Although a predicted growth in electrical energy storage from US$200-m to US$19-by 2017 helps keep the faith, the industry is still confronted with many challenges. There are those who believe that the industry is coming into its own but we think this hype is premature since much of the potential of energy storage has yet to be fully realized and the market has still not taken off in a meaningful way.
The lack of awareness and poor understanding by stakeholders and potential investors are major barriers to energy storage development. This doubt can lead to a lack of bankability, a serious and unwelcome consequence for this developing market.
This skepticism also exists amongst utilities, obvious and key supporters, whose responsibility is to provide a safe, reliable, and cost-effective electricity service. As a result, utilities do not immediately adopt newer technology because of potential risks, whether real or perceived. Ironically, this negative perception may further delay the creation of a more stable grid for its consumers and is at odds with the global desire for increase renewable generation.
Non-existent, as well as inconsistent government support, leads to much uncertainty amongst investors. This can be seen in countries like Germany where draft laws undergo regular change. Another example of this is in the UK where energy policies are constantly changing due to frequent reviews.
The sluggish technological development of new, large-scale energy storage technologies can also be blamed on existing current market and regulatory conditions. If these can be improved, the storage industry may see massive technological development.
It is essential that a regulatory framework provides a clear set of rules and responsibilities with regards to technical modalities and the financial conditions of energy storage. A reduction in technology costs and a market framework (that recognizes the benefits and asset value of energy storage), are essential to ensure the development of energy storage opportunities.
When high development costs and risk are added to a poorly defined market revenue structure, long-term finance is difficult to obtain. Market environments often lack financial incentives for utilities to innovate and regulatory processes can prevent them from conducting trials and demonstrations. A major challenge is the creation of appropriate market signals to incentivize the building of storage capacity and provision of storage services.
Distortion between supply and demand, caused by a lack of knowledge-sharing among key stakeholders (i.e. generators, transmission system operators, distributors, and supply companies), creates a major setback for investment. In the UK, this type of “broken chain” communication is a clear result of Ofgem’s efforts to make the market competitive by introducing financial penalties and preventing stakeholders from communicating.
None of this does anything for the development of renewables. The difficulty for companies to own and gain value from storage is slowing down the efficiency of renewables. To overcome this obstacle, it is clear a change in policy is essential. That is, to make electricity storage a separate market category from generation, transmission, distribution and supply.
Location, Location, Location
Location plays an important role in accommodating particular types of energy storage. Pumped hydropower, often considered as the only economical and widespread form of grid-scale energy storage, can store large quantities of power for long time periods and can be accessed quickly. This form of storage accounts for 99% of the world’s energy storage. However, a major drawback is location as the technology is limited by geography-locations must be able to host a large reservoir at a significantly higher elevation than the power station.
Compressed Air Energy Storage (CAES) is also limited by geography as it generally requires an underground cavern which would store compressed air.
Countries, which are unable to use these storage types, must turn to techniques and technology that are not reliant on geography.
Increasing the capacity and efficiency of existing technologies are major challenges for the storage industry. The same can be said of the development of new technologies for local (domestic), decentralized, or large centralized applications.
Batteries with an inherent chemical ceiling to capacity are pricey, limited in size, and degrade eventually. However, as battery costs decrease and energy duration increases, this form of energy storage will become more and more cost effective and will be able to serve more markets. The same scenario applies to other storage technologies.
Mark Hardin, Director of Product Marketing for Xtreme Power, says that new developments in megawatt-scale power conversion systems (PCS) will be critical to the cost effectiveness and reliability of energy storage systems. The PCS is the machine that converts electricity from the batteries to work on the grid and vice versa. “As these machines become more cost effective, improve their functionality, and increase already-high availability through hours of operation experience, energy storage systems will become even more versatile and achieve even higher levels of availability.”
One single solution will probably not be the most cost-optimal solution. Rather, a mix of various solutions, tailored for each region and system, is needed.
Anthony Price, Director of the Electricity Storage Network, the UK’s group which promotes Electricity Storage and director of energy storage consultants, Swanbarton remarks “Storage technology offers the capability to make renewable energy as dispatchable and controllable as conventional power sources.”
The price is right?
As with most projects, high initial capital costs can limit the progression of storage projects. New electricity storage technologies come with early engineering and building costs. There is also a significant risk premium attached to them, especially while the technology is being commercialized.
On-going innovation and development will help reduce costs, making storage technologies applicable to wider deployment. In the UK, a number of pilot projects are underway to assess the possibility of reducing the cost of innovative energy storage technologies.
Philippe Bouchard, Business Development Manager of New York-based EOS Energy Storage, explains that for storage to gain widespread acceptance, the price has to be right. “Recent interest in and excitement around the grid storage space overlooks the fact that there has been a long-standing market opportunity for electrical energy storage, if it can hit the right price point.” He adds: “The most important driver of growth in this industry is and will continue to be the widespread reduction in cost promised by the emergence of increasingly inexpensive technologies.”
The renewables industry has been compensated for high initial capital cost by the availability of long term contracts, in the form of renewable obligation certificates, generation or feed in tariffs and tax credits. Price observes: “Guaranteed future income reduces the cost of capital. Reforming the electricity market so that there is equality between generation and storage assets is important if there is to be investment in storage.”
Price is skeptical about the role of the proposed capacity market as an income for electricity storage, “Some types of storage may find an opportunity to develop projects based on the capacity market, but Government should not rely on the proposed Capacity Market to bring forward the amount of storage that will be necessary to meet the country’s needs.”
In addition, energy storage promises substantial savings with regards to finance and electricity. In the UK, for example, an Imperial College energy storage report revealed that storage can save over £10-bn per year by 2015. This is dependent on the development of 15GW of storage.
Energy storage also has the potential of attracting extra revenue, for example the provision of voltage support services. Andrew Jones, EMEA managing director of S&C, describes another opportunity: “…a recent frequency response tender in the UK which was oversubscribed by bidders, eventually achieving an availability payment of £50 per hour. Based on this calculation, a renewables operator with 30MW capability with proper storage management can deliver 100%, 24/7 availability – equating to a stable return of £13.1m per year.”
Show me the money!
Storage will only make business sense once various economic issues are resolved and is integrated in a holistic way with the whole energy system.
The existence of compensation schemes for storage is a key issue when some stakeholders are part of the regulated market (Transmission System Operator/ Distribution System Operator) and the other are part of the deregulated market (e.g. producers and end customers).
It is also essential to develop new and innovative business models as a single service. kWh may not be sufficient enough to make the storage scheme financially viable. Services such as frequency stabilization and voltage stabilization have a much higher commercial value.
Ownership of energy storage systems should also be made clear. Should storage be owned by utilities or Transmission System Operators?
The Electricity Storage Network points out that a home base to showcase electricity storage is essential if British companies are to develop electricity storage products for overseas markets. Price comments “We have members with good, innovative and competitive products - but these companies are constrained by the lack of opportunities to demonstrate their technology within GB’s competitive electricity market. Other countries have had a consistent flow of support for their industry, we are playing catch up. The current round of DECC funding for demonstration is very welcome, and we look for more opportunities for further demonstrations in the future.”
Legislation can create potential obstacles for energy storage. In the UK, for instance, electricity storage does not receive much government support or any form of secure income stream, according to Gareth Brett, Chief Executive Officer at London-based utility-scale energy storage and power systems developer Highview Power Storage.
The Electricity Storage Network is concerned that there is not a single point of contact in DECC with responsibility for electricity storage, a point that was reiterated by Baroness Worthington in the Energy Bill Committee session in the House of Lords. Many other green technologies have a focal point in DECC, such as smart meters, electric vehicles, wind, PV and CCS, but storage is not so identified, explains Price.
Andrew Jones, managing director of S&C Electric Europe, explains that large-scale energy storage is highly unlikely across the UK electricity distribution and transmission networks unless license categories are amended as distribution networks are not allowed to have generation assets. If UK distribution companies want to employ a storage solution, they need to first obtain a generation license.
Mr Jones points out: “Let storage be recognized that it is different and the market will take care of the rest." Nick Heyward, project director of smarter networks at UK Power Networks (UKPN), said he was also keen to see the classification of storage as generation changed.
The UK government and industry have joined forces to prove the value of storage at each level of the value chain. DECC has recently called upon S&C and other similar organizations to help investigate the realistic requirements for electricity storage across the power system and to assess its associated value to the UK.
In contrast, the United States government views energy storage as a priority. US Congress has recently introduced a bill, forming part of the legislation surrounding energy storage, to create investment tax credit for all types of energy storage technology. It has been labeled the Storage Technology for Renewable and Green Energy (STORAGE) Act. The Act will benefit anyone who is investing in energy storage technology by way of investment tax credit (ITC) and clean renewable energy bonds (CREBS) up to US$1.5-b.
Clear Asset Definition
Currently, there is no recognition of energy storage as a valuable asset. There is a need to redefine the asset value of storage facilities so one is able to put a value on the energy storage potential, not just the infrastructure. This is not that far removed from how asset valuation of Oil or Gas fields is calculated where the potential reserves are a significant part of the market value.
It is imperative that regulators ascertain how best to define and treat energy storage. Regulators need to decide whether to integrate energy storage on an intended use basis under current classification and recovery mechanisms, or treat it as a separate asset class and enact recovery mechanisms based upon its own operational characteristics.
Bias towards renewable generation creates a conflict with storage investment which does not have the same levels of subsidy.
Germany is hoping to rectify this with its recently introduced energy storage subsidy. However, subsidies need to be simple to understand- much like feed-in tariffs for renewables. This is not the case with the German subsidy initiative. According to Christoph Ostermann, CEO of Sonnenbatterie, the process for Germany’s energy storage subsidy is not attracting interest as it is complex in its very nature. The energy storage system is meant to be used in tandem with distributed solar installations with storage systems developed in Germany. The funds come with a maximum size requirement of 30 kilowatts. The batteries must have a warranty of at least seven years to gain the subsidy and the PV installation must send 60% of its capacity to the grid over the lifetime of the plant.
As energy from variable sources becomes an increasingly large part of our generation profile driven by political desire, industrial forces and energy security, the electricity grid runs the risk of becoming unstable. It is for this reason that energy storage must receive the support it deserves from all actors as it takes a pivotal role in facilitating the growth of renewable energy.
Debates over costs, pricing, technology and legislation must come to an end. A combination of simple subsidies, a clear regulatory framework and asset capitalization (based on store capacity) are at the core for creating the platform for investment, innovation and sustainability for this industry to play its part in the development of renewable energy.