New and emerging technologies normally need some form of stimulus to encourage and get beyond the early adopters and to bring them into the mainstream. This is especially true in the utility sector, where utilities are bound by regulatory conditions, which may limit their potential to experiment.
Subsidies have been widely used to stimulate the development of renewable energies. Some other examples of different types of stimulus that have been successful include the American Recovery and Reinvestment Act (ARRA), which was used inter alia to stimulate the wider deployment of smart metering, and the energy storage mandate in California to procure 1,325MW of storage by 2020. [Engerati-$90bn For Clean Energy In Retrospect and California Seeks To Advance Energy Storage]
Now researchers at the University of East Anglia have suggested in a new study that if renewable energy is to be fully integrated into the sector in Europe, then government subsidies should be used to encourage investment in energy storage systems. Increasing levels of renewables bring increasing potential for volatility, which can be managed with energy storage. But arbitrage alone can’t provide adequate revenue to justify the investment.
Pumped hydro and compressed air storage
The study, led by Drs Dimitris Zafirakis and Konstantinos Chalvatzis of the University’s Norwich Business School, explores the arbitrage potential of two energy storage technologies, pumped hydro and compressed air, across selected European markets.
These technologies were selected as being considered the two most mature for energy management.
The markets are Nord Pool, EEX (European Energy Exchange), UK, Spain and Greece, which were considered representative, reflecting differences in the value of arbitrage in association with market characteristics such as fuel mix and market competition. Data used was historical, hourly spot price data for the five-year period 2007-2011, to which were applied different time and price-based daily and weekly arbitrage strategies.
Potential for storage arbitrage in Europe
The researchers find that as European markets integrate and become more efficient, the value of arbitrage for energy storage is reduced. On the other hand, heavy reliance of markets on fuel imports (e.g. UK and EEX) create arbitrage opportunities from which a risk-adaptive investor could benefit. Arbitrage is also encouraged in less competitive markets such as Greece, especially when indigenous energy reserves are used to cover baseload and energy imports to cover peak load, thus creating a significant price spread.
Among the examined strategies, weekly back to back produces the highest arbitrage value, but additional sources of revenue would be required to support the investment. At the same time, although requiring reliable prognosis of the next hours’ spot price, price signal strategies also produce a worthwhile arbitrage value that is found to maximize for different energy storage system size in each of the markets. In addition, the comparison between pumped hydro and compressed air storage reveals the latter to be advantageous, despite largely depending on the price of natural gas required for system operation.
Bearing in mind the removal of subsidies from renewables, Chalvatzis, a senior lecturer in business and climate change, commented: “It is good to adjust subsidies technologies that have reached maturity, but you have to start thinking about subsidising storage, as this can take us to using 100% renewable energy sources. We need sufficient storage and more investment in storage systems in order for renewable energy to reach its full potential. Subsidies would encourage investment, which in turn would enable further integration of renewables into the energy sector.”
The researchers also suggested, looking how the presence of a dominant indigenous resource could impact on the arbitrage value of energy storage, that arbitrage could also be looked at further in markets where coal contributes in quite high ranges, such as China and Poland.
For wind energy, the impact of intermittency and the requirement for greater flexibility is yet to be studied in terms of arbitrage, as no important evidence could be drawn from e.g. the case of Spain, where effective trading with Portugal, facilitates the presence of wind power.
The findings are published today in the journal Applied Energy.