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05/05/2017

Balancing the grid through batteries

For years it has been known that energy storage in battery systems has the potential to contribute to the increased efficiency of future, low-carbon energy systems. However, the past years have not yielded the breakthrough in economics of battery storage that has been much looked forward to. Recently, two projects have emerged that show this might change in the near future.

Balancing of the grid

In order for our electrical grid to function reliably, it needs to be balanced. In practice, the Transmission System Operator (TSO) achieves this by perfectly matching the consumption of electricity with the production. In traditional, fossil-fuelled energy systems, production of base-load assets is scheduled to match the expected energy demand. Short-term deviations in the expected demand are then accounted for by more flexible assets that can be quickly ramped up and down, with gas fired power plants as the most popular example.

However, in more renewable energy systems, where the base-load of a few high-capacity power plants (e.g. nuclear, coal) is increasingly substituted by a large variety of smaller, intermittent sources (e.g. windfarms, solar), the production become less predictable and TSO’s face the ever more challenging task of keeping the grid balanced. In order to keep the balance, TSO’s are expected to become increasingly dependent on the schemes that remunerate energy producers for supplying so-called reserve capacity. This reserve capacity is kept in both directions, and is auctioned by the TSO. Two examples are used to illustrate the process:

  • In times of insufficient supply, energy producers can be called upon to increase their production, or industrial parties to curtail their energy intake;
  • When energy is abundant, producers are requested to curtail production or increase offtake.

Batteries as balancers

Currently, energy producers supply reserve power by firing up gas turbines, and industrial parties create reserve demand by increasing production. However, there are three good reasons why battery systems are highly suitable to take over these roles.

  • Batteries can both take in, as well as provide energy. To provide flexibility, the battery should (on average) be loaded at 50%, giving it equal potential for on- or offloading depending on the needs of the grid operator at that very moment. The capacity of the battery can be used optimally by setting its load factor based on forecasted renewable output and electricity demand;
  • Assuming the battery has loaded up on abundant renewable energy, it can supply flexible renewable power substituting gas powered flexible capacity with is accompanied CO2 emissions;
  • Ramping times of batteries are very low, and on- and offloading can be performed very quickly in comparison to other flexible energy sources.

Until recently, the costs of developing batteries as balancing assets did not compare to the use of already existing gas fired plants. However, the price of lithium-ion battery power has almost halved since 2014, rapidly accelerating the business case into feasible ranges. This cost development is illustrated below with EV batteries as example, because insufficient data on large scale battery systems was available. Earlier, large projects such as a 50MW battery in Japan still largely on government funds. The coming about of two new large scale commercial battery projects clearly indicates that an investment barrier has been breached.

Source: Bloomberg New Energy Finance

Big & bigger

The first project has been in development since 2014 and is about to become the largest battery connected to the European grid. The lithium-ion battery, developed by Dutch utility Eneco in collaboration with the Japanese Mitsubishi will have 48MW of power and over 50MWh of storage capacity. The battery will be located in Germany and will serve the German grid. Considering the battery is loaded at 50%, it can deliver or capture 20MWh at one time. To exemplify, it would be able to provide 70% of all reserve capacity that is sourced in the market to protect the Dutch grid. By placing the battery nearby the intermittent sources (in this case wind farms in Denmark and the north of Germany) and a large electrical sub-station, power losses at the facility can be minimised.

The second project is less definitive, but picked up a lot of media attention as it was launched on Twitter, after a series of tweets by the CEO of Tesla, Elon Musk. Certain parts of Australia are constantly troubled by power outages caused by a perfect storm of phased-out coal-plants, an increasing share of renewables and extreme weather. As a measure to help the local grid operator stabilise the grid, Tesla has proposed to build a 100MW, 400MWh battery within 100 days, supplying it for free if the deadline is not met. A large contributor to the feasibility of this timeframe is the recent acceleration of production of the Tesla Gigafactory in Nevada, where the car manufacturer has teamed up with Panasonic to supply lithium-ion batteries on an enormous scale.

Future development

The increased amount and scale of battery projects in the grid balancing market shows that we are making progress in replacing fossil-fuelled production in the mechanisms that balance our grid, slowly reducing the need for their existence. However, only so much imbalance needs to be mitigated. If the cost of battery systems continues to decline at the current rate, it can be expected that batteries, with significantly lower costs per MW and MWh will enter the primary reserve market within the next few years. If the volume of imbalance does not grow with at same rate as new balancing capacity, margins will drop for all battery projects. It will be interesting to see how reserve capacity prices will develop as a result of a developing energy mix, and what happens to the smaller batteries if companies like Tesla will divert their attention to European balancing markets and start building facilities at the same scale as the proposed project in Australia.

 

Copyright © 2017 Sia Partners. Any use of this material without specific permission of Sia Partners is strictly prohibited.

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