grid in 2011 as shown in Fig. 2.
Fig. 3 is the inside view of demonstration center where
EMS can effectively control and monitor various equipment.
Figure 2. The front view of the demonstration center
Figure 3. EMS
The schematic configuration of the demonstration center
for combining energy storage with wind power is shown in
Fig. 4. The major specifications and functions of each device
presented in Fig. 4 are as follows:
(1) Renewable Energy Sources
- Wind power generator
- Photovoltaic power generator
(2) BESS
- Long-term BESS: Li-Polymer
- Short-term BESS: LiFePO4
(3) PCS
- Long-term PCS: Multi-level topology
- Short-term PCS: Two- level structure
(4) Static Synchronous Compensator (STATCOM)
- Active filter, Reactive power compensation
(5) EMS
- Status monitoring and supervisory control
- Communication with the total operation center of Jeju
Smart Grid
- Operation scheduling and power dispatching for long-
term and short-term BESS based on system marginal
price or time-of-use rates
- System operation according to the demonstration
scenarios
- State estimation and network analysis
(6) Communication Network
- IEC 61850, IEC 61970 based wired network
- CDMA, WIFI wireless backup network
- Cyber security
(7) EV charger and Local load
- EV charger: high-speed battery charger
- Local load: motor and fan
Figure 4. The schematic configuration of demonstration center
 TABLE II. THE SPECIFICATIONS OF DEMONSTRATION and the stored energy of BESS in the winter weekday are
SYSTEM
shown in Fig. 7 and Fig. 8. BESS is charged or discharged by
No. Item Rated Value considering both the deviation of wind power forecast and the
1 Wind Turbine (WT) 1,500kW state of charge (SOC) of BESS during low electricity price
2 Photovoltaic (PV) 100kW such as from 00:00 to 06:00. Furthermore, the BESS is
discharged as the error amount of wind power forecast near
3 Long-term BESS 855kWh/1,000kW
the time of peak price after it is fully charged by SOC 100%
4 Short-term BESS 250kWh/1,000kW before an hour of that. When wind power forecast is lower
5 Long-term PCS 1,000kW actual wind power at about 10:00 as shown in Fig. 6, the
6 Short-term PCS 1,000kW BESS is not operated.
7 STATCOM 500kVar
8 EV Charger 50kW
9 Local Load 100kVA
10 Grid Voltage 22.9kV
B. Case Study
The specifications of BESS for estimating economic
profits which was proposed in this paper are shown in Table
III. Since both short-term and long-term BESS are the same
type of Lithium battery, the power and energy capacity of
BESS were assumed the sum of two BESSs. Therefore, it is
presented that the BESS power capacity 𝑃𝑚𝑚𝑚 is 2,000 kW
and the BESS energy capacity 𝐸𝑚𝑚𝑚 is 1,105 kWh.

TABLE III. THE SPECIFICATION OF BESS IN CASE STUDY Figure 5. The financial-binding price of Jeju project at a winter weekday in
NDG market
Item Value
BESS Type Li-Polymer, LiFePO4
𝑃𝑚𝑚𝑚 2,000kW
Total BESS Capacity
𝐸𝑚𝑚𝑚 1,105kWh
Charging Efficiency(𝑛𝑐 ) 90%
Discharging Efficiency(𝑛𝑑 ) 90%

(1) The NPV of BESS in NDG market

A winter weekday in 2012 is chosen as the first study case.
The electricity prices of Jeju are collected for the study. Fig. 5
illustrates an hourly price of that day. There are two price
peaks at about 09:00 and 19:00, respectively. The role of Figure 6. An hourly the output of wind power at a winter day in NDG
BESS is only used for compensating the deviation of wind (dotted line: actual output, solid line: forecast output)
power forecast in NDG market in order to achieve the
maximum profits. Fig. 6 illustrates an hourly deviation of
wind power forecast of that day.
The optimal charge/discharge power of BESS for
compensating the deviation of wind power forecast and the
stored energy of BESS in the winter weekday is shown in Fig.
7 and Fig. 8. The error rate of KPX’s wind power forecast
system is confirmed by 20~30% through various
experimental results. Therefore, the DOD of BESS is decided
as 50% for compensating the deviation of wind power
forecast. In this reason, the stored energy in BESS must
always be maintained 550kWh at 00:00 and 23:00 hour every Figure 7. The optimal charge/discharge power of BESS at a winter day in
day. The aim of BESS operation in NDG market is to NDG
minimize the deviation of wind power forecast by controlling
the charge/discharge amount of BESS according to that of
wind power forecast. The optimal charge/discharge power
 Figure 11. The optimal charge/discharge power of BESS at a summer day in
NDG market
Figure 8. The stored energy of BESS at a winter day in NDG market

A summer weekday in 2012 is chosen as another study

case. Fig. 9 illustrates an hourly price of that day. The
variation of electricity price in the summer weekday is
smaller than that in the winter weekday. The operation
strategy of BESS for the maximum profits in the summer
weekday is shown in Fig. 11 and Fig. 12 as the method which
is applied in the winter weekday.

Figure 12. The stored energy of BESS at a summer day in NDG market

As mentioned above, the annual NPV of BESS is

calculated from equation (8), (9), (10). In order to calculate
the NPV, the electricity price is applied to an hourly price of
Fig. 5 from January to June and that of Fig. 9 from July to
December of year 2012. The NPV of BESS depending on
DOD for year 2012 is shown in Table IV. The BESS in NDG
market can make more profits when the variation of
electricity price is higher. In addition, it can be seen from
Figure 9. The financial-binding price of Jeju project at a summer day in
NDG market
Table IV that the NPV of BESS is improved by increasing
DOD from 50% to 70%.

TABLE IV. THE ANNUAL NPV OF THE BESS IN NDG MARKET

Price Value (USD)

Item
DOD (50%) DOD (60%) DOD (70%)
Benefit 𝐵 1397016.5 1729482.4 2064984.5
Cost 𝐶 669640.9 765514.2 862263.0
The year 2012 (NPV) 727375.6 963968.2 1202721.5

(2) The NPV of BESS in DG market

Figure 10. An hourly the output of wind power at a summer day in NDG
market (dotted line: actual output, solid line: forecast output)
As mentioned above, the controllable generation resources
such as BESS can only participate in DG market on Jeju
Smart Grid pilot project. Therefore, both long-tem BESS and
short-term BESS except for wind power are used to achieve
the maximum profits of BESS. Also, the interval of electricity
price is applied to an hourly unit at one day ahead in DG
market. The electricity price and weekday for the NPV of
BESS is chosen the same as that of NDG market. All the
energy stored in BESS is discharged in the same day within
the DOD of BESS and that is decided as 90% by considering
the maximum profit and the lifespan of BESS. The optimal
charge/discharge power and energy of BESS is shown from
Fig. 13 to Fig. 16. The BESS is charged when the electricity
price is low in the early morning and discharged the peak
price.
Figure 13. The optimal charge/discharge power of BESS at a winter
weekday in DG market
Figure 14. The stored energy of BESS at a winter day in DG market
Figure 15. The optimal charge/discharge power of BESS at a summer
weekday in DG market
Figure 16. The stored energy of BESS at a summer day in DG market
Table V illustrates the annual NPV of BESS in DG
market depending on the 90% DOD of BESS. Although the
annual NPV of DG market is higher than that of NDG market,
the lifespan of BESS is shorter than that of the NDG market.
Since the operation strategy of BESS for only compensating
the deviation of wind power forecast can reduce the DOD of
BESS, the lifespan of BESS can be prolonged. As a result, it
can be seen from Table V that the NPV of BESS is improved
by increasing DOD from 70% to 90%.
TABLE V. THE ANNUAL NPV OF THE BESS IN DG MARKET
Price Value (USD)
Item
DOD (70%) DOD (80%) DOD (90%)
Benefit 𝐵 2130758.0 2261283.1 2391808.2
Cost 𝐶 600186.8 639147.5 678108.2
The year 2012 (NPV) 1530571.2 1622135.6 1713700.0
The operation of BESS in balancing electricity market
may make more revenues by controlling the charge/discharge
power depending on the real time price. Therefore, the
optimal operation strategy for BESS in balancing market
needs to be studied in the future in order to increase profits
from BESS.
VI. CONCLUSION
The financial-binding market price is available at a day
ahead in Jeju Smart Grid pilot project. This paper proposes the
economic operation strategy to extend the lifespan of BESS
and achieve the maximum profits of BESS under uncertainty
in wind power. The demonstration center was built in 2011,
Jeju island which is to perform the feasibility study. The NPV
of BESS based on NDG and DG market by using the 855kWh
Lithium-polymer and 250 kWh LiFePO4 type BESSs is
presented.
The demonstration results show that the proposed optimal
operation strategy is an effective and practical solution to
achieve the maximum profits of BESS. Moreover, it is
expected that the optimal operation strategy can contribute to
reduce the fluctuation of wind power and relieve a peak
electricity load.
 Further studies may analyze the costs and benefits of
BESS on various conditions such as the DOD of BESS, the
deviation of wind power forecast and the capacity of BESS.
Also, in order to evaluate the more accurate NPV of BESS,
the demonstration of the proposed operation strategy is
continuously proceeding.
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