Grid battery tech on track. It now needs re-designed markets, monetisation

The rapid expansion of variable renewable electricity generation is making cost-effective storage more urgent. Sure enough, in Europe, several electricity storage projects are under construction and new ones are announced almost on a weekly basis. The battery technology seems to be on track, with estimates of $156/kWh in 2019 dropping to $61/kWh by 2030.

But progress is hampered by the lack of a market that recognises and rewards the true value of this utility-scale storage. We shouldn’t just be paying for the electric power delivered. We need markets that also pay for the grid stability it brings (frequency response, flexible ramping, etc.), say Emanuele Taibi, Carlos Fernández and Aakarshan Vaid at IRENA. They start by running through the progress so far. They then describe policy initiatives in Europe to create those new markets, and case studies from the UK and Australia. The authors end by pointing at two global initiatives: The World Bank’s Energy Storage Partnership and IRENA’s own Electricity Storage Valuation Framework.

The current transformation of the power sector calls for a more flexible energy system to ensure that a power system with high shares of variable renewable energy (VRE) can be operated reliably and cost-effectively. The integration of large shares of VRE, such as solar and wind, introduces a number of technical and economic challenges which require various changes in the way that regulators, system operators, utilities and policy makers plan, manage and operate the power system.

In this context, electricity storage is today a prominent solution to address at once multiple challenges that arise with an increasing VRE penetration. This is mostly because, thanks to its unique capabilities of rapidly absorbing, storing and reinjecting electricity, storage is a very suitable technology to provide a range of services that support solar and wind integration.

Innovations: Vehicle-2-Grid, Smart Charging

Electricity storage can enable rapid decarbonisation in key segments of energy use. In the transport sector, the viability of battery electricity storage in electric vehicles (EVs) is improving rapidly. In many countries globally, cost reductions in renewable power generation have led to electricity becoming an attractive low-cost fuel for the transport sector.

For example, in the Pentalateral region (Belgium, the Netherlands, Luxembourg, France and Germany), there are currently around 730,000 electric vehicles in operation which represent 12% of the global electric vehicle fleet. At times of peak demand, the electricity stored in the battery storage systems of EVs can be fed back into the grid and provide several services. This is also known as vehicle to grid technology (V2G).

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Smart charging, which can be defined as adapting the charging cycle of EVs to the conditions of the power system as well as the needs of the vehicle users, can reduce distribution grid investments between 40% and 90%.

Cost reductions: $61/kWh by 2030

Among the different electricity storage technologies, pumped hydro has been historically – and still remains – by far the largest in terms of capacity in place. But batteries are today the technology that is making the most rapid progress in performance and cost reduction. This has enabled a multiplicity of services to be delivered by storage instead of generation, more effectively: faster and in the location where they are required. Additionally, BNEF estimates that the prices of Li-ion battery packs will drop from 156 USD/kWh in 2019 to 61 USD/kWh by 2030, a 61% reduction. This is true in the off-grid context, where storage co-located with solar PV mostly eliminates the need for diesel generators, and for grid connected applications where, as an example, utility-scale battery storage can be located to ease transmission congestion and at the same time provide frequency control.

Grid stability

Electricity storage can efficiently provide a number of grid services for system operators, including frequency response, regulation reserves and ramp rate control.

Moreover, when paired with renewable generators, electricity storage can provide clean, reliable and cost-effective electricity to off-grid communities and isolated grids. Utility-scale battery storage systems can also provide key services such as black start services, flexible ramping and frequency regulation, that are essential for the operation of a system with high shares of VRE.

Market design is a key barrier, but reforms are happening

Although electricity storage is a key technology for the energy transition, current market design is often a barrier for storage participation, hence affecting project viability and ultimately storage deployment. Electricity markets are often still tailored for generation, while electricity storage is both generation and a flexible load resource. Markets need to be adjusted in order to allow storage projects to monetise the different system benefits they provide.

Electricity storage deployment is increasing rapidly around the world as countries are rethinking their electricity markets and adopting new regulations that allow for the translation of system level benefits into project revenues. The European Council approved in May 2019 a new Electricity Directive on common rules for the internal market for electricity. Proposed by the European Commission as part of the Clean Energy Package, the Directive recognises the role of energy storage as one of the key players in the transition and urges Member Countries to address the main barriers for storage deployment.

This Directive, which Member Countries are now integrating into their national laws together with the 32% renewable energy goal by 2030, calls for an increase of flexibility in the power system, with electricity storage being a key option. For this reason, countries like Germany increased in 2019 their battery storage capacity by 41% reaching a total installed capacity of 1.1 GW, being 453 MW utility scale battery storage and 680 MW home battery storage systems.

Today several electricity storage projects are under construction in Europe and announcement of new ones are made almost on a weekly basis. For instance, Total announced this month that they will build the largest battery-based energy storage project in France with a capacity of 25MWh and output of 25MW of power. NEC announced a few days ago the construction of a crowdfunded 12 MW battery project in the Netherlands that will be providing multiple services to the electricity grid.

Fostering storage participation: case study UK

Technology-neutral tenders have been used in early markets like the UK for market discovery, where batteries came up as the main technology of choice. For example, the UK’s system operator, National Grid, developed the Enhanced Frequency Response (EFR) grid service. Defined as a dynamic service where the active power changes proportionally to changes in system frequency, the EFR product was specifically developed for electricity storage assets to provide frequency response in one second or less, once the frequency has crossed a threshold.

To provide EFR in the UK, National Grid launched a 200 MW auction in August 2016. A total of 64 bids were received, out of which 61 were battery storage projects, two were demand response projects and one was for thermal generation. Out of these various bids, National Grid selected 8 battery storage projects that had an average price of GBP 9.44 per MW of EFR per hour. In total, around 201 MW of battery storage was secured for 4 years.

Two specific examples are the Glassenbury (40 MW) and Cleator (10 MW) projects awarded to the UK investment firm Low Carbon. The Glassenbury system has a net capacity of 28 MWh while Cleator’s net capacity is around 7 MWh. A quarter of the total EFR capacity in the UK is currently provided by these two projects which provide a significant contribution in stabilising the frequency in the grid.

“Stacking revenues” the key for storage project viability: case study South Australia

Cost reductions of batteries are opening up an increasing number of cost-effective applications, use cases and business models. An example is the 100 MW/129 MWh Hornsdale Power Reserve battery system that Tesla has installed in proximity to the 309 MW Hornsdale wind farm in Jamestown, South Australia. Being the largest Li-ion battery installation in the world at the time it was deployed, this system was commissioned after the South Australian blackout in 2016 to provide frequency control and short-term network security services.

Deployed by Tesla, and operational since December 2017, with a total capital cost of AUD 90 million, the system has already been providing numerous services including energy arbitrage and contingency frequency control ancillary services (FCAS). In 2018 the Hornsdale Power Reserve generated a revenue of about AUD 29 million, exceeding everyone’s expectations. The revenues consisted of AUD 4.2 million in fixed revenue (for 10 years) from the South Australian Government, and about AUD 25 million generated from energy arbitrage and FCAS, showing that the key for storage projects viability is stacking revenue by providing multiple services.

Figure 1: Hornsdale Power Reserve revenues in 2018 / Source: IRENA

The role for international cooperation: the Energy Storage Partnership (ESP)

In May 2019, a new international partnership was established to help expand the deployment of energy storage and bring new technologies to developing countries’ power systems. The Energy Storage Partnership (ESP) was established by World Bank Group together with 29 organisations, including IRENA, working together to help accelerate the deployment of energy storage solutions tailored to the needs of developing countries.

The IRENA Electricity Storage Valuation Framework (ESVF)

IRENA just released its Electricity Storage Valuation Framework (ESVF). The ESVF aims to guide the development of effective storage policies for the integration of variable renewable power generation. The ESVF and its accompanying modelling methodology describe how to assess the value of electricity storage to the power system and how to create the conditions for successful storage deployment. The framework is organised into three parts: one for policy makers and regulators, the next part presenting a modelling approach to perform storage valuation and a final part looking at use cases in existing projects.

Figure 2: IRENA’s Electricity Storage Valuation Framework / Source: IRENA

About the authors

Emanuele Taibi specialises in Power Sector Transformation Strategies, IRENA

Carlos Fernández is an Associate Professional, IRENA

Aakarshan Vaid is an Associate Professional, IRENA

References (also given as links in the article):

BNEF, 2020. Battery Cost Model Part 2: Cost Reduction Outlook [WWW Document]. BloombergNEF. URL https://www.bnef.com/core/insights/22139 (accessed 3.19.20).

Energy Storage News, 2020. NEC to build 12MW crowdfunded energy storage system in Netherlands [WWW Document]. Energy Storage News. URL https://www.energy-storage.news/news/nec-to-build-12mw-crowdfunded-energy-storage-system-in-netherlands (accessed 3.19.20).

EnergyPost, 2019. Electro-mobility planning, pricing, smart-charging: “Pentalateral Region” can lead Europe. Energy Post. URL https://energypost.eu/electro-mobility-planning-pricing-smart-charging-pentalateral-region-can-lead-europe/ (accessed 3.19.20).

European Commission, 2019. Electricity market design [WWW Document]. URL https://ec.europa.eu/energy/en/topics/markets-and-consumers/market-legislation/electricity-market-design

IRENA, 2020. Electricity Storage Valuation Framework: Assessing system value and ensuring project viability.

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Total, 2020. Total to Build the Largest Battery-based Energy Storage Project in France [WWW Document]. total.com. URL https://www.total.com/en/media/news/press-releases/total-build-largest-battery-based-energy-storage-project-france (accessed 3.19.20).

World Bank, 2019. Energy Storage Partnership (ESP) Factsheet | ESMAP [WWW Document]. URL https://esmap.org/webpage/energy-storage-partnership-esp-factsheet (accessed 3.19.20).