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Energy storage – grid-scale batteries as a first-wave technology disruptor
Energy storage – 1
Energy storage– grid-scale batteries as a first-wave technology disruptor
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QVARTZ DenmarkRyesgade 3ADK-2200 Copenhagen NTel +45 33 17 00 00
QVARTZ NorwayWergelandsveien 21NO-0167 OsloTel +47 22 59 36 00
QVARTZ SwedenBirger Jarlsgatan 7SE-111 45 StockholmTel + 46 (0)8 614 19 00
Energy storage – 3
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Today, many countries are chasing ambitious re-newable energy targets. This challenges the energy systems as more variable renewable energy (VRE), such as wind and solar, needs to be integrated. Specifically, as VRE makes up an increasingly larger share of the generation mix for electricity, less gener-ation capacity becomes dispatchable and hence, the flexibility required to accommodate wind and solar in the grid when production exceeds or falls short of demand is going to increase drastically over the coming years.
The challenges associated with further VRE penetra-tion in energy systems can broadly be categorised as pertaining to either the electricity market’s (lack of) transmission capacity or a lack of political will to drive the necessary investments and/or regulatory changes.
In Northern Europe, the main challenge in reaching the VRE targets is the lack of transmission lines to transport electricity from production sites to the major centres of consumption. In other markets such as India, China and Brazil, the challenge is rather a lack of liberalised and efficient electricity markets that could help incentivise market actors to balance supply and demand.
With the expected increases in VRE as shown in Ex-hibit 1, there will be a need for the dispatchable ca-pacity to increase by roughly 500% towards 2025. To provide the necessary flexibility in generation as VRE shares rise, countries have four different enablers to choose from, depending on their circumstances and resource endowments: Dispatchable plants (e.g. con-ventional thermal power), interconnectors with other markets, demand-side flexibility and energy storage. Dispatchable plants can meet the flexibility require-ment by providing idle capacity that can come online in times of VRE production shortfall, however, they run on fossil fuels, and in many markets – Germany
in particular – they are being pushed out of the electricity market. As VRE is cheaper in times of high wind and sun, many dispatchable plants struggle to make sufficient returns to sustain operations and are closing as a result.
Interconnectors between neighbouring countries can provide the necessary flexibility to accommodate high VRE integration, and extensive plans for trans-mission lines and interconnectors are well under way, particularly across Europe. However, the necessary capacity to move VRE around in a sufficient manner is not expected to be ready before 2025. Further-more, there needs to be a great deal of integration of power markets before the flexibility potential of interconnections can be fully realised. Demand-side management is theoretically an ideal way to cope with intermittency in supply brought on by increas-ing VRE shares, as consumers can adjust consump-tion behaviour to match the market signals associ-ated with energy scarcity and surplus. However, this will require an extensive roll-out of demand response technologies, and new business models and tech-nology disruptions are needed to accelerate this development. There are limited triggers indicating that demand response on a larger scale will be a key enabler in mitigating the intermittency challenge.
Energy storage can potentially meet many of the flexibility needs of power systems through the provi-sion of balancing capacity and system functionalities. However, to meet the demand for balancing power, long-term storage technologies need to be compet-itive. Today, some countries have competitive long-term storage technologies installed, mainly pumped hydro – which is widely used, especially in the Nor-dics and Brazil. However, natural endowments dictate which countries have the opportunity to employ this dispatchable renewable energy. Other long-term storage applications do not seem feasible in the Nordics, due to the heavy endowments in hydro-power in Norway and Sweden as well as the wide-spread use of utility scale electric boilers and heat pumps in Denmark. With this in mind, short-term storage is the most relevant source of flexibility needed to integrate additional VRE in many energy systems. Of these short-term technologies, battery storage is the most relevant. It is a fairly new technol-ogy and production costs are decreasing fast.
2025 2020 2015
2025 2020 2015
2025 2020 2015
2025 2020 2015
+40%
+35%
44%59%
52%
+214%
5%3% 4%
46%
56%64%
+38%
17% 22%20%
+30%
13%25%
40%
2025 2020 2015
21% 15% 9%
9%11%
80%
201546%
21%
32%
17%
48%
35%
2015
3%
93%
3%
2015
44%
9%
48% 2015
13%
5%
82%
2015
2025 2020 2015
+133%
2015
VRE share in the generation mix (per cent) VRE share in the generation mix (per cent)
VRE share in the generation mix (per cent) VRE share in the generation mix (per cent)
VRE share in the generation mix (per cent) VRE share in the generation mix (per cent)
Variable renewable energy (VRE) Conventional energy sourcesDispatchable renewable energy
Storage and the intermittency challenge
Energy storage – 5
2025 2020 2015
2025 2020 2015
2025 2020 2015
2025 2020 2015
+40%
+35%
44%59%
52%
+214%
5%3% 4%
46%
56%64%
+38%
17% 22%20%
+30%
13%25%
40%
2025 2020 2015
21% 15% 9%
9%11%
80%
201546%
21%
32%
17%
48%
35%
2015
3%
93%
3%
2015
44%
9%
48% 2015
13%
5%
82%
2015
2025 2020 2015
+133%
2015
VRE share in the generation mix (per cent) VRE share in the generation mix (per cent)
VRE share in the generation mix (per cent) VRE share in the generation mix (per cent)
VRE share in the generation mix (per cent) VRE share in the generation mix (per cent)
Variable renewable energy (VRE) Conventional energy sourcesDispatchable renewable energy
EXHIBIT 1: Chart over VRE penetration now and in 2020/25
* Includes hydropower and biomass SOURCE: ENTSO-E; IHS; QVARTZ analysis
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700
600
500
400
300
200
100
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Wide ranges of LCoE for each source. E.g. Li-ion LCoE for peaking ranges between 321 and 658 in 2015
Li-ion is currently the most competitive source of energy for fast-dispatch ancillary services on the US PJM market
Natural gas for peaking
Lithium-ion for frequency regulation
Flywheel for frequency regulation
Lithium-ion for peaking
Conventional source: Batteries:
EXHIBIT 2: Forecasted development in LCoE for certain battery applications*, USD/MWh
Battery storage is expected to be the first wave of technologies with a significant impact on the ability to integrate VRE in a cost-effective manner. This is also supported by QVARTZ’ expert survey on the topic, where 35 global industry experts expect bat-tery storage to be cost-competitive with traditional generation technologies around 2020. In terms of
application areas in the energy system, batteries can technically be deployed at all system levels – off-grid, at generator sites, along the transmission and distri-bution lines as well as behind the meter at end-user sites, catering to varies integration needs across the energy system. They have the highest potential in front of the meter on wholesale level.
* Numbers specific to the US. LCoE of energy sources varies depending on the application SOURCE: Lazard; NREL; expert interviews; QVARTZ expert survey (N=35); QVARTZ analysis
Energy storage – 7
700
600
500
400
300
200
100
0
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Wide ranges of LCoE for each source. E.g. Li-ion LCoE for peaking ranges between 321 and 658 in 2015
Li-ion is currently the most competitive source of energy for fast-dispatch ancillary services on the US PJM market
Natural gas for peaking
Lithium-ion for frequency regulation
Flywheel for frequency regulation
Lithium-ion for peaking
Conventional source: Batteries:
System level(TSOs, DSOs)
Plant level(IPPs, utilities)
Asset portfolio level(IPPs, utilities)
TH
E G
RID
LA
ND
SC
AP
E
KEY CUSTOMER NEEDS
• Enable optimal energy pricing and arbitrage through demand responsiveness (increase revenue/maximise profit)• Ensure supply and compliance at a low cost (reduce OPEX)
• Optimise park value by health monitoring, prediction and cost management (increase value/life of asset)
• Ensure e�cient energy markets through clear price signals, stimulating long-term asset investments• Minimise grid congestion and avoid additional grid investments (minimise additional CAPEX)• Ensure supply security at a low cost (reduce OPEX)
EXHIBIT 3: Overview of applications at different levels of the system
Batteries have a competitive edge in supplying quality to the grid (ancillary services) among mature technologies, and can also be applied within intraday arbitrage. Currently, the underlying markets where these services can be sold are in varied states of liberalisation and development, which impacts the growth in installed capacity. It is important to note that other short-term storage technologies such as flywheels can be seen as complements rather than as threats to batteries, as they each have their respec-tive strengths in terms of dispatch timing and
capacity. Currently, battery storage is expected to grow by 35% annually towards 2025, pending the level of market liberalisation.
While there is no clear technology winner within battery storage, a handful of candidates look promis-ing as they are a good match with the technical requirements of the applications in scope (in terms of capacity and dispatch time) and moreover poised for a significant drop in capital costs. This suggests that the best choice is to adopt a technology- agnostic approach when considering a move into the battery storage field.
SOURCE: QVARTZ analysis
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Share of total delivery costexpected to fall as technologies mature
229 (39%)
235 (40%)
46 (8%)
80(13%)
Share of delivered battery systems
Expected development
Share expected to remain constant
Share expected to remain constant
Share may drop as installed capacities increase and standardisation occurs
System integrator
Operations & Maintenance
Battery energy solution supplier (BES)
Battery cell & modulemanufacturer
590 590 590 590
EXHIBIT 4: Value chain overview
The current battery storage value chain indicates strong consolidation upstream as well as varying levels of competition downstream, as no apparent winning and scalable business model has been de-veloped there. The competition along the value chain indicates that further consolidation, or alternatively a new business model on how to control or influence the specification of components, will be of great im-portance for any market actor here. For the battery storage industry to be truly competitive in electricity markets, it is pivotal that three issues are resolved before 2020, where reduction in battery component costs are expected to reach competitive price levels:
• Standardisation of the battery management system architecture to enable further cost reductions within system integration and OPEX• Effective integration of VRE (mainly wind and solar) production characteristics to enable better right-sizing of battery systems• Innovative business models mitigating the relatively up-front investment needed
Overall, the most advisable point of entry for gener-ators and OEM players will be the system integration and O&M links in the value chain. However, this would need to happen before a winning business model or a common system architecture emerges as the key to success here will be either increased consolidation or the ability to influence the system component specification.
Battery value chain
SOURCE: Frost & Sullivan; expert interviews; QVARTZ analysis
Power and energy OEM
Utility/independent power producer
System operator
Regulator
• Learn and develop system integration product offerings to drive down system costs• Develop integrated product offerings at plant level (e.g. solar + battery + SCADA)• Develop O&M offerings
• Capture a value-adding position downstream in the battery storage value chain• Influence/control the agenda for specification of battery components, thereby driving total system costs down
• Develop business models integrating VRE generation and storage at plant level• Integrate battery systems to optimise own market access and gain incremental revenue in the intraday markets
• Exploit market arbitrage opportunities within wholesale
• Ensure low grid connection requirements for new technologies such as battery storage systems, flywheels, etc.• Offer battery storage pilots to quicker enable the right market conditions for storage suppliers
• Enable unrestricted markets' access to intraday and ancillary markets
• Liberalise the markets for ancillary service• Ensure clear price signals in the balancing markets• Introduce strong incentives and clear price signals for fast voltage control (grid functio- nality service)
• Ensure clear price signals in the balancing markets to enable investments in battery storage systems
SHORT TERM LONG TERM
Energy storage – 9
Share of total delivery costexpected to fall as technologies mature
229 (39%)
235 (40%)
46 (8%)
80(13%)
Share of delivered battery systems
Expected development
Share expected to remain constant
Share expected to remain constant
Share may drop as installed capacities increase and standardisation occurs
System integrator
Operations & Maintenance
Battery energy solution supplier (BES)
Battery cell & modulemanufacturer
590 590 590 590
EXHIBIT 5: Recommendations
Recommendations
As technology costs decline, batteries will become a viable lever to mitigate the intermittency challenge brought on by rapidly increasing VRE penetration in
many countries not endowed with large amounts of pumped hydro capacity. Based on all of the above, QVARTZ recommends the following course of action for different stakeholders in the power system.
SOURCE: QVARTZ analysis
Power and energy OEM
Utility/independent power producer
System operator
Regulator
• Learn and develop system integration product offerings to drive down system costs• Develop integrated product offerings at plant level (e.g. solar + battery + SCADA)• Develop O&M offerings
• Capture a value-adding position downstream in the battery storage value chain• Influence/control the agenda for specification of battery components, thereby driving total system costs down
• Develop business models integrating VRE generation and storage at plant level• Integrate battery systems to optimise own market access and gain incremental revenue in the intraday markets
• Exploit market arbitrage opportunities within wholesale
• Ensure low grid connection requirements for new technologies such as battery storage systems, flywheels, etc.• Offer battery storage pilots to quicker enable the right market conditions for storage suppliers
• Enable unrestricted markets' access to intraday and ancillary markets
• Liberalise the markets for ancillary service• Ensure clear price signals in the balancing markets• Introduce strong incentives and clear price signals for fast voltage control (grid functio- nality service)
• Ensure clear price signals in the balancing markets to enable investments in battery storage systems
SHORT TERM LONG TERM
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Up for a chat about energy storage? Contact Mogens Holm, Anders Roed Bruhn,Thomas Arentsen or Niels Koggersbøl
Mogens [email protected]+45 29 69 69 72
Anders Roed [email protected]+45 29 69 69 33
Energy storage – 11
Thomas G. [email protected]+45 29 69 69 30
Niels Reiff Koggersbø[email protected]+45 29 69 69 28
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