As increasing amounts of renewable energy sources are incorporated into our electricity system, energy storage technologies are growing in importance as a key solution to maintain grid stability and flexibility. As such, energy storage provides one of the biggest market opportunities in renewable energy. The sector boasts one of the fastest-moving areas of innovation, with a wide variety of technologies competing fiercely. The global energy storage market is set to grow nine-fold by the year 2017, according to industry experts, to become a US$10.4 -bn industry. In addition, its ancillary services – all the required maintenance and transmission efforts needed to maintain and transmit energy – will become a US$3.8 -bn market by 2023.
However, technology developers and vendors in the energy storage sector are coming up against serious financial constraints as governments and investors tighten their purse strings. Some experts believe that a diversity of business models in the market is the way forward.
As energy storage complements the electricity grid on every level, the obvious target market would be the utility or Distribution Service Operator (DSO). Although storage systems are developed to ultimately provide more reliable renewable energy, increase the grid’s efficiency and resiliency, and reduce utilities’ costs and consumers’ electricity bills, many utilities are not willing to take the risk when it comes to demonstration-stage technology and DSO’s are hampered but regulatory issues. There is concern that the new technology will have an adverse affect on the reliability and cost-effectiveness of its service delivery. Investors are also known to shy away from technological, financial and regulatory risks see: Energy Storage: Can It Ever Happen? that continue to plague energy storage projects.
Focus On Capacity Potential
We believe that the introduction of smart grids, storage, and the installation of new renewable energy portfolios will alter the financial balance of the power industry. The critical business decision is one of future investment, and that it is related to the expected rate of return.
The focus should be on energy storage capacity potential and not the actual value of the storage infrastructure. Unfortunately, the act of monetizing and bundling energy storage benefits, as well as capturing potential values to support a business framework which is acceptable to regulators and utilities is challenging when supporting the business case for storage.
This is partly because traditional methods, used to evaluate the value of conventional generation sources, do not always capture the various potential benefits of energy storage systems. Although storage systems are usually faster and more responsive than conventional generation, they are “energy limited” resources with limited discharge duration. Conventional generation systems, however, provide power as long as they have fuel.
In order for customers to justify the cost of energy storage , the systems are expected to deliver multiple benefits. New system models show that energy storage is cost-effective when all of its services and benefits are recognized. This is because energy storage delivers many benefits from one resource (for example, decreasing peak demand and providing grid support for frequency regulation). This will accelerate energy storage’s growth. Regulation, system capacity, and deferring capital expenses for transmission or distribution investments potentially provide the highest value for using storage systems. From a customer perspective, using storage to reduce retail time of use charges and demand charges may well provide great value.
Indeed, the long-term benefits of grid-scale energy storage are difficult to evaluate when the technology-and what it has to offer-is so new and varied. However, to make this long-term evaluation process easier, a rather clever piece of analytical software has been developed by the Electric Power Research Institute. It is called the Energy Storage Valuation Tool (ESVT). The tool has been devised to develop suitable business plans as the software quantifies the value and assesses the cost-effectiveness of energy storage. The energy storage modeling app, can be used by utilities, grid operators and energy storage technology makers and project operators to assess the real value of storage systems.
It will play a valuable role in clarifying the value and the variables of energy storage in the grid, according to Haresh Kamath, program manager for Energy Storage research at EPRI. “It can inform business plans, regulatory proceedings and public discourse related to storage, and allows users to see the underlying calculations of the model.”
For grid operators and utilities, this creates a better way of assessing the real potential of various technologies and business models and how these can fit into existing market mechanisms. It will also help model new programs or markets.
The development of more practical tools like this will clear up confusion surrounding the storage market. The storage industry will be able to provide potential storage owners with realistic figures pertaining to financial value in a standardized way.
Innovation in business models and regulation will be essential to the growth of the storage industry. Data driven modeling tools will play an essential role as they help potential storage owners understand the long-term value of storage systems. Through demonstrating successful business models investor confidence will also begin to grow in response.