The value of Electricity Storage
A new study on the value of electricity storage has been published by Energinet and EA Energy Analyses and will supplement the technology aspects of the recent Technology data Catalogue on Energy Storage
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Creating value from storage of electricity
A new study on the value of electricity storage in the context of the danish power system is available now. Electric storage has experienced a growing interest in the last years due to a general cost drop, its manifold potential applications in the energy sector and a wide array of technological options. The attractiveness of electric storage is motivated by its ability to provide multiple grid-related and market services and potentially combine them into a single business case.
The study highlights the feature of electricity storage technologies and studies the suitability of electricity storage to create value from flexibility and system services. Additionally this study supplements the technology aspects in the recent Technology data Catalogue on Energy Storage. Batteries is the type of storage with the most far-reaching applications; among them Li-ion technologies have gained remarkable attention due to their advanced technology readiness level and a sizeable cost reduction in the past years. The value and opportunities most relevant to the installation of electricity storage can be articulated in the following areas:
- FCR (Primary reserves)
- Arbitrage in day-ahead and intra-day markets and,
- aFRR (secondary reserves)
In general, electricity storage is found to be most competitive in markets providing small volumes but high value products with asymmetrical bids and/or a short temporal scope.
The market most suited for electricity storage is FCR (primary reserve), while other markets such as the day-ahead spot market and intraday market may contribute to the income of a storage unit. It is possible to obtain a positive business case from the FCR markets (primary reserve markets) alone, assuming that the asset obtains contracts in all years, as summarised in the table below.
|Case||Storage volume [h]||Availability payment [MDKK/year]||Energy payment [MDKK/year]||Investment costs in 2025 [MDKK]||NPV (2025) [MDKK]|
|FCR-N up- and down-regulation||7.5||2.0||0.14||12.1||0.71|
|FCR up-regulation only||3.5||2.0||0.04||6.5||6.66|
Table: Impact on the NPV of choosing between providing both FCR up- and down-regulation or FCR up-regulation only on the cash-flow of a Li-ion battery in 2025. The NPV is calculated with a 7% discount rate (real) and for a 10-year lifetime.
The table above shows that the main income - by an order of magnitude - for the two cases is from availability payments. FCR-N is characterized by being a symmetrical market (both up- and down-regulation), whereas the FCR market is asymmetrical (either up- or down-regulation). To participate in FCR-N (symmetrical market) a greater battery volume – and consequently higher investment costs – is required. In the case of batteries providing only up-regulation, 3-years access to FCR (primary reserve) capacity payments covers the battery investment costs. If the battery operates with a relatively limited amount of daily cycles (~ 1.1 cycles/day), this asset will still be available for further years of operations, since degradation of the battery is caused mainly by cycle numbers rather than lifetime. Li-ion batteries are estimated to be capable of around 14,000 cycles in the Technology Catalogue and would have a lifetime of more than 3 times the period of the analysed business case. The potential profits from these additional years of operation are not accounted for in this calculation.
However, the volume of these markets is very limited (83 MW in 2020) and will not on its own be able to support large scale penetration of storage technologies.
Applications include energy-only market activities such as arbitrage and system balancing but also a series of grid-supporting services. Considering arbitrage in the day ahead market, the figure below shows the historical average day-ahead price and the average daily price spread in the day-ahead markets in Denmark.
Participating in the day-ahead market and, more generally, in energy-only markets does not on its own constitute a viable business case for storage today or in the near future. While the a large scale deployment of storage is strongly linked to its spread in the energy-only markets (where most trading activities take place), this is unlikely to happen in the short-term, in part due to high capital costs. Hence, further cost reductions will be key for large scale electricity storage to materialize.
Figure: Average day-ahead price and daily price spread in DK1 and DK2 (1.1.2010-3.12.2019). The spread is the average daily value of moving 1 MWh from the hour with the lowest price to the highest price in the day-ahead market
The capacity payment in the first months of 2020 ranged between 210 and 360 DKK/MW/h, determined under a pay-as-bid mechanism. These figures are in the same order as the availability payments found in the FCR market. But due to the relatively new market conditions, it is difficult to draw general conclusions about the market attractiveness for electricity storage. In broad terms, storage units can fulfil the market requirements and benefit from a fixed income from capacity payment.
In practice, the study finds that the potential for electricity storage in a nordic/danish context is limited mainly due to the following three circumstances:
- Identifying the optimal strategy for storage units across different markets is not a trivial task and cannot in general be achieved without accepting risks and competition, as is the case with any provider of ancillary services.
- Additionally, a well-integrated nordic power system entails a market with more providers and thus stronger competition.
- Finally, some services are not yet exposed to the market. For example a market for local flexibility, i.e. a market for re-dispatch with up- and down-regulation being active on each side of a congestion in the transmission grid.
Although, day ahead spot markets contain the largest trade volumes, the income from arbitrage alone is insufficient to yield a positive business case for the analysed electricity storage technologies in the near-term future.
The participation in the ancillary service markets is attractive for storage technologies, as they satisfy the markets technical requirements and can access availability payments, which can yield a positive business case for Li-ion battery systems.
However, bidding in multiple markets will incur the risk that the operator might not be able to deliver the contracted energy because of limited storage capacity. Consequently, when electricity storages participate in ancillary service markets (particular FCR and aFRR), this may not solve imbalances but simply postpone them instead.
News and updates completed 12/2019 - 4/2020
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|A new Technology data Catalogue on Industrial Process Heating||Industrial Process Heating||New catalogue complete with guideline, 12 technology chapters including technology descriptions and technology data for key technologies on industrial heating||April 2020|
|Updated Guideline for Heating Installations||Heating Installations||Updated Guideline||April 2020|
|Geothermal plants for district heating||Generation of Electricity & District Heating||Updated technology chapter and data sheets for Geothermal district heating||April 2020|
|Updated chapter on Electric Heat Pumps for district heating||Generation of Electricity & District Heating||Updated technology chapter and data sheets for electric Heat pumps||April 2020|
|A new chapter on Power to Jet Fuel||Renewable fuels||New technology chapter and data sheets for a process that produce jet fuel from water and CO2 by reverse water gas shift and Fischer-Tropsch||May 2020|
|Technology or section||Technology data Catalogue||Content of published material||Date|
|Updated chapter on Electrolysis||Renewable fuels||Updated chapters for AEC, PEM and SOEC electrolysis||November 2020|
|New chapters on Carbon Capture||Yet to be decided||New chapters complete with guideline, technology descriptions and technology data for post combustion (amine based), oxy-fuel combustion and direct air capture||H2 2020|
|Transport of hydrogen, ammonia, DME and liquid fuels||Energy transport||New technology chapter and data sheet for transport of hydrogen, ammonia, DME and liquid fuels||H2 2020|
|New chapters on Green Ammonia||Renewable fuels||New technology chapter and data sheet for green ammonia||H2 2020|
|Transport and intermediate storage of CO2||Energy transport||New technology chapter and data sheet for transport and intermediate storage of CO2||H2 2020|
|New chapters on Methane Pyrolysis||Renewable fuels||New technology chapter and data sheet for methane pyrolysis||Yet to be decided|
|Updated data for Heating installations||Heating installations||Updated data for heating installations in line with updated guideline||Yet to be decided|
|Updated chapter on Methanol and SNG||Renewable fuels||Updated technology chapter and data sheets for methanol and SNG||Yet to be decided|
|Updated chapter on Biogas||Renewable fuels||Update of datasheets||Postponed|
The Technology data Catalogue team