Physical and virtual trading with C&I battery storage systems

The energy market is becoming increasingly decentralized. In addition to traditional large power plants, industrial battery storage, photovoltaic systems, and flexible consumers now play a central role. But how can such decentralized systems participate economically in the energy market? What role does trading play, what distinguishes physical from virtual trading, and how does integration into a Virtual Power Plant (VPP) work?

What is Trading?

Trading refers to the trading of electrical energy on electricity markets. Traders buy and sell electricity to take advantage of price differences between markets or time periods—similar to the stock exchange.

In Germany, there are different trading venues:

• Day-Ahead Market (EPEX Spot) – Trading electricity for the next day, hour by hour.

• Intraday Market – Short-term trading up to a few minutes before delivery to balance discrepancies between forecasts and actual generation/consumption.

• Balancing and Frequency Regulation Market – This is about stabilizing the power grid in real-time.

Trading thus serves two functions: It enables economic optimization while ensuring that generation and consumption remain balanced at all times.

Physical vs. Virtual Trading

Physical Trading

In physical trading, electricity is actually delivered or consumed—physically fed into or withdrawn from the power grid.

Example: An operator of a battery storage facility sells 1 MWh of electricity on the Day-Ahead Market and discharges their storage at the agreed time.

Requirement: The actor has access to the grid, technical plant controls, and is part of a balancing group.

Virtual Trading

Virtual trading means trading on real electricity markets (e.g., Day-Ahead or Intraday Market) without physical delivery.

This means: The trader closes their position in time before delivery—no electricity is fed in or withdrawn.

Example:

• A trader sells 10 MWh on the Day-Ahead Market at €100/MWh and later buys it back on the Intraday Market at €80/MWh.

• The profit arises purely financially—no electricity flows.

• This principle allows profiting from price differences without operating one's facility.

• Virtual trading is thus part of the spot market, but without physical activity.

Can you trade virtually without owning your facilities?

Yes – at least theoretically. A virtual trader can trade on the spot market, without having physical assets, as long as they close all open positions in time.

However, in practice, there are two important prerequisites:

1. Market Access:

   The spot market (e.g., EPEX Spot) is regulated. Only participants with a balancing group or through a Balancing Responsible Party (BRP) may trade there.

   This means: Even if you don’t own a facility, you need a partner who could physically deliver if a deal is not settled in time.

2. Regulatory Responsibility:

   Virtual traders must ensure that their trading does not disrupt the physical balance of the power grid.

   This is the task of balancing responsible parties, who oversee all inputs and withdrawals like accountants.

In practice, this means:

• A trader can trade virtually even without owning facilities.

• An operator or software provider of a VPP needs access to real assets to physically provide flexibility if necessary.

This creates a tiered system:

• Financial traders trade purely virtually.

• VPPs trade virtually, but based on physical assets they can actually use if needed.

Why must the system always remain in balance?

Technically, it is crucial that just as much electricity is fed into the grid as is withdrawn at any time.

This balance is ensured by the so-called balancing group system.

Every electricity generator and consumer in Germany is assigned to a balancing group—a virtual energy account managed by a Balancing Responsible Party (BRP).

The BRP is essentially the “accountant” of energy flows:

• They ensure that planned inputs and withdrawals are balanced.

• If deviations occur (e.g., less sun than predicted), the BRP must balance them with the purchase of balancing energy.

This keeps the grid stable, and frequency deviations are avoided.

What is a Virtual Power Plant (VPP)?

A VPP (Virtual Power Plant) aggregates many decentralized energy systems—such as battery storage, PV systems, or flexible consumers—into a common, controllable portfolio.

The VPP performs three tasks:

1. Aggregation: All assets are digitally connected, and their available capacity is calculated.

2. Optimization: A centralized decision is made on which plants supply or store electricity and when.

3. Marketing: The VPP acts as one market participant and can trade energy on the exchange or offer balancing energy.

Thus, even smaller plants, which would not have market access individually, can participate collectively in the energy market.

Important Stakeholders at a Glance

• Battery Operator/Facility Operator: Provides the flexibility (charging, discharging).

• Software Provider/VPP Operator: Optimizes operation and controls the facilities.

• Energy Provider/Trader: Trades the energy on the markets and bears the market risk.

• Balancing Responsible Party (BRP): Ensures that generation and consumption are balanced.

A software provider does not have to trade themselves, but can collaborate with a licensed trader or energy supplier. This keeps the regulatory hurdles low while the partner takes care of market access and accounting.

What Type of Trading is Suitable for Behind-the-Meter (BTM) Storage?

BTM storage is located behind the meter of a company and is primarily used for internal purposes—such as peak shaving, self-consumption optimization, or backup.

In many cases, direct physical trading via the grid connection point is not intended because:

• Feeding into the public grid is regulatory intensive,

• Storage is primarily used for local processes.

Nevertheless, a BTM storage can physically participate in the electricity market if applications are clearly separated—both temporally and account-wise.

Example Combination:

• Winter/Autumn: The storage is used for atypical grid usage or peak shaving—focus on cost savings in operation.

• Spring/Summer: With decreasing self-consumption, free capacity can be used to actively sell electricity on the market (e.g., Intraday or balancing market) via an energy supplier or direct marketer.

This creates a hybrid model, in which the storage generates both local and market-based revenues.

Suitable Models for BTM Storage

1. Virtual Trading via a VPP:

   The storage operator provides their flexibility virtually, without having to trade themselves. The VPP can discharge another storage in the portfolio if the storage is empty.

2. Physical Trading with Clearly Separated Use:

   In defined periods (e.g., seasonal or daily), the storage can actively feed electricity and participate physically in the market.

How Lumera Can Bring Your Storage to Direct Marketing

1. Local Optimization:

   • Software optimizes charging and discharging profiles based on local electricity prices, load profiles, and PV generation.

   • Goal: Minimize energy costs, reduce peak loads, increase self-consumption.

2. VPP Integration:

   • Real-time transmission of SOC, power, and flexibility to the VPP operator.

   • The VPP decides centrally if and when the storage becomes part of a market action.

   • If needed, other storage in the network can step in if an individual storage is not available.

This creates a hybrid model: The storage delivers local benefits—and at the same time, through the VPP, system-relevant and economic flexibility.

Conclusion

Battery storage systems are now much more than just energy storage: They are active participants in the power market. For storage manufacturers, installers, suppliers, and industrial companies, this opens up a new field.

Whether physically or virtually—with intelligent optimization and integration into a Virtual Power Plant, both local and market-oriented revenues can be realized.