Flexible capacity from batteries, peaking plants and demand-side response is set to reach more than 25GW by 2030, according to Aurora Energy Research.
The firm says the rise of intermittent renewables – which undermine the profitability of large baseload generators but still require backup power – will push annual revenues from flexibility to nearly £3 billion by the end of the next decade.
Speaking at an event in London, Aurora Energy Research director Ben Irons identified three key uncertainties, which will determine the size of the market. He said the first of these will be the pace of growth in renewable generation.
Deployments have thus far been highly dependent on the volume and level of subsidies available from government, but Irons told delegates that the economics for subsidy-free investments are “starting to look very attractive”.
“If that happens, we could see significant additional renewable build out beyond what most central case forecasts include”, he added.
Irons said subsidy-free renewables could provide a “significant upside” for flexible investments due to their symbiotic relationship: “That is intermittent, volatile generation that needs flexible capacity to integrate it into the system”.
He said solar and onshore wind will be “first off the mark”, but even offshore wind could be deployed on a subsidy-free basis by the late 2020s, given the plans for colossal 15MW turbines.
The second key driver will be the extent of scarcity-driven price volatility. Although there are a number of factors which explain scarcity, Irons said the most important is the de-rated capacity margin: “How much reserve capacity is being brought forward to sit around and do nothing for most of the time so that when these stress events happen, there’s enough capacity to turn on to reduce the press and reduce those prices?”
He said Aurora’s analysis suggests that the capacity margin will be “surprisingly tight” between now and 2030, adding: “that’s before non-delivery of projects, and there may be some of those, given the changes to triads.
“We’re within one or two unexpected plant outages of significant scarcity, and we think that will continue to drive high prices and high profits for flexible assets. The challenge is we don’t what years those will happen in.”
The last of the three key drivers will be electric vehicles, which Irons described as a “big swing factor”. He said their impact will be highly dependent on the proliferation of smart charging, which will reduce the need for flexibility.
He said vehicle-to-grid charging will add another layer of uncertainty to the picture. “Will EV batteries actually be the batteries that we have on the system?”, he asked. “I think that’s an open question.
“I hear good argument for why it will absolutely happen and its completely inevitable. I hear good arguments why there are a lot of challenges to be overcome, and it may well be that grid-scale batteries or even residential batteries get the jump on that opportunity and it never really materialises.”
He continued: “One thing is clear – if vehicle-to-grid transfer is economic, that’s additional downward pressure on the need for grid-scale batteries.”
Later at the event, Electric Vehicle Outlook managing director Roger Atkins, expressed scepticism over the prospects for vehicle-to-grid charging, which he said was predicated on widespread personal ownership.
After conducting a straw poll of the audience that suggested just a small fraction owned an electric vehicle and nearly half didn’t own a car at all, Atkins predicted that many consumers will choose to get around using tightly managed fleets of autonomous electric taxis, reducing the opportunities for vehicle-to-grid transfers.