ENERGY STORAGE CAN WE LEAVE STORAGE TO THE MARKET? ESNA Energy Storage conference, 29 January 2014 Mike Wilks, Director
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CAN WE LEAVE STORAGE TO THE MARKET? COPYRIGHT PÖYRY PRESENTATION TITLE 3 9 AUGUST 2012
Agenda Context - the need for flexibility Role of storage in providing flexibility services Storage costs state of play Potential revenue streams for storage Current challenges in capturing revenues Conclusions COPYRIGHT PÖYRY PRESENTATION TITLE 4 9 AUGUST 2012
Increased levels of renewables leads to rising flexibility requirements for power sector at national, local and company levels BAU 2013 0.0 Green World - Higher LOLE 10.0 15.0 20.0 25.0 Deviation Annual volumes of Imbalances within-day Wind Demand Interconnection Solar Outage Annual sources of imbalance increase with rising penetration of renewable on the system Wind should become the dominant source of error within-day Volumes and types of actions needed at all levels to balance the system/portfolio will change This leads to an increase in the annual volumes of flexibility needed by system COPYRIGHT PÖYRY 5
Requirements for flexibility change over the day as within-day retrading occurs Access to flexible sources in the last hours before real time becomes increasingly important Annual volumes of flexibility within-day BAU 2015 0-12 2030 Upward Downwa2468Cou -8 0-1 Green World - HLOLE -6-4 -2 0Cou Biomass CCGT CCSCoal CCSGas Coal Interconnection Nuclear PumpedStorage 510 15 Cou -1-5 0Cou COPYRIGHT PÖYRY 6
In the longer term all sources of flexibility are needed to manage increasing intermittency and electrification Flexible Generation Increased interconnection Demand Side Response Electricity Storage Peaking capacity for low wind periods Flexible plants to deal with short-term variability Flexible generation at renewables sites Interconnection to neighbouring markets Full utilisation of network to reduce wind curtailment Transmission reinforcement to link wind to demand Incentives for peak demand reduction Incentives for peak price avoidance/ reduction Heat electrification with flexibility potential Flexible charging patterns from electric vehicles Demand reduction/ for balancing services Energy export for low wind periods Energy import for high wind periods Storage at point of generation small or large Full utilisation of network to reduce wind curtailment Storage of electrified heat Storage linked to electric vehicles Provision of national or local for balancing services There are four major sources of provision of flexibility - electricity storage is the most diverse 30 JANUARY 2014 7
Storage comes in a variety of forms with a variety of characteristics There is a range of storage technologies - key differentiators in relation to potential flexibility services include scale and discharge duration COPYRIGHT PÖYRY PRESENTATION TITLE 8 9 AUGUST 2012
Currently the cost of storage can be significant especially compared to other flexible technologies such as OCGTs Technology costs ( /kw) HOWEVER significant cost economies are expected in the future as the technologies develop COPYRIGHT PÖYRY PRESENTATION TITLE 9 9 AUGUST 2012
Storage could be used for a number of purposes in GB Potential services cover the full value chain Generation Reduce imbalances as part of a portfolio Generate revenues through arbitrage Displace higher carbon generation capacity Network To optimise network reinforcement To contribute to quality of supply targets Ancillary services Supply To contribute to ancillary services requirements To reduce the need for additional capacity Wholesale hedging requirements Diverse range of use for storage facilities but storage is not recognised as an asset class on its own COPYRIGHT PÖYRY 10
Thus in theory storage could access a number of revenue streams This in turns in theory allows stacking different revenue streams to create a total value proposition Fast Reserve Frequency Response STOR Arbitrage opportunities in wholesale market Capacity Payment STORAGE REVENUES Potential for Network CAPEX These revenue streams are influenced by policy decisions COPYRIGHT PÖYRY 11
In reality some revenue streams are accessible and others not Costs and Benefits of example storage facility Not accessible Revenues attributable to wider system benefits which is a large part of the storage value proposition - currently are not accessible COPYRIGHT PÖYRY PRESENTATION TITLE 12 9 AUGUST 2012
Furthermore key revenue streams are in turn dependent on various policy decisions which can adversely affect income Cash out reform Incentives for electrification Balancing services Review Hierarchy of utilisation of DSR/Storage Future trading arrangements Smart energy framework Capacity Payment Impact on storage RIIO Storage revenues are therefore highly dependent on the outcome of the various policy tools being implemented in GB COPYRIGHT PÖYRY 13
Example 1: Emergence of the smart energy system has the potential to include energy storage as a key feature throughout In future we will see a fully multi-directional and interactive market at national and local levels where dynamic and flexible demand co-optimises with diverse and more unpredictable sources of generation COPYRIGHT PÖYRY 14
Example 1: A smart energy system leads to the creation of various potential market roles for energy storage Generation Trading Transmission & Distribution Sales Consumer Energy Producer Power Plant Operator Energy Trader TSO Commodity Sales End Consumer DSO Energy solutions Energy Producer - End Consumer Market Maker - Virtual Market Place emobility Infrastructure Operator Smart Services Provider Energy Storage Operator Virtual Power Plant Aggregator Energy Storage Aggregator Demand Aggregator Market Maker - Clearing & Settlement Smart Metering & Billing Provider Smart Hardware & Software Provider COPYRIGHT PÖYRY 15
Example 1: multiple potential uses requires a hierarchy of utilisation The perception of value attached to storage by the various parties depends on where they sit Storage could be useful for Network Operators but they are not currently allowed to own them COPYRIGHT PÖYRY 16
Example 2: Introduction of the GB capacity payment groups small scale storage with DSR This will dampen wholesale prices reducing opportunities for arbitrage 2013 0BAU 60 70 80 Day-ahe 10 20 30 40 50 TWA prices ( /MWh) Lower arbitrage opportunities anticipated COPYRIGHT PÖYRY 17
The GB capacity payment may or may not value flexibility However, the requirements for additional reserve services is likely to increase Reserve requirements 12000 10000 BAU Green World Green World - High LOLE 8000 6000 4000 2000 0 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 STOR required capacity (MW) 2030 An upward shift comes as a result of the increase in the largest in-feed (new nuclear unit) COPYRIGHT PÖYRY 18
We anticipate the GB capacity payment will potentially reduce the availability and utilisation payments for flexibility services Capacity payments rise to the required level for supporting a balance of CCGTs/OCGTs under a certain expectation of market revenues (additional flexible capacity brought forward could also deliver ancillary services) Availability payments Utilisation payments 12.0 400 Availability price ( /MW/h, real 2012 money) 10.0 8.0 6.0 4.0 2.0 Historical BAU Green World Green World - High LOLE Utilisation price ( /MW/h, real 2012 money) 350 300 250 200 150 100 50 Historical utilisation price BAU Green World Green World - High LOLE 0.0 0 Capacity payment effectively dampens revenues from other sources COPYRIGHT PÖYRY 19
Conclusion energy storage needs support in the short term then market design changes to enable it to be there economically at scale in the longer term 1 2 3 4 5 Storage has a variety of uses, some of these uses rely on market based revenues while others relate to investment avoidance savings Storage can access some of these revenues but not others as they are not directly recognised as being part of the benefits which storage facilities bring to the system Storage revenues are affected by policy decisions from capacity payments through to review of ancillary services and the regulation surrounding network assets In the longer term easier access to the pancake stack of revenue streams and falling capital costs would enable storage to thrive at scale in a decarbonising energy sector In the short term as an emerging technology with high cost and difficult access to revenue streams storage needs further targeted support to enable it to be economic today and enable economic delivery at scale in the future COPYRIGHT PÖYRY 20
Contact: Name: Asheya Patten Mail: asheya.patten@poyry.com Phone: +44 1865 812 220 COPYRIGHT PÖYRY PRESENTATION TITLE 21 9 AUGUST 2012