Renewable energy deployment over the last decades has posed unprecedented challenges for the planning and operation of power systems. In the context of increasingly decentralized and intermittent generation, power utilities1 and system operators need to rethink their portfolios, business models and positions in the market in order to be resilient to these changes and benefit from them.
Battery storage has gained strong interest as an option to respond to these new challenges and provide flexibility to the system to cope with high levels of renewables. Driven by increased usage in the automotive industry, costs of batteries have significantly dropped since 2010 (65% decrease for lithium-ion batteries2), although further cost reductions are necessary for widespread use in the power sector.
Actors all along the energy value chain find themselves facing a number of key questions when considering how energy storage may affect their businesses:
- In what applications will battery storage play a key role in managing the future grid?
- What will be the most attractive business models? For which (combination of) actor(s) along the value chain?
- What factors influence the choice of battery technologies?
- Which battery technologies will likely be the most important in each application?
- What are the drivers, enablers and alternatives to battery storage deployment?
In this report we respond to the above questions and describe the results of a study in which we have reviewed battery applications, battery types, drivers & barriers to battery storage and trends in key markets, based on interviews with major market players in the energy sector. We have explicitly addressed what’s in it for the different types of stakeholders along the value chain. The key conclusions of our study are summarized below: Deployment of stand-alone batteries to provide grid services such as frequency response and frequency regulation has mainly been achieved under pilot projects. Widespread deployment has been hindered by high costs and regulation uncertainty, but grid-scale storage for frequency regulation3 is still seen as one of the most promising applications to date. Large-scale hybrid battery configurations, to stabilise renewables output, are also considered one of the biggest successes of batteries so far, especially on islands. Finally, hybrid residential battery configurations have seen a significant boost in some markets, such as Germany, where incentives are put in place.
DSOs and TSOs can use batteries for grid-support applications such as congestion avoidance, frequency regulation, frequency response4 and voltage stability, and tend to see co-ownership as the most likely option for making a positive business case. Indeed, all market players generally see the combination of several applications as essential to make battery solutions economically viable. However, system operators are only likely to make major moves when the regulatory framework for ownership and operation of storage technologies has been further clarified.
Compared to system operators, power utilities are able to leverage batteries for a wider range of applications and less constrained by regulation. They can potentially use batteries to generate revenues from arbitrage in the market, decrease exposure to imbalance costs and provide grid services to system operators. Vertically Integrated Utilities (VIUs)5 can also deploy batteries as part of their offerings to end customers, as is already seen in Germany, for example.
Aggregators are also major enablers of battery deployment today. Partnerships between VIUs and aggregators as well as battery manufacturers/system integrators and aggregators have been developed over the last few years to generate revenues primarily from ancillary services and the wholesale market with batteries at residential, commercial and industrial levels. The roles of aggregators continue to evolve, and the emergence of aggregators acting as software providers rather than technology operators is reshaping the position of VIUs in the market.
In conclusion while battery storage remains a market for early adopters today, with more mature business models for some players (e.g. power utilities) than others (e.g. system operators), time for inaction is far over. Because whenever the technology shall be cheap, it will belong to those who invested in its development. And whenever the regulation will be more facilitating, the opportunities will be captured by those who have a business model ready. This is the moment for markets to be shaped, lobbying to be done, regulators to engage with and early strategic actions to be performed for actors along the energy value chain to make sure they will be part of the future framework and at the forefront of market trends.