  When participating in electricity markets, owners of battery energy storage
systems must bid in such a way that their revenues will at least cover their
true cost of operation. Since cycle aging of battery cells represents a
substantial part of this operating cost, the cost of battery degradation must
be factored in these bids. However, existing models of battery degradation
either do not fit market clearing software or do not reflect the actual battery
aging mechanism. In this paper we model battery cycle aging using a piecewise
linear cost function, an approach that provides a close approximation of the
cycle aging mechanism of electrochemical batteries and can be incorporated
easily into existing market dispatch programs. By defining the marginal aging
cost of each battery cycle, we can assess the actual operating profitability of
batteries. A case study demonstrates the effectiveness of the proposed model in
maximizing the operating profit of a battery energy storage system taking part
in the ISO New England energy and reserve markets.
