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29/03/2016

Commercial use of battery storage : a viable new market when approached with the right strategy

After years of battery technology improvement, now a new market party is emerging on the Dutch electricity market and challenging the establishment. Its name is the “battery storage operator”. In Sia Partners’ article “Actions to prevent the West European Electricity grid gets blown out of Balance” battery storage is introduced as a method that can resolve network instability. The conceptual solution seems easy, but how can energy producers and system operators use storage technology in the best possible way? A well thought out implementation strategy for battery storage is needed to maximize benefits.

Rise of renewable energy causes challenges

When intermittent, renewable energy exceeds 20% of the annual energy production, it becomes very difficult for TSO’s and DSO’s to keep the grid stable. In individual markets, in Germany for example, solar and wind already account for 22% of total electricity produced in 2015. More important for grid regulation is the impact of renewables during shorter timeframes. On August 2nd, solar alone accounted for 44% of total energy production in Germany (Frauenhofer Institute, 2016).

Next to the network operators, energy producers are affected by intermittent generation. At peak supply moments excess energy lowers the price, harms short term profit and erodes the business case for traditional power plants. During off-peak periods though, the capacity of traditional energy producers is still needed to supply a sufficient amount of electricity. Therefore electricity producers, TSO’s, DSO’s and policy makers need to think hard and fast about how to keep the electricity grid stable and optimize asset utilization in these situations.

A new role in the market: battery storage operation

Energy storage is an obvious and theoretically easy method to overcome the influence of intermittency and oversupply on an energy grid. In The Netherlands the first utility scale battery storage solution has been implemented by AES, a new storage operator on the Dutch energy market. A 10MW lithium-ion facility is being contracted. It provides Primary Control Reserve (PCR) for TenneT, peak shaving for energy producers or stores excess power from nearby wind farms (Energie Actueel, February 2016). Fulfilling these new functions in the market, the company can be considered a challenger to the incumbents in the sector.

Different Battery Storage Technologies

AES is using lithium ion, a solid state battery, in its facility. Different battery types are suited for different solutions to the intermittency problem. A distinction can be made between solid state batteries and those with a liquid, like a sodium ion solution. Lithium ion batteries, like the ones in your phone and in electric cars, are the most common battery types in everyday use.

For commercial use, Tesla is now selling its 100 kWh, lithium ion, powerpack for 25.000 dollar, or 250 dollar per kWh in its Nevada factory. Tesla guarantees 3600 full cycles, bringing the cost of storage below 7 cents per kWh. This is comparable to the generation cost of a new gas-fired power plant, meaning it is cheaper to store excess energy than to generate new energy. Lithium ion is particularly suited for the needs of system operators to stabilize the network with frequency balancing and preserving power quality. 

Figure 1: LCOE of energy sources

figure 1 LCOE of energy sources

Source: data IER 2015, adapted to Euro by Sia Partners (FX EUR/USD from ECB on date 08/03/2016)

Sodium-ion batteries store energy in tanks filled with a liquid (salt) solution. The ions inside the liquid capture and release electrons. The greater the battery volume the more storage capacity, so battery size is limited mainly by the availability of space. Moreover, the recharging possibilities are virtually unlimited (10.000+ cycles) in test settings.

Aquion Energy, an upcoming hybrid ion battery producer, currently features a battery that comes with a 3000-cycle standard warranty. The warranty can be upgraded in individual use cases by adapting facility design. Utilities looking for peak shaving capabilities and longer term storage with charging and discharging longer than 4 hours would benefit from these batteries (Aquion Energy, 2016).

Table 1: Comparing battery technologies

Table 1

*Aquion Energy’s batteries are based on abundant, non-toxic materials and Hybrid-Ion technology employing Na+, Li+ and H+

Battery storage applications

There are multiple ways in different phases of the energy supply chain where storage applications can be beneficial. Three of those applications are discussed below. The first application is on a market level, the second on a production level and the third on the level of transmission and distribution.

Balancing markets is needed to continuously match supply with demand. In periods of oversupply, batteries can be charged for a low kWh price. Even negative prices, as already seen in Germany, can occur. This means getting paid for just storing (“consuming”) the oversupply of energy. Then when demand is again bigger than the supply of producing assets, the stored energy can be sold back for a profit.

With upcoming solar and wind, both utilities and system operators could benefit from using battery storage for peak load shaving purposes. When demand is low the excess energy produced can be stored, while assets keep running as efficient as possible. This means that during high demand periods production does not have to be ramped up by for instance starting up an idle gas fired power plant.

Figure 2: Battery storage applications

 

Figure 2 Battery storage applications

Frequency control is a third option for using battery capacity.  Battery operators can participate in auctions for primary control reserve (PCR). The objective of PCR is frequency control (50 Hertz) by balancing continuously the supply and demand on the high voltage grid. If a bid  - from a pre-qualified battery operator - has been accepted by the TSO, the battery will perform local load measurement (“listening” to the frequency on the grid) and react by (dis)charging within seconds when the grid is outside of the frequency deviation tolerance as dictated by the TSO.  This type of ancillary service is extremely profitable, especially in the German market. 

Matching technology with battery application strategy

Depending on business needs and the desired application, the proper battery technology has to be selected. Due to the quick response rate of lithium-ion, this technology matches well with frequency control functions (PCR). The AES facility in Terneuzen can react in 1 second. In comparison, a gas-fired power plant reacts in 10 seconds (Energie Actueel, February 2016). Peak shaving and market imbalance trades depend less on quick reactions and require more energy to be stored and released. This matches better with the characteristics of sodium-ion batteries.

The share of intermittent energy sources in the energy mix is growing and causes a challenge for system operators to keep the net stable, handle peak supply and demand and invest in the right assets all at the same time. Both energy producers and system operators could use battery storage to increase stability and reliability of the grid. Battery solutions now cost about the same as investing in a new peak shaving gas fired power plant, while batteries can optimize asset use outside of peak hours as well. 

Battery storage is thus becoming a serious alternative for both grid operators and production companies to contribute to asset optimization and grid stability. Sia Partners suggests the following approach for applying battery storage: 

    1. Determine the goal of using electricity storage 

    2. Determine the optimal application strategy and associated business case

    3. Establish process and data requirements for deploying the strategy

    4. Make-or-buy decision: find the optimal storage solution based on your goal and strategy

    5. Sharpen the business case based on build or procurement costs

    6. Deploy and operate

Battery storage now has a market and a positive business case which is continuously improved by technological advances and decreasing investment costs. In the Netherlands we already have one player that stepped into the niche market of battery storage operation. The time is now for key actors in the energy value chain to pick up on this opportunity as well. Battery storage should be part of the continuous investments needed to assure a stable and reliable future electricity infrastructure, while making a profit at the same time.

 

Copyright © 2015 Sia Partners

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