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Electricity storage: How to facilitate its deployment and operation in the EU? 4th Smart Grids Florence Workshop Florence, 31 May 2012

Xian HE THINK (http://think.eui.eu)

Florence School of Regulation

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• Transition towards “2020” and “2050” implies substantial structural changes in the energy sector

• Future system faces well-known challenges and electricity storage might play a crucial role

• But electricity storage is no “new phenomenon”

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Our report:

Identification of the drivers for new interest in electricity storage

Discussion of viable business models

Investigation of whether current market design and regulation impede or pave the way for the development and deployment of electricity storage

Background THINK Report #8

Why the renewed interest ?

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Outline

a. Electricity storage: A special asset for the future power system?

a. What is electricity storage? A definition.

b. Are alternative means of flexibility fundamentally different?

c. Does electricity storage have a special role for the future power system?

b. Technology review

a. Existing technologies and deployment

b. International experience

c. The economics of electricity storage: Viable business models

a. Context: Current market design and regulatory framework

b. Case studies

c. Viable business models for electricity storage in the future power system

d. Recommendations for market design and regulation

a. Guidelines for facilitating the deployment and use of storage

e. Need for EU involvement?

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Electricity storage The value of storage is related to these 3 functions

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Electricity Other forms of energy Electricity

reservoir (1)

(2)

(3) grid grid

Value related to inter-temporal arbitrage

Value related to production/consumption balance, depending on response time, power rating and energy rating:

How fast it can react? [ms-s-min]

How much imbalances it can correct? [kW-MW]

How long it can last? [s-min-hours]

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A special class of assets for the power system? Alternative means of flexibility

There are alternative means of flexibility on both generation and demand side:

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Storage as non-electric energy

Electricity in

Storage as non-electric energy + time shift

Storage of fuel

+ C

Electric energy

storage

Demand side

management

Flexible

operation of G

Downward

adjustment

Ability for…

Upward adjustment Accumulation

Electricity out

+ P

Fuel in

- P

Electricity out

+ P

Electricity in

+ C

Other forms of energy out

- C

All are able to (a) react to system requirements of down-/upward adjustment and also (b) include the opportunity to benefit from inter-temporal arbitrage

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Flexibility

Electricity Storage

What we need is….

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Well adapted

system architecture

To ensure a neutral and efficient procurement of flexibility sources

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Flexibility

Electricity Storage

What we need is….

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Viable business model: Two general types

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Deregulated-driven business model

Prevailing function involves deregulated activities

Remaining capacities can generate regulated income

streams

Regulated-driven business model

Prevailing function involves activities that generate

regulated income streams

Remaining capacities can be used for deregulated

activities

• Advantage: Providing regulated services without interfering the deregulated competition

• BUT: Regulated revenue not guaranteed, cost recovery based alone on deregulated services typically not possible

• Advantage: Regulated income source guaranteed, while allowing the possibility to play in deregulated activities

• BUT: Might conflict with unbundling principle if ownership by regulated actor – thus, could interfere with downstream competition

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Flexibility

Electricity Storage

Well adapted

system architecture

Eliminate hurdles for providing the regulated services improve regulatory framework

Eliminate hurdles for providing the deregulated services improve market rule setting

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Does the current market design provide the necessary and credible signals?

Is possible market absence justified?

Are market failures already (partially) corrected by existing regulation?

Guidelines for market design & regulation

… considering interactions between different market components

Market absence? Market failures?

Services storage can provide

.

.

Resolving the market and regulatory hurdles Way of investigation

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Recommendations improve signals for deregulated activities

• Energy markets – Increase the liquidity by relaxing minimum and symmetric up- and downward bidding requirements

–Improve the consistency between price fixing mechanisms in D-1 and balancing markets

– Heterogeneity in national balancing mechanisms and peak-load arrangements need to be further investigated.

• Capacity mechanisms – Curing the roots of the lack of investment incentives requires to improve existing market signals

– Call for cautions in regard of the heterogeneity in the capacity mechanisms design across MS.

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Recommendations improve signals for regulated activities

• Ancillary services procurement – Replacing bilateral contracts by competitive tendering wherever possible could help revealing and quantifying the value of flexibility means

– Adopt performance-based (i.e. source-neutral) remuneration schemes

–EU should be involved in facilitating the exchange of ancillary services across-border

• Grid tariff – Charging the L-component on storage is not well founded

– Introduction of a time component in grid tariffs should be considered

– The impact of the heterogeneity in grid tariff should be further investigated by EU

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Need for EU involvement? • Establishing good practices to improve the market and

regulatory signals

• Investigating the heterogeneities in national practices that might impede a level playing field for flexibility means among MS

• RD &D • Align the RD &D investment with EU industrial policy

• Foster enhanced coordination, cooperation and communication.

• Develop a technology roadmap for electricity storage in the scope of a European storage industrial initiative

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Thank you very much for your attention xian.he@eui.eu

Florence School of Regulation