Energy storage. grid-scale batteries as a first-wave technology disruptor. Energy storage 1

Transcription

1 Energy storage grid-scale batteries as a first-wave technology disruptor Energy storage 1

2 CONTACT QVARTZ Denmark Ryesgade 3A DK-2200 Copenhagen N Tel QVARTZ Norway Wergelandsveien 21 NO-0167 Oslo Tel QVARTZ Sweden Birger Jarlsgatan 7 SE Stockholm Tel + 46 (0) QVARTZ white paper

3 Energy storage 3

4 Storage and the intermittency challenge 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. Today, many countries are chasing ambitious renewable 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 generation 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 penetration 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 Exhibit 1, there will be a need for the dispatchable capacity to increase by roughly 500% towards 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. conventional thermal power), interconnectors with other markets, demand-side flexibility and energy storage. Dispatchable plants can meet the flexibility requirement 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 Interconnectors between neighbouring countries can provide the necessary flexibility to accommodate high VRE integration, and extensive plans for transmission 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 Furthermore, 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 increasing VRE shares, as consumers can adjust consumption behaviour to match the market signals associated with energy scarcity and surplus. However, this will require an extensive roll-out of demand response technologies, and new business models and technology 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 provision of balancing capacity and system functionalities. However, to meet the demand for balancing power, long-term storage technologies need to be competitive. Today, some countries have competitive longterm storage technologies installed, mainly pumped hydro which is widely used, especially in the Nordics 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 hydropower in Norway and Sweden as well as the widespread 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 technology and production costs are decreasing fast. 4 QVARTZ white paper

5 EXHIBIT 1: Chart over VRE penetration now and in 2020/25 Variable renewable energy (VRE) Dispatchable renewable energy Conventional energy sources VRE share in the generation mix (per cent) VRE share in the generation mix (per cent) 32% 46% 46% +38% 56% 64% 48% 44% 44% +35% 52% 59% 21% % VRE share in the generation mix (per cent) VRE share in the generation mix (per cent) 35% 17% +30% 13% 5% +214% 17% 20% 22% 13% 25% 40% 48% % VRE share in the generation mix (per cent) VRE share in the generation mix (per cent) 3% 3% +40% 9% 11% +133% 3% 4% 5% 9% 15% 21% 93% % * Includes hydropower and biomass SOURCE: ENTSO-E; IHS; QVARTZ analysis Energy storage 5

6 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 battery storage to be cost-competitive with traditional generation technologies around 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 distribution 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. EXHIBIT 2: Forecasted development in LCoE for certain battery applications*, USD/MWh Conventional source: Natural gas for peaking Batteries: Lithium-ion for frequency regulation Lithium-ion for peaking Flywheel for frequency regulation Wide ranges of LCoE for each source. E.g. Li-ion LCoE for peaking ranges between 321 and 658 in Li-ion is currently the most competitive source of energy for fast-dispatch ancillary services on the US PJM market * 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 6 QVARTZ white paper

7 EXHIBIT 3: Overview of applications at different levels of the system KEY CUSTOMER NEEDS System level (TSOs, DSOs) Ensure efficient 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) THE GRID LANDSCAPE Asset portfolio level (IPPs, utilities) Enable optimal energy pricing and arbitrage through demand responsiveness (increase revenue/maximise profit) Ensure supply and compliance at a low cost (reduce OPEX) Plant level (IPPs, utilities) Optimise park value by health monitoring, prediction and cost management (increase value/life of asset) SOURCE: QVARTZ analysis 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 respective 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 promising 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 technologyagnostic approach when considering a move into the battery storage field. Energy storage 7

8 Battery value chain 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 developed 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 importance 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 generators 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. EXHIBIT 4: Value chain overview Battery cell & module manufacturer Battery energy solution supplier (BES) System integrator Operations & Maintenance Share of delivered battery systems 229 (39%) 46 (8%) 80 (13%) (40%) Expected development Share of total delivery cost expected to fall as technologies mature Share expected to remain constant Share expected to remain constant Share may drop as installed capacities increase and standardisation occurs SOURCE: Frost & Sullivan; expert interviews; QVARTZ analysis 8 QVARTZ white paper

9 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. EXHIBIT 5: Recommendations SHORT TERM LONG TERM Power and energy OEM 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 Utility/independent power producer 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 System operator 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 Regulator 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 functionality service) Ensure clear price signals in the balancing markets to enable investments in battery storage systems SOURCE: QVARTZ analysis Energy storage 9

10 Up for a chat about energy storage? Contact Mogens Holm, Anders Roed Bruhn, Thomas Arentsen or Niels Koggersbøl Mogens Holm mogens.holm@qvartz.com QVARTZ white paper Anders Roed Bruhn anders.roed.bruhn@qvartz.com

11 Thomas G. Arentsen Niels Reiff Koggersbøl Energy storage 11

12 12 QVARTZ white paper