Regulation challenges for batteries and cost-effectiveness analysis

Abstract

In the near future scenario of decarbonization, electrification of the economy and increase in urban population, the provision of flexibility will be key for the evolution of the power sector functioning. Lowering prices in energy storage solutions and the evolution of communication technologies are opening new business opportunities for the power sector industry. There is a need for both private and public stakeholders to understand the energy storage options, the possible opportunities they can offer and the main challenges they have to face. This report will try to provide answers on (i) the state of the art, a comparison of storage technologies, the services they can provide, the business models that can be built and the main regulatory challenges they have to face; (ii) how to analyze a regulatory framework to identify aspects that facilitate the development of energy storage and how to apply it to leading markets such as USA, the EU, Germany, UK, California and New York State; and (iii) present a costeffectiveness analysis with real parameters of an hypothetical battery connected to a windfarm in Spain. The results present how energy storage performance in the electricity sector can be analyzed in based on three key aspects: (i) speed of discharge, (ii) energy capacity and (iii) round-trip efficiency. From a technical point of view, Li-Ion batteries, show very good performance thanks to their modularity, high energy density (~200Wh/l), fast response (<1sec) and efficiencies of 95%, being able to provide balance services for the network, firm capacity and arbitrage opportunities for the integration of renewable energy, and small-size services to end consumer. Pushed by the research in the electronics sector and the growth on the electric vehicle industry, Li-Ion batteries are expected to reduce their costs by 50% in the next ten years and increase their energy densities up to 10 times from current values. Main regulatory barriers for energy storage can be classified in three groups: (i) the existence of a clear definition in the regulation, so it can be treated in a non-discriminatory way and subject to appropriate fees and benefits, (ii) the adaptation of wholesale, reserve and balancing markets to shorter settlement periods, integrating the constraints such as state of charge and rewarding its fast speed response capability, and (iii) the public support of the industry by creating financing programs, research, reference standards and targets. The USA is leading regulatory measures to integrate storage in their markets with the recently approved FERC Order 841 and with the specific targets and financing programs the States are developing. The EU is seeking full integration of storage technologies in power markets through the approval of the “Clean Energy for All Europeans” Package, with Germany and the UK leading the path either benefiting storage with incentives for renewables, creating specifically tailored products or including them in capacity auctions. The remuneration of FCR has been key for the utility level battery development in these regions. Finally, the cost-effectiveness case developed for Sierra Moncayo in Spain shows that under current operation hypothesis, the installation would not be profitable. Nevertheless, the exercise shows the need of stacking revenues from different sources is necessary to justify large storage investments, the lack of attractiveness in secondary regulation participation, the constraints the state of charge impose and the still need of financing support for new projects.