Distributed Energy Storage is the Game Changer, and Renewables Drive the Economic Case

Electricity storage in Europe and other markets with significant intermittent generation may arrive more quickly than many in the industry think, thanks to price falls and efficiency improvements in storage technologies, increases in renewable sources being attached to the grid, and record high electricity prices, claims GlobalData's Head of Consulting for Power and Utilities, Jonathan Lane.

High amounts of intermittent energy generation such as wind and solar is being attached to the grid, driving high electricity price volatility, peak spreads and negative electricity prices in some markets. Renewable subsidies and high natural gas prices are also leading to record-high electricity prices.

The proposed introduction of capacity markets in many European countries could also be designed to support storage as well as generation. Lane considers the potential for change in this increasingly lucrative market, musing: “While the oldest technology, pumped storage, remains the cheapest way of storing electricity, this is largely because its capital investments are fully depreciated. New pumped storage development is constrained in many countries by the lack of available sites, and it cannot be deployed successfully to manage intermittent generation due to its slow ramp rate; namely the rate at which it can reach full discharge.”

However, electricity has been stored in hot water and storage heaters for many years, and these forms of virtual storage may take on a more active role, especially when combined with micro-CHP and heatpumps, in a future that looks increasingly electrified.

Electricity storage in batteries is also almost as old as the car, but traditional battery technologies have challenges for storing grid electricity, as they are relatively inefficient and have to balance their capacity utilisation against the number of charge/discharge cycles that can be completed before they quickly degrade. The Fraunhofer Institute estimates that in North America storage represents 2% of total installed electricity generation, whilst it is 6% in Europe and 3% in East Asia (Japan, China, Korea, Taiwan). 99% of this capacity globally is pumped storage, with other technologies including compressed air storage (477MW), Sodium-Sulphur batteries (302MW), Lead-acid batteries (125MW), Redox batteries (38MW) and Nickel-Cadmium (26MW).

Much of the economic research on battery storage rules out large scale implementation due to the high costs per kWh. However, much of this research is carried out in America where electricity prices and intermittent generation are much lower than in Europe. Current electricity market regulation also makes it difficult for storage projects to fully internalize the benefits to the project developer, and in addition smart grid infrastructure needed to control and coordinate distributed storage is still in deployment.

Italy represents a good case in point, as Lane explains that the country has some of the highest electricity prices in the world, owing to its almost complete reliance on imported natural gas for power generation, the price of which is mostly indexed to oil and oil products. This combined with a good solar yield means that solar PV is close to grid parity and 9GW were installed in Italy in 2011, more than in Germany. Enel Distribuzione, which accounts for 85% of Italy’s electricity distribution market, is actively investigating electricity storage as it now has about 20MW of distributed renewables connected to its distribution grid across over 300,000 sites.

Lane states: “This has led to a dramatic drop in the electricity flowing from the transmission grid into the distribution grid, especially during daytime ‘solar hours’, and the demand in some distribution regions from the transmission system is close to zero during Sunday afternoons. This is starting to move Italy into negative pricing territory where the economics for storage are given a major boost.”

This has in turn led Enel to instigate six separate storage projects in several MV/HV distribution centres based on electrochemical and lithium-ion battery technologies in capacities ranging from 500kWh to 2MWh. Enel also enjoys the building blocks for the smart grid through its Telegestore smart metering project and support from its regulator in developing the technology.

Enel also seems to be right in the location of storage – the distribution centre. Most distribution centres have space that allow them to add extra equipment such as battery storage and most renewable generation is connected to the distribution network. Indeed, storage at the distribution level could manage both wind and solar intermittency in Italy, or Germany, or elsewhere for that matter. Lane cites both lithium-ion and vanadium redox as promising technologies which are being trialled in North America, Europe and China.

“Whilst falling capital costs and rising electricity prices support the economics of storage in distribution networks, distribution price regulation does not, as storage is simultaneously distributed generation and load. The most obvious regulatory change would allow distribution network operators (DNOs) to procure storage services from storage operators in the same way that TSOs procure balancing services from generators. Proposed capacity mechanisms in Europe could also be designed to support the deployment of storage.”

Lane also believes that energy storage could be tailored to suit geographical locations, suggesting that, “in countries where solar yields are lower, such as Northern Europe, virtual storage systems using thermal storage plus heatpumps or micro-CHP could be more effective.” Thermal storage systems store electricity as heat, which offsets the requirement for burning natural gas or oil for space heating and hot water. Storing electricity as heat has a long history in many countries, with storage heaters storing electricity at night and consumers benefitting from using a two-rate tariff and meter. The introduction of smart metering and TOU pricing, the development in heatpump and micro CHP technologies and incentives for renewable heat, such as being proposed in the UK, would provide extra momentum to this type of storage.