Plans for Energy Storage System Market Creation · 2020-01-17 · Plans for Energy Storage System...

Policy Issue Paper 14-16

Plans for Energy Storage System

Market Creation

S. I. Lee et al.

Ⅰ. Research Background / 1

Ⅱ. Research Results / 6

Ⅲ. Policy Implications / 20

Ⅵ. Expected Achievements / 28

<References> / 30

Contents

Plans for Energy Storage System Market Creation

Korea Energy Economics Institute 1

Ⅰ. Research Background

1. Research Background

□ Recently, both in domestic and international markets, Energy Storage

System (ESS) has been emerging as an effective means to establish

stable and efficient systems for power demand and supply.

○ ESS is considered as a new growth engine with a huge market potential

to effectively establish stable power demand and supply systems.

○ Major developed countries have provided technology development

supports, and demonstrated ESS using government budgets, and

propelled other policies to promote ESS, including government subsidies,

tax reduction, and obligatory installation.

- To extensively disseminate ESS and resolve unstable power issues after

a big earthquake, Japan has operated policies to provide central and

local governments a third of total expenses with government subsidies

and other support programs.

- California, the United States, passed a bill to make the installation of

ESS, responsible for 5% peak power, compulsory by 2020.

- In May 2011, Korea established Energy Storage Technology Development

and Industrialization Strategies (K-ESS 2020), and has propelled

technology development and demonstration projects.

○ In domestic and international markets, various ESS projects storage

2 Policy Issue Paper 14-16

technologies have been demonstrated, showing tangible results.

- Recently, energy storage technologies have rapidly advanced in terms of

both production and performance. The relevant industries have also paid

attention to ESS markets, expecting tangible profits in the future.

- As the ESS business is still at the beginning stage, however, many

companies have not had actual profits yet.

□ ESS contributes to the suppression of maximum power demands and

the stable power demand and supply.

○ Currently, in the Korean power market, maximum power has been

rapidly increasing, the total load factor has been gradually dropped, and

load variations by season and time have been larger. In addition, as

generators using new and renewable energy with high output variations

have increased, the necessity of power storage is importantly considered.

- As an effective alternative, ESS levels power loads by time to actively

respond to power peak and unexpected large-scale outage.

- Various power storage technologies have been developed from existing

pumped hydro storage. Some of them have been already disseminated

after completing a demonstration stage.

○ ESS contributes to stable power demand and supply as a practical tool

with multiple uses including energy management, backup power, load

leveling, frequency regulation, voltage management, and system

stabilization.

- ESS can be installed for a whole process related to power generation



and consumption from power stations, to transmission sites, to

substations, to distribution sites, and to consumers. Throughout this

process, ESS can provide various services.

- ESS contributes to the stability of power supply and the maintenance of

power quality with the feature of frequency regulation and connection

to new and renewable power sources with high output variations.

- In addition, ESS installed at general or industrial buildings can

contribute to the demand reduction during power peak, when power

highly costs, and power quality management. ESS also can be used as

emergency power.

- ESS contributes to the efficient use of power generation, and

transmission and distribution facilities. Furthermore, ESS has an effect to

avoid or defer the investments for the construction of new power plants

or transmission and distribution network facilities.

2. Research Needs and Purposes

□ Research needs

○ To expand the dissemination of ESS, it is necessary to review technical

requirements for each application, and to analyze the level and features

of current technologies.

- Energy storage technologies have been rapidly evolved, but those


technologies do not have performance required in all different

application fields.

- As most of the technologies are in the stage of development or initial

application, they still have risks and uncertainties, and need to go

through more verifications.

○ Various issues related to institutions, economics, and policies are

comprehensively reviewed to prepare strategies for the expansion and

dissemination of ESS.

- As the ESS market of Korea is still at the beginning stage, various

demonstration and pilot dissemination projects have been developed.

Due to the high burden of initial investments, Korea has difficulties in

creating the domestic ESS market.

- At the beginning stage of technology development or market creation,

the government policies should be improved to provide the industries

with financial and legal or institutional supports.

- Even if ESS has the economic feasibility in the national level, it cannot

be disseminated in the market without the economic benefits for

customers who will actually install and utilize.

- Therefore, the core issue to disseminate ESS in the market is to secure

the economic validity for customers, the actual users.

- If ESS fails to be quickly spread at the beginning stage of market

creation, it slows down the transition to mass production system,

consequently leading to the deferment of price reduction.



□ Research purposes

○ This paper aims to analyze the expected effects of ESS, such as demand

management (load leveling), by application and sector.

- Analysis on the concept and components of ESS and types and levels of

energy storage technologies

- Review on the application fields and uses of ESS, expected effects and

technical requirements by use, and possible applications in Korea

○ This paper aims to analyze the economic feasibility of ESS, and to

suggest strategies to promote the dissemination of this system.

- Analysis on the demonstration cases and policy trends related ESS in

major countries

- Analysis on ESS demonstration cases and obstacles in the dissemination

of the system in Korea

- Analysis on the economic feasibility and sensitivity of ESS for general

and industrial consumers with a large market potential

- Suggestions on the market creation and wide dissemination of ESS in

Korea


Ⅱ. Research Results

□ Concept and components of ESS

○ Energy storage technologies allow consumers to save spare energy and

use it when necessary.

- Various storage technologies have been developed, demonstrated, and

commercialized. All the cases of development are focusing on storage.

The most mature technology is pumped hydro storage.

- In Korea and other countries, demonstration projects for various storage

technologies are being practiced to verify their reliability and effects. The

market of energy storage technology is at the initial stage of creation.

[Figure 2] Energy Storage Technologies and their Maturity

Reference: IEA. Technology Roadmap Energy Storage (2014)

투자기술위험도 Risk of technology investment / 연구개발단계 R&D / 실증 & 보급단계 Demonstration

& dissemination / 상업화단계 Commercialization



전기저장기술 Power storage technologies / 열저장기술 Thermal storage technologies

열화학 Thermal chemistry / 합성 천연가스 Synthetic natural gas / 수소 Hydrogen / Adiabatic (단열)

CAES Adiabatic CAES / 초전도에너지저장(SMES)superconducting magnetic energy storage / 슈퍼커패시터

Super-capacitor / 플라이휠(고속) Flywheels (high speed) / 흐름배터리 / 리튬배터리 Lithium Battery/

용융염 Molten salt / 플라이휠(저속) Flywheels (low speed) / 빙축열저장 Ice thermal storage / 나트륨

황배터리 NaS battery / 압축공기에너지저장(CAES) Compressed Air Energy Storage / 가정용온수히터

Hot water heater for domestic use / 지하열에너지저장(UTES) Underground thermal energy storage

(UTES) / 냉수저장 Cold water storage / 지하저장고(pit) Pit / 양수발전(phs) Pumped Hydro Storage

(PHS)

○ The concept of ESS: ESS, energy storage system, refers to all devices or

systems which can save excess energy as it is or as a conditioned form,

and make it usable when necessary.

- ESS can be installed for a whole process related to power generation,

transmission sites, distribution sites, and consumers. Throughout this

process, ESS is used for multiple purposes including peak demand

management and power assistance services.

- ESS is divided into electricity storage system and thermal storage

system. In addition, the methods of storage are classified into physical,

chemical, and electromagnetic methods.


Electric Storage Type of ESS

Mechanical StorageㆍPumped hydro storage (PHS)ㆍCompressed air energy storage (CAES)ㆍFlywheels

Electrochemical Storage

ㆍLithium-ion battery (LiB)ㆍNaS ㆍLead acidㆍRedox flow battery (RFB)

Electromagnetic Storage

ㆍSuper-capacitor (or ultra-capacitor)ㆍSuperconducting magnetic energy storage (SMES)

<Table 1 > Energy Storage Techniques by Storage Method

○ The components of ESS: The basic components of ESS include storage

devices (reservoir, compressed air energy storage, battery, etc.),

conditioning devices (PCS, compressor/inflator, generator, etc.), and

control devices.

- Basically, battery ESS consists of battery system and battery management

system (BMS), which manages and controls the status of battery charge

or discharge.

- Additional components include power conditioning system (PCS), which

conditions power frequency and voltage for the features of systems and

loads and manage the process, and energy management system (EMS),

which is responsible for monitoring and control.

- Major companies including Samsung SDI, LG Chem, Hyosung, and LS

Ind. Systems have already considerable competitiveness in batteries and

PCSs, which are the core parts of this system.



[Figure 3] Components of ESS

발전원 Generation sources / 생산전력 시간차 활용 Use of time difference in power

production

송,배전 Transmission and distribution / 송배전효율향상 (전력 품질, 신뢰성) Improvement

of transmission and distribution efficiency (power quality, reliability)

수용가 Consumers / 요금절감, 품질향상 Electric charge saving, improved quality

제어 Control / 모니터링 Monitoring / 충전 Recharge / Discharge / 배터리 Battery

□ Dissemination of ESS in major countries

○ The government of each country has quickly moved to implement ESS

demonstration projects and to spread the system.

- They have accelerated to widely disseminate ESS in their country with

demonstration projects using government budgets and other financial

support including the provision of subsidies and tax reduction.

- Still, many projects are being propelled with government support.

However, an increasing number of projects have been also practiced to

secure economic feasibility without relying on government support.


- In North America and Japan, ESS projects targeting final consumers for

commercial use have been practiced.

○ As for the demonstration cases and dissemination policies by country,

the United States focuses on ESS for power system due to the

deterioration of power, Japan pursues ESS for households as they need

to secure emergency power, Germany applies ESS for power generation

using new and renewable energy sources to activate new and renewable

energy generation with high output variations, and Korea puts a priority

on buildings and plants to reduce the demands during power peak.

- The United States has actively supported technology development

demonstration of LIB, RFB, CAES, and flywheels focusing on public

institutes and large-sized power companies.

- The United States Department of Energy (DOE) has implemented

technology development and demonstration projects focusing on public

authorities such as ARPA-E and EPRI, affiliated research institutes, and

large-sized power companies such as AES and AEP.

- Federal and state governments have pursued policies to promote

investment including tax reduction, subsidy support, and the expansion

of public supplies. All of these policies have a purpose to create new

markets of ESS.



- While the federal government promotes the investments of enterprises,

state governments have developed installation support policies by

requiring companies who meet certain criteria to install ESS, and

providing subsidies for installation connected with new and renewable

sources.

- In addition, Independent System Operator (ISO) and Regional

Transmission Organization (RTO) have improved relevant institutions to

promote the introduction of ESS to power markets, while PJM allows

ESS to join the assistance service markets of frequency regulation.

- Japan has propelled technology development in various fields for power

plants using new and renewable energy and households. Holding the

advanced technologies related to NaS batteries and LIB, Japan has been

accelerating to create ESS markets based on government subsidy support

and cooperation with companies.

- Japan has demonstrated and disseminated large-scale ESS connected to

power networks with NaS batteries. Tokyo Electric Power and NGK

have jointly installed and operated ESS using 300MW NaS batteries. In

addition, New Energy and Industrial Technology Development

Organization (NEDO) has been responsible for the demonstration of ESS

by supporting demonstration projects to reach the goals of new and

renewable energy output compensation and load leveling.

- German and France have jointly proceeded Solion project, which

demonstrates about 75 systems to assess the validity of lithium-ion

batteries in achieving the energy self-sufficiency of houses using


photovoltaic energy.

- Since May 2013, the German government has provided up to 30% of

installation expenses with subsidies or low-interest loan supports for ESS

connected with new and renewable sources such as photovoltaic

generation.

□ Applications and effects of ESS

○ ESS can be installed for a whole process related to power generation

and consumption from power stations, to transmission sites, to

substations, to distribution sites, and to consumers. Throughout this

process, ESS can provide various services.



Types Features Uses and Expected Effects

Energy

devices

∙ Arbitrage trading (for SMP) ∙ Profit creation from bid for SMP variations by time

∙ Power supply capacity ∙ Profit creation from bid for capacity markets

∙ Spare capacity ∙ Profit creation from bid for spare capacity markets

∙ Assistance services for frequency regulation (FR)

∙ Power balance maintenance by charge and discharge instantly responding to frequency variations (G/F Control, AGC)

Assisting

power distribution networ

k

∙ Congestion mitigation in transmission and distribution

∙ Deferment of investments for transmission and distribution network improvement

∙ Profit creation from discharge in the case of congestion in transmission and distribution

∙ Reactive power supply (VAR Compensator)

∙ Voltage regulation by supplying reactive power to systems

Assisting new and

renewable

energy

∙ Mitigation of output variations in power generation using new and renewable energy

∙ Mitigation of radical output variations from generators using new and renewable energy

Demand

resources

∙ Bid for DR capacity ∙ Utilization as demand resources for peak reduction (electric power trade)

∙ Demand response to time (cost saving)

(TOU based DR)

∙ Cost saving and contract capacity reduction by responding to electric charges by time for general or industrial use

∙ Emergency power using Uninterruptible Power Supply (UPS)

∙ Emergency power to minimize damages from outage

Note: The data of DOE is revised by adding new and renewable energy services.

Reference: U.S DOE, Grid Energy Storage (December, 2013)

<Table 2> Features and Effects of ESS by Application


○ Performance required for uses of ESS and the level of performance by

energy storage technology

- Depending on application field and use, ESS is required to have

different levels of reaction speed, power supply capacity, discharge

duration, and cycle.

Application Use Capacity (MW)Target

discharge duration

Minimal cycle / year

GeneratorsArbitrage trading 1-500 1 hour 250+

Power supply capacity 1-500 2-6 hours 5-100

Assistance services

Frequency regulation 10-40 15-60 minutes 250-10,000Spare capacity 10-100 15-60 minutes 25-50

Voltage regulation 1-10MVAR - -Black Start 5-50 15-60 minutes 10-20

Other related uses 1-100 15-60 minutes -

Power transmission network

Network improvement 10-100 2-8 hours 10-50Congestion mitigation 10-100 1-4 hours 50-100

Other services 10-100 5 seconds - 2 hours 20-100

Power distribution

network

Deferment of network improvement 0.5-10 1-4 hours 50-100

Voltage assistance N/A N/A N/A

Consumers

Power quality 0.1-10 10 seconds - 15 minutes 10-200

Power reliability N/A N/A N/ATime-shift 0.001-1 1-6 hours 50-250

Peak load leveling 0.05-10 1-4 hours 50-500Reference: SANDIA, DOE/EPRI 2013 Electricity Storage Handbook in Collaboration with NRECA

<Table Ⅲ-3> Minimal Requirements of Technologies for ESS by

Application (DOE)



- ESS is required to have a large capacity and long time output so that it

can be used to mitigate congestion at transmission and distribution

networks, and to defer investments for the networks.

- In the case of peak saving ESS for consumers, the system is required to

have a certain discharge duration for less capacity than the case only

for generation, or transmission and distribution.

- When ESS is used for short-term power application, it is usually

required to have power with high output, used for a short time within

a few seconds or minutes. Therefore, ESS for power application needs to

have a little battery capacity only enough to meet a rated output.

- When ESS is used for long-term energy application, it is required to

have a battery with a large capacity enough to handle discharge for

several minutes to hours.

- When considering applications by sector, ESS connected with generation

companies and transmission and distribution networks is required to

have large facilities with tens or hundreds of MWh. On the other hand,

ESS only for direct consumers' loads needs only a small scale capacity.


Storage Technology Maturity Output

(MW)Reaction

time

Efficiency

(%)

Lifespan

Year Cycle

Pumped hydro storage Mature 100-5,000 Seconds-

minutes 70-85 30-50 20,000-50,000

CAES Installed 100-300 Minutes 50-75 30-40 10,000-25,000

Flywheel Installed 0.001-20 <Seconds-minutes 85-95 20-30 >50,000

Lithium-ion battery Installed 0.001-5 Seconds 80-90 10-15 5,000-10,000

NaS battery Installed 1-200 Seconds 75-85 10-15 2,000-5,000LA battery Installed 0.001-200 Seconds 65-85 5-15 2,500-10,000

VRB Installed 0.001-5 Seconds 65-85 5-20 >10,000

SMES Demonstrated <10 <Seconds 90-95 20 >30,000

Super-capacitor Demonstrated <1 <Seconds 85-98 20-30 >10,000

Hydrogen Demonstrated 100-500 Minutes <40 10-30 N/A

Reference: IEA, Energy Technology Perspectives 2014 (March 19, 2014)

<Table 4> Performance of Energy Storage Technologies

- Storage technologies do not always meet all the requirements of

performance for application fields. For instance, as for power system

assistance service requiring a quick reaction time, super-capacitors,

SMES, and flywheels will be the most appropriate.

- As for uses requiring consistent outputs for a long time, pumped hydro

storage and CAES, which have the feature of long-term operation, will

be suitable.

○ The utilization of multiple uses can maximize the values of ESS.

- Even if ESS is installed for a certain use, it still can be used for

multiple purposes. It is important to utilize ESS for various uses to



maximize its benefits.

- For multiple uses, the installed ESS should not be exposed to

operational problems.

Use

부하평준

공급용량

부하추종

주파수조정

예비용량

전압관리

송전혼잡완화

송배전투자지연

요금관리

피크부가금

전력신뢰

전력품질

신재생발전연계

신재생계통통합

풍력 계통통합

부하평준(차익거래) ● £ ¡ £ ● ● ● ⊗ ⊗ ⊗ ⊗ ¤ ¤ ○

공급용량 ● £ ¡ £ ● £ ● ⊗ ⊗ ⊗ ⊗ ¡* ¡* ⊗부하추종 £ £ ¡ £ £ ¡ £ ¡ ¡ ⊗ ⊗ ¡ ⊗ ⊗주파수조정 ¡ ¡ ¡ ¡ ⊗ ¡ ⊗ ⊗ ⊗ ⊗ ⊗ ⊝ ⊝ ⊗예비용량 £ £ £ ¡ ● ¡ ¡ ¡ ¡ ⊗ ⊗ ¡ ¡ ²

전압관리 ● ● £ ⊗ ● £ ● £ £ £ £ £ £ ⊗송전혼잡완화 ● £ ¡ ¡ ¡ £ £ £ £ ⊝ ⊗ ¡ ¡ ⊗송배전투자지연 ● ● £ ⊗ £ ● £ £ £ ⊝ £ £ £ ⊗TOU요금 관리 ⊗ ⊗ ¡ ⊗ £ £ £ £ ● ● ● £ £ ⊗피크부가금 ⊗ ⊗ ¡ ⊗ £ £ £ £ ● ● ● ¡ ● ⊗전력신뢰 ⊗ ⊗ ⊗ ⊗ ⊗ ¡ ⊝ ⊝ ● ● ● ¡ ¡ ⊗전력품질 ⊗ ⊗ ⊗ ⊗ ⊗ ¡ ⊗ ⊗ ● ● ● ⊗ ⊗ ⊗

신재생 연계 £ £ £ ⊝ £ £ £ £ £ £ £ ⊗ ●

신재생발전 계통 £ ¡ ⊗ ⊝ £ £ £ £ £ ● £ ⊗ ● £

풍력발전계통 ¡ ⊗ ⊗ ⊗ ⊝ ⊗ ⊗ ⊗ ⊗ ⊗ ⊗ ⊗ ¡ ¡

Reference: Sandia National Laboratories, Energy Storage for the Electricity Grid: Benefits and Market Potential Assessment Guide, (February, 2010)

<Table 5> ESS Utilization Matrix by Use

● Excellent £ Good ¡ Fair ⊝ Poor ⊗ Incompatible

표 5 가로

부하평준 Peak load / 공급용량 Supply capacity / 부하추종 Load

following / 주파수조정 Frequency regulation / 예비용량 Spare capacity

/ 전압관리 Voltage management / 송전혼잡완화 Congestion mitigation /

송배전투자지연 Deferment of investments for power transmission and


distribution / 요금관리 Charge management / 피크부가금 Peak due /

전력신뢰 Power reliability / 전력품질 Power quality / 신재생발전연계

Connection with new and renewable energy generation /

재생계통통합 Renewable energy system integration / 풍력계통통합 Win

power system integration

세로

부하평준(차익거래) Peak load (arbitrage) / 공급용량 Supply capacity / 부하추종 Load

following / 주파수조정 Frequency regulation / 예비용량 Spare capacity / 전압관리 Voltage

management / 송전혼잡완화 Congestion mitigation / 송배전투자지연 Deferment of

investments for power transmission and distribution / TOU요금관리 TOU charge management

/ 피크부가금 Peak due / 전력신뢰 Power reliability / 전력품질 Power quality / 신재생연계

Connection with new and renewable energy / 신재생발전계통 New and renewable energy

generation system / 풍력발전계통 Wind power generation system

□ Analysis on the economic feasibility and sensitivity of consumers' ESS

○ Preconditions and applied constants for the analysis on the economic

feasibility of ESS used by general and industrial consumers

- Features of ESS and its discount rates: 12 years of lifespan (10 to 15

years), 90% charging and discharging efficiency, and 5.5% discount rate

applied

- Installation and operation expenses of ESS: Supposing that Initial

installation of ESS costs ￦132,000/kWh(1kWh battery + 1kW PCS), and

yearly maintenance costs 3 % of the initial installation expenses.



- Operation strategies: Charging during light-load hours of weekdays,

and utilizing discharge during maximum load time

· Yearly outputs: 1kWh × 1,488 hours = 1,488 kWh (general pricing)

· Yearly outputs: 1kWh × 990 hours = 990 kWh (Critical Peak Pricing

Ⅱ)

- Yearly energy benefits: Charge of use + additional tax (10%) +

foundation fund (3.7%) reduced

○ The results of this analysis shows that current rate system does not

have economic feasibility at all when it is applied for ESS.

- The initial installation of ESS costs about ￦132,000 /kWh, which cannot

be returned during 20 years of payback period. (The lifespan of ESS is

10 to 15 years.)

- According to the results of analysis on economic sensitivity, general and

industrial consumers will have economic feasibility when the installation

expenses of ESS drop to ￦1,000,000/kWh based on the current rate

system. In other words, the break-even price of ESS (supposing that its

lifespan is 12 years) is ￦1,000,000/kWh based on the current rate

system.

- When the installation expenses drop to ￦500,000/kWh, B/C will be 2.04

to 2.04, payback period will be 4.2 to 4.3 years, and internal rate of

return will be 33.0 to 33.4%.


ESS Installation Coast (￦10,000/kWh) 132 120 110 100 90 80 70 60

General pricing

Payback period (year) 19.9 16.5 13.8 11.6 9.7 8.1 6.7 5.4

B/C 0.78 0.85 0.93 1.02 1.13 1.27 1.46 1.70IRR -0.8% 1.2% 3.4% 6.0% 9.1% 12.8% 17.5% 23.8%NPV

(￦10,000) -34.9 -22.5 -10.0 2.4 13.9 27.2 39.7 52.1

Critical peak

pricingⅡ


B/C 0.79 0.86 0.93 1.03 1.14 1.28 1.47 1.71IRR -0.7% 1.4% 3.6% 6.2% 9.3% 13.1% 17.8% 24.1%NPV

(￦10,000) -34.0 -21.5 -9.1 3.3 15.7 28.1 40.6 53.0

<Table 6> Changes in the Economic Feasibility with the Decrease of ESS

installation costs

Ⅲ. Policy Implications

□ ESS has a considerable market potential, but also has challenges to

expand the dissemination.

○ The challenges that ESS should overcome the price competitiveness, the

reliability and stability of technologies, and consumer acceptability.

- Among these, ESS should primarily secure competitive price and reliable

technologies. The future of ESS depends on how these problems are

resolved.

- Many storage technologies are still being developed. Some of them,

including lithium battery, NaS battery, flywheel, and CAES are now in



the stages of demonstration and dissemination.

- Currently, ESS using lithium battery is commercialized and disseminated

in Korea. However, it still has competitive price and reliable technology

issues, which should be resolved.

□ Suggestions to secure the economic feasibility of ESS are as follows.

○ In the beginning stage of dissemination, the government should provide

financial and operational supports to create ESS markets by financial and

operational supports.

- Once the initial markets are created, the installation costs will rapidly

drop with the transition to mass production system. The quick

dissemination of ESS in the markets will accelerate the transition to

mass production system.

- ESS is still unmarketable. This situation is also responsible to make the

industries hesitate about making a large investment on mass production

facilities.

- The government should prepare policies to create markets and to

promote the growth of relevant industries.

- To support the installation of ESS, the government should provide

financial supports and tax benefits, and encourage public institutions

primarily to introduce and install ESS.

- As ESS requires a lot of initial investments, the government needs to

provide small- and medium-sized businesses with subsidies for

installation as direct support.


- In addition to the provision of installation grants, the government can

reduce customers' expenses by leasing ESS or allowing a third party to

invest, install, and operate the system.

- If more actively creating ESS domestic markets based on competitive

ICT and lithium-ion battery technologies, the ESS industries of Korea are

expected to have a competitive advantage in global markets as well.

- Once the economic feasibility of ESS for consumers is obtained

sufficiently, it is necessary to review a policy to have large-sized power

consuming buildings or plants required to install ESS.

○ An ESS-exclusive rate system needs to be introduced to allow

consumers to clearly see the reduction effect of electric charges.

- The net benefit of operation for ESS is determined by power purchasing

costs for charge and power cost savings from the reduction of peak as

a result of emission.

- The exclusive rate system should be designed to consider both fairness

for existing customers and social benefits, maximizing the advantages for

all social members.

- The ESS-exclusive rate system needs to be designed to make the

installation and operation of ESS more efficient in terms of expenses

than the general rate system.

- The extension of maximum-load time, or the increase of expense gap

between maximum- and light-loads can be considered to secure the

economic feasibility of ESS.



- The exclusive rate system is expected to secure economic feasibility by

lowering charges during medium-load time instead of extending

maximum-load time of Critical Peak Pricing Ⅱ (from 3 hours to 6 hours

per day during spring, summer, and fall).

ESS rate (￦10,000/kWh)

132 120 110 100 90 80 70 60

ESS-exclusive


B/C 1.28 1.36 1.46 1.57 1.70 1.85 2.03 2.25

IRR 12.9% 15.3% 18.1% 21.5% 25.7% 31.2% 38.7% 49.9%

NPV (￦10,000) 44.9 54.9 64.9 74.9 84.9 94.9 104.9 114.9

<Table 7> Economic Feasibility Analysis of ESS Rate System

- When ESS-exclusive rate system is introduced, the economic feasibility of

the system is secured, increasing as installation expenses decrease.

According to the analytical results, B/C is 1.20 when the installation

expense is 1.4 million won, 1.28 for 1.3 million won, and 1.57 for 1

million won.

□ Strategies to secure the reliable technologies of ESS

○ Storage technologies have been rapidly developed, but markets still have

doubts on the reliability of these technologies as they at the beginning

stages of demonstration and dissemination.

- Currently, ESS with a large capacity is short of validation based on the

substantial time of use. This problem has caused concerns on the


reliability of ESS technologies.

- This problem is expected to be resolved when demonstration is

extensively performed, and operation time is more cumulated.

- If the reliability of technologies is not proved at the beginning stage of

ESS market, both dissemination and transition to mass production

system will slow down. Consequently, prices will be also reduced

slowly.

○ To secure the reliability of technologies, the government and the

industries need to make efforts to develop and demonstrate new

technologies based on a solid cooperative system.

- As many developed countries have been already developing storage

technologies, the storage technology industries are expected to confront

more intensifying competition.

- Technology development should secure competitive prices as well as

reliable technologies.

○ The following strategies need to be primarily considered to develop

energy storage technologies with cost competitiveness.

- Technology development to improve the performance of storage

technologies (ex. storage efficiency, storage density, lifespan, etc.)

- Material development for core components of ESS, whose production

costs are relatively high

- Support for system engineering technology development, and the

improvement of manufacturing performance



- Extensive development of new original technologies applied to ESS

○ In particular, it is important to lower the manufacturing price per unit

to increase the demand of ESS using medium- and large size lithium

secondary batteries.

- Out of the installation expenses of ESS in Korea, lithium battery shares

69%, PCS shares 21%, and construction expenses share 10%.

- To drop installation expenses, the price of lithium secondary battery,

whose share of production cost is high, should be reduced.

- The price of lithium battery was $1,000/kWh, but it has dropped to

$500 to 600 in 2013, decreasing by 40 to 50% for the past five years.

- Navigant Research expects that the price of lithium battery, which was

about $500/kWh in 2013, will drop to $300 in 2015, and $180 in 2020.

- McKinsey & Co suggest that the price of lithium battery will be drop

from about $600/kWh at present to $200/kWh in 2020, and to

$160/kWh in 2025.

- Therefore, medium- and large-sized lithium secondary battery

manufacturers should drop the price by 50% or more during the

following five years to secure price competitiveness in the market.

○ To reach this goal, it is necessary to develop new materials with a

reasonable price as well as to secure economy of scale.

- To secure the competitiveness of lithium secondary battery industry, the

manufacturers need to develop new cooperative models with major, or

small- and medium-sized companies based on solid cooperation system


supported by the government.

- As the material development for batteries requires substantial costs and

time, small- and medium-sized manufacturers usually cannot afford to

be responsible for all the expenses from technology development to

mass production.

- Currently, small- and medium-sized manufacturers develop technologies,

produce finished goods, and deliver them to major companies. However,

this structure has a lot of risk factors for small- and medium-sized

manufacturers.

- Major companies need to cooperate with small- and medium-sized

manufacturers from the stage of product development, providing

necessary manpower and financial support. From this cooperation, both

companies should establish a shared growth model.

- Meanwhile, the government should expand supports for technology

development by application field and companies specialized in

components and materials. In addition, it is necessary to develop

technologies and industrial strategies to increase additional values by

utilizing storage technologies.

○ ESS technologies need to be demonstrated, confirmed, and shared to

secure the reliability.

- In the ESS industry, track record is significant. Hence, it is important to

verify and confirm the reliability of ESS technologies at the beginning

stage.

- The period of demonstration project is not sufficient to verify the



reliability of technologies, and to fully understand any problems in

operation.

- Therefore, the government needs to consistently support companies to

verify technologies and even after installation, and following studies.

- In addition, ESS installed with the government support needs to be

monitored for a certain period of time to identify operational problems

and verify the effects of system. The results of monitoring and other

experiences and information related to ESS need to be shared

throughout various channels.

□ Strategies to secure the consumer acceptability for ESS

○ The acceptability of power consumers is important to reduce the

demands of peak power, which has the effect of demand management,

based on the expansion and dissemination of ESS.

- Securing acceptability may be secondarily considered as even projects for

the expansion and dissemination have not been fully started yet.

However, this issue should be propelled by stage before starting the

projects for the expansion and dissemination of ESS.

- Once new business models are settled with economic feasibility, the

actual subjects who secure consumer acceptability will be providers.

However, in the beginning stage, the government needs to intervene

with plans to secure consumer acceptability, and to provide support

policies.

○ The acceptability needs to be secured with the following plans as well


as informational promotion.

- The demonstration ESS supply projects for consumers need to be

expanded to cumulate the practical experiences of installation and

operation, to confirm achievements, and share relevant information.

- Guidelines for ESS installation and operation plans need to e developed

and distributed.

- ESS design tools for different uses need to be developed and distributed

(including the calculation method of proper capacity).

Ⅳ. Expected Achievements

□ This study will contribute to the development of policies for the

demand creation of ESS, and the stabilization of power demand and

supply.

○ The findings of this study can be used to understand the uses and

effects of ESS by application, and to decide priorities of applications to

disseminate ESS nationwide.

○ It can be helpful to create the standards for grid-connected ESS

standards, and prepare solutions for the constraints of grid-connection.

○ It can be helpful to maximize the utilization of ESS, and to develop

policies and strategies for ESS market creation.

○ It can be used as basic data to prepare the countermeasures of demand



and supply for power peak management.

□ This study will contribute to the expansion of ESS industries as a

growth engine, and the establishment of sustainable development

strategies.

○ It can be used as basic information to understand the trends of policies

and relevant industries in major countries.

○ It can contribute to ESS industries as a growth engine, and can be used

to prepare sustainable development strategies.

○ It can promote the development of relevant industries by encouraging

the ESS dissemination.


< References >

산업자원자원부고시(제2012-296호), “전력계통 신뢰도 및 전기품질 유지기준”,

2012.12.7

전력거래소, “전력시장운영규칙”, 2013.10

한국수출입은행 해외경제연구소, “리튬 이차전지 산업 동향”, Issue

Briefing(2014.6.23.)

에너지관리공단, “에너지관리시스템 보급 확대 방안”(내부자료),

KDB대우증권, “EV(전기차)와 ESS 나비효과”, 2014 Outlook Report,

2013.11.29

NEDO(2013),“NEDO 이차전지 기술개발 로드맵 2013(Battery RM 2013)”,

2013.8

일본경제산업성(2014), “エネルギー白書2014”(http://www.meti.go.jp/)

Bloomberg New Energy Finance, “ Battery innovation: incremental or

disruptive?”, Presentation Slide, 2012.1

Bloomberg New Energy Finance, “Clean Energy Investment Activity and

Trends”, Ecosummit London 2013(발표자료, 2013.10.5.)

DOE(2013), “Grid Energy Storage”, 2014.6

IEA(2014), “Technology Roadmap- Energy Storage”, 2014

IEA(2014), “Energy Technology Perspectives 2014”, 2014

SANDIA(2013), “Market and Policy Barriers to Energy Storage Deployment”,

2013.12

Policy Issue Paper 14-16


Printed on May 15, 2015

Issued on May 15, 2015

Author：Sung-In LeePublisher：Joo-Heon Park

Published by Korea Energy Economics Institute, (Address) 405-11, Jongga-ro, Jung-gu, Ulsan, 44543, Korea, (Phone) +82-52-714-2114, (Fax) +82-52-714-2028

Registered on December 7, 1992ⓒ Korea Energy Economics Institute, 2015

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