The power market design column – Dedicated to storage
At Eureletric’s yearly convention, Plug & Play, the audience was asked to vote which technology will be most important in decarbonisation. Storage scored highest with 42%, while this figure was only 8% at the 2010 conference. So our industry has very high expectations for storage.
On that same day EASAC – the European Academies’ Science Advisory Council – presented its report on dedicated storage in power systems in the beautiful Palace of the Academies in Brussels. [1]
So, what do the academics cooperating in EASAC learn us? Will the high expectations be met?
First of all, I can really recommend the report. It is easy to read, it covers all aspects and, as we may expect from academics, it has an extensive list of references. One point of criticism could be that it focuses on dedicated storage, which is defined by “electricity in – electricity out”. This means that the hydro reservoirs for example in the Nordic market are not covered. These reservoirs provide not only shorter term flexibility but also seasonal storage. Such longer term flexibility is extremely important as the biggest challenge caused by the increasing share of intermittent renewables is not in the short term or balancing time frame but in these longer term time frames.[2]
But I can easily withdraw that criticism as the EASAC report also concludes that although storage can act on practically all segments of the power market, it is in competition with other technologies and not only non-dedicated storage like the hydro reservoirs. Or as professor Mark O’Malley put it while presenting the report: “The only thing one needs is a good market and let technologies compete on a level-playing field. That’s it. One does not even have to mention storage.”
The report correctly emphasises that costs are important but that value is even more important. Costs of batteries are expected to be further reduced, but as long as there is an overcapacity in storage capacity, the value is low. The amount of installed dedicated storage capacity in the EU (plus Switzerland and Norway) is almost 50 GW (according to the report) and the main part of that is pumped hydro. The traditional business case for developing such storage was the price spread between peak and off-peak hours. But this spread has almost disappeared among others because of the large contribution of PV generation during day hours. If one adds the non-dedicated, seasonal hydro storage for example in Norway, which is about 27 GW, the installed storage capacity adds up to about 77 GW. But in terms of stored energy, this seasonal hydro storage is really changing the figures. Dedicated storage can typically produce for some hours only. But some of these hydro reservoirs would take half a year to be emptied![3] The reservoir capacity of Lake Blåsjø (shown on the picture above) is 7.8 TWh. Norway’s total reservoir capacity is 86 TWh and that is equivalent to 8.6 million batteries (of 10 MWh each) like the one recently installed by AES in the Netherlands.
So, the European market not only has overcapacity. It is also still characterised by an abundance of flexible capacity. This was also illustrated by the recent news that Vattenfall is reducing its installed pumped storage capacity in Germany with 300 MW.[4]
It is important that policy makers are aware of these market fundamentals. Unfortunately, there is a persistent belief that new storage capacity is needed and that the market is not delivering. Based on that misunderstanding, some DSOs and TSOs believe they should “push the market” to “kick-start the development of new storage”. Liander, one of the Dutch DSOs, has developed a pilot with a “neighbourhood battery that allows 35 households to store and consume surpluses and shortages”[5]. Such initiatives and pilots are definitely developed with good intentions and will certainly deliver useful results. At the same time, one has to realise that any additional MW of storage capacity, irrespective of how it is actually used on the market, pushes existing flexibility out of the market. As a result, flexibility does not increase, but overall costs will.
Obviously, batteries can also be used to relieve grid congestions or to avoid grid expansion. However, also then there is no need for a DSO to own and operate storage. Instead, DSOs should be able to procure services to be provided by market participants possibly making use of storage. In this way the market participant can both use the storage asset for grid support as well as for market purposes. A DSO owned battery can only be used for grid support. By consequence the storage asset has more value for society if owned and operated by a market participant. And therefore, procuring services is always more efficient for a DSO than owning and operating a battery.
In conclusion: I love storage. Dedicated and non-dedicated storage. The outlook of batteries in electric vehicles being connected to the grid, providing flexibility is simply thrilling. The Eurelectric audience might be correct on its high expectations for storage. After all, they did not say it has to be new storage. Storage has always played a big role in our power systems and it will definitely play an important role in the future. But let’s be dedicated to the market. Let market participants decide when to invest, in which storage technology. They will then also take the consequences if their decision was wrong and EU citizens will be better off.
This is my 7th column on power market design issues. The earlier columns can be read at:
https://www.linkedin.com/pulse/power-market-design-column-value-voll-paul-giesbertz
Disclaimer: The views as expressed in this column do not necessarily reflect the views of Statkraft
Paul Giesbertz
paul.giesbertz@statkraft.com
[1] http://www.easac.eu/home/reports-and-statements/detail-view/article/valuing-ded.html
[2] See my 5th column for more explanation. https://www.linkedin.com/pulse/power-market-design-column-balancing-importance-paul-giesbertz
[3] Assuming a full reservoir is being emptied without any new inflow of water.
[4] https://corporate.vattenfall.com/press-and-media/press-releases/2017/vattenfall-restructures-its-german-hydro-power-division-for-the-future/
[5] In Dutch: https://www.liander.nl/buurtbatterij
Energy Consultant
8yNice post! I almost fully agree!
Asset manager Statkraft's Dutch portfolio
8yLeuk om je conferentie ervaringen gekoppeld te zien aan markt gebeurtenissen. Inmiddels heb ik je vaak genoeg over dit onderwerp gehoord om te zeggen dat je zeer consequent bent in je argumentatie. Prettig leesbaar!
Strategy, Sustainability & Execution - I Control The Uncontrollable & Declutter The Chaos!
8ySir, it's a brilliant article. The statement "The outlook of batteries in electric vehicles being connected to the grid, providing flexibility is simply thrilling" excites me. But, the electricity market dynamics are constantly changing, more influx of renewables with increased storage will push the limits of electricity markets. It will be interesting to see how the future markets will be!
Balancing the Energy Trinity - Electricity Market Expert
8yJust after posting this column, I read about another storage project . Alliander (which is a grid company and owner of Liander, which is the regulated DSO) initiated a project where batteries have been installed at 50 households. See: https://www.alliander.com/nl/media/nieuws/wijkbewoners-verhandelen-samen-hun-duurzame-energie#comment-3