Renewable energy deployment over the past decades has posed unprecedented challenges for the planning and operation of power systems. In the context of increasingly decentralised and intermittent generation, power utilities and system operators need to rethink their portfolios, business models and positions in the market to be resilient to these changes and benefit from them.
Battery storage has gained strong interest as an option to respond to these new challenges and provide flexibility to the system to cope with high levels of renewables. Actors all along the energy value chain find themselves facing several key questions when considering how energy storage may affect their businesses:
• In what applications will battery storage play a key role in managing the future grid?
• What will be the most attractive business models? For which (combination of) actors along the value chain?
• What factors influence the choice of battery technologies?
• Which battery technologies will likely be the most important in each application?
• What are the drivers, enablers and alternatives to battery storage deployment?
How battery storage is deployed today
Deployment of standalone batteries to provide grid services such as frequency response and frequency regulation has mainly been achieved under pilot projects. Widespread deployment has been hindered by high costs and regulatory uncertainty, but grid-scale storage for frequency regulation is still seen as one of the most promising applications to date.
Large-scale hybrid battery configurations to stabilise renewables output are also considered one of the biggest successes of batteries so far, especially on islands. In addition, hybrid residential battery configurations have seen a significant boost in some markets, such as Germany, where incentives have been put in place.
Distribution system operators and transmission system operators can use batteries for grid-support applications such as congestion avoidance, frequency regulation, frequency response and voltage stability, and tend to see co-ownership as the most likely option for making a positive business case. Indeed, all market players generally see the combination of several applications as essential to making battery solutions economically viable. However, system operators are only likely to make major moves when the regulatory framework for ownership and operation of storage technologies has been further clarified.
Compared with system operators, power utilities can leverage batteries for a wider range of applications and are less constrained by regulation. They can potentially use batteries to generate revenues from arbitrage in the market, decrease exposure to imbalance costs and provide grid services to system operators. Vertically integrated utilities can also deploy batteries as part of their offerings to end customers, as is already seen in Germany.
Aggregators are other major enablers of battery deployment. Partnerships between vertically integrated utilities and aggregators, as well as battery manufacturers and system integrators and aggregators, have been developed over the past few years to generate revenues, primarily from ancillary services and the wholesale market, with a potential new source of flexibility from batteries at residential, commercial and industrial levels. The roles of aggregators continues to evolve, and the emergence of aggregators acting as software providers rather than technology operators is reshaping the position of vertically integrated utilities in the market.
Overcoming barriers to implementation
Battery storage is expected to play an important role in responding to the current challenges posed by the deployment of renewables. However, today there are several barriers to its implementation, such as regulatory uncertainty, commercial arrangements, maturity of technology and associated costs. In the short term, the deployment of battery storage in specific markets will depend not only on market characteristics (such as renewables penetration, interconnectedness, generation mix, the network’s topology and system size), but also on the regulatory framework, incentives and commercial signals in place to enhance the battery storage business model.
However, the future seems encouraging. Driven by increased usage in the automotive industry, the costs of batteries have significantly dropped since 2010 (a 65 per cent decrease for lithium-ion batteries), although further cost reductions are necessary for widespread use in the power sector.
In conclusion, while battery storage remains a market for early adopters, with more mature business models for some players (such as power utilities) than others (such as system operators), the time for inaction is long over. When technology is inexpensive, it belongs to those who invested in its development. And when regulation is facilitating, opportunities are captured by those who have business models ready.
Battery storage is a “fast move” today for some actors in the value chain and a “wait” for others, but for all it is a market to shape and a strategy to develop. This is the time for actors along the energy value chain to shape markets, lobby, engage regulators and perform early strategic actions to make sure they will be part of the future framework and at the forefront of market trends.