potential economic and environmental value of large-scale ... · potential economic and...

Potential Economic and environmental value of large-scale energy storage in Europe eStorage Workshop

19 October 2016

Marko Aunedi, Danny Pudjianto, Fei Teng, Goran Strbac (Imperial College London)

Pieter van der Wijk, Wim van der Veen (DNV GL)

Kristof De Vos, Manuel Galvez (Elia)

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Outline

1. Storage technologies & applications – A system perspective

2. Fundamental value of storage and VS-PSP technology for European electricity system

3. Value of energy storage from market participation

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STORAGE TECHNOLOGIES & APPLICATIONS – A SYSTEM PERSPECTIVE

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Storage technologies & applications – A system perspective

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On T-level PHS is the only mature technology already delivering different services but facing constrained(1) business case

Batteries are already commercial and installed mainly at D-level, but today with limited energy storage(2)

Power-to-Gas, can have the potential of managing weekly / seasonal variability of RES

Power-to-Heat can be of interest for distributed storage

Flywheels, SMES, supercapacitors can be of use in weak / isolated systems

Technologies

PHS: Pumped-Hydro Storage, PSP: Pumped Storage Plant; T-level: Transmission level, D-level: Distribution level

(1) For new capacities, difficult to find a positive business case; for existing capacities, reduced profitability in current op. strategies (2) Batteries are becoming profitable in some countries for providing high-value ancillaries such as frequency containment reserves

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System needs

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We need to manage the increasing amounts of variable renewables, in different time-frames: Daily cycles, for which PHS already contributes and batteries will progressively contribute … but also weekly / seasonal cycles for which today appropriate storage technologies (e.g. Power to

Gas) are not yet fully available

PHS: Pumped-Hydro Storage, PSP: Pumped Storage Plant;

Source: 50Hertz

Transmission infrastructure and interconnections are and will be needed to transport bulk energy from renewables Storage is and will be part of the solution mainly to provide flexibility to the system and market, and support emergence of new applications (e.g. electromobility)

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Applications

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Arbitrage: Due to RES, historic difference in prices between day & night is eroding, and eroding profitability of this op. strategy

Portfolio mgmt.: Important tool for BRPs to maintain a balanced portfolio, but today accessed by single/few players

Energy mgmt.: Gaining interest, in particular self-consumption, due to decentralisation. However, need to avoid that system cost are born by fewer consumers

Frequency regulation: Expected increase in need for operating reserves (aFRR, mFRR), as well as increasing reservation costs (from gas-fired plants). Today batteries provide FCR, while PHS provide ‘slow ‘ reserves

Other services can be provided such as black-start and voltage support (already provided by some PHS), congestion mgmt. and possibly invest. deferral

New services: E.g. like ‘fast’ FCR / ‘synthetic inertia’ for weakly interconnected / isolated systems

FCR: Frequency Containment Reserves: aFRR & mFRR: automated & manually-activated Frequency Restoration Reserves

Energy Services Ancillary Services Reliability services

Storage assets can have value as providers of security of supply. o At local level for ensuring

continuity of supply for consumers in remote locations (e.g. via batteries) or high value applications (e.g. data centres)

o At system level, storage could be a contributor to adequacy in capacity mechanisms competing with other technologies (e.g. generation, demand-response)

Storage needs to find value in different applications according to their technical capabilities

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Possible way forward

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Find value in different timeframes, specially towards the short-term (e.g. intra-day) to cover for RES forecasting errors

Investigate mechanisms allowing different / all players to access available storage capacity to balance their portfolios

Develop enhanced market mechanisms to further promote players to actively contribute to the balancing using centralised and aggregated energy resources

Need for flexible assets capable of providing different kinds of services are key. For instance variable PHS is candidate tech.

Develop mechanisms to source services from aggregated energy resources

Further work on more dynamic sizing & sourcing (timeframes) for AS, and for enabling cross-border sourcing (e.g. frequency regulation) and sourcing new services (e.g. ‘fast’ FCR)

Find value in services for high-value applications (e.g. hospitals, data centres,…) and remote locations to provide additional revenues –for (decentralised) storage

Investigate & enable access to capacity markets allowing storage to contribute to system adequacy and earn additional revenue stream

Energy Services Ancillary Services Reliability services

Need to further investigate technologies & innovative models facilitating multi-objective operation. Apart from market-driven business models, regulated business models allowing system operators to access needed ancillary

services and/or allowing access of storage capacity to entire market(*) should be investigated (*) As for instance today TSOs do with their interconnections

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FUNDAMENTAL VALUE OF STORAGE AND VS-PSP IN EUROPEAN ELECTRICITY SYSTEM

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Objectives

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1. Identification of the roles and the fundamental benefits of energy storage in Europe [2020- 2050]. Impact of energy storage on:

• power generation • transmission capacity requirements • capital costs • system operating costs • carbon emissions

2. Quantification of the impact of upgrading the existing fixed-speed PSP • Variable speed • Higher efficiency

3. Analyses • Impact of balancing market integration • Impact of competing technologies

• Demand response • Interconnection • Distributed storage

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Analysis tool/1

Whole electricity System Investment Model

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Analysis tool/2

Advance Stochastic Unit Commitment

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Stochastic vs. deterministic approach to storage valuation

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Stochastic value of storage

– making money from managing uncertainty

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2015 2025

Illustrative example of ASUC study

Making more money by doing less!

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System benefits of different PSP technologies

Impact of technologies and renewables

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High RES scenario Low RES scenario

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Incremental values of PSP technologies

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Low RES scenario High RES scenario

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Savings in carbon emissions

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Value of PSP for different RES penetrations

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Value of variable-speed PSP

Whole Europe

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Impact of balancing market integration/1

Central Europe

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Mid Europe

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UK and Ireland

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Competing technologies/1

Impact of DSR and interconnection development

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Competing technologies /2

Bulk versus distributed storage

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Conclusions

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• System benefits of PSP are significant • high RES scenario (80% RES)

• short term: €1bn p.a. • long term: €13bn p.a.

• Fundamental value of storage is higher in the higher RES scenario • Drivers:

• Reduction of system capacity in the short-term • Savings in OPEX in the long-term (higher RES)

• Upgrading the storage with variable-speed drive enhances the benefits of the storage by 10% - 20% in the long run (2050).

• The main benefit of the upgrade comes from the improvement of efficiency while at the same time enables PSP to provide frequency regulation during pumping mode.

• Integration of balancing market may reduce the value of variable-speed PSP • Higher value for a weak interconnected system

• Bulk PSP competes with other flexible technologies especially DSR

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Introduction

Value of storage for participation in competitive electricity markets

Goal: Determine the value of storage as part of the electricity market for different parties and from different market places

Task 3.2.1 benefits of storage from a system cost perspective

Task 3.2.2 benefits based on possible income from the different market places

• Actual realised revenue depends on ownership model, asset combination and services provided with storage.

• Within T3.2.2., scope was limited to single storage asset owned by commercial party active on spot and balancing energy markets.

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Ownership-model

Commercial party

TSO

Hybrid (TSO & 3rd party)

Services

Arbitrage spot market Congestion management

Arbitrage intra-day market Portfolio services (e.g. imbalance insurance BRP)

Balancing energy Generation adequacy

FCR capacity …

FRR capacity

Assets

Single storage asset

Multiple storage types

Storage and RES

Storage and thermal

Storage and lines

…

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Spot priceand renewable capacities

Market

model

Spot marketbid

optimization

Imbalance forecaster

Investment

analyses

Real-time dispatch

Hourly spot price curve Spot market revenues

Balancing revenues

and OPEX for each sample

Balancing prices and volumes forecasts (multiple samples)

Spot market obligations

Approach


Market revenue calculations for:

• Three countries: Germany, France and Belgium

• Four scenarios with different fuel mix

• Four years (2020, 2030, 2040, 2050)

• Balancing market sensitivity (increase the spot and balancing price difference by factor 2,3,4)

Structure of approach:

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VS PSP (Les Cheylas) Generator Pump

Max capacity (MW) 255.5 273.6

Efficiency (%) 93.1 92

Min stable level (MW) 119.0 172.5

VO&M (€/MWh) 3 3

FRR capacity (MW) 136.0 101.0

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Spot priceand renewable capacities

Market

model

Spot marketbid

optimization

Imbalance forecaster

Investment

analyses

Real-time dispatch

Hourly spot price curve Spot market revenues

Balancing revenues

and OPEX for each sample

Balancing prices and volumes forecasts (multiple samples)

Spot market obligations

Approach


Structure of approach and individual modules

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Based on historical distribution of imbalance energy volumes and

prices

Detailed electricity spot market model for northwest Europe

Two-stage stochastic optimization: determine single profile for spot-market,

taking uncertainty of balancing market into account

Limited foresight for balancing market, perfect foresight spot

market obligations

Monte Carlo modelling of investment costs and

NPV calculation

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Results


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VS PSP operational profits – base cases

Operational profits = spot and balancing market revenues minus operational cost (e.g. VO&M).

Expected value is range of 12 to 18 M€/year.

Increase in installed RES capacity increases price volatility and therefore operational profits

Impact of increase in transmission is mixed: sharing of balancing needs

Increasing competition from DSM, EVs towards 2050.

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Overall operational profit interval (M€/yr)

Germany

2030 - Red 2030 - Blue 2030 - Yellow 2030 - Green

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Results - Sensitivity


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VS PSP operational profits – incr balancing market

Operational profits = spot and balancing market revenues minus operational cost (e.g. VO&M).

Development of balancing market is uncertain.

Increasing the spread between spot and balancing market price increases operational profits up to 80 M€/yr.

Impact depends on the balancing market characteristics. (Base case corresponds to current balancing markets.)

• Germany: wide range in balancing prices

• France & Belgium: sharp distribution, arbitrage between spot and balancing

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Results VS PSP new build


VS PSP New build – Overall business case

Distribution of annuitized NPV for Germany in 2030 after taking into account investment costs and risks.

• 2030 – Yellow base scenario: operational profits are insufficient to cover overall costs 76% probability of negative NPV.

• 2030 – Yellow & balancing price spread x4: increase in operational profits is sufficient for positive NPV

o Expected annuitized NPV: 33.1 M€/year

o Width in NPV distribution is larger compared to base case due to large spread in operation profits.

• Range in expected value for annuitized NPV for VS PSP from 2030-Yellow base scenario to balancing price x4 France: -9 to +50 M€/year Belgium: -8 to +47 M€/year

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Annuitized NPV (M€/yr)

Germany

2030 - Yellow 2030 - Yellow (x4)

Key assumptions NPV Base Low - High

Investment costs (€/kW) 1338 870 – 2007

Lifetime (yrs) 50 40 – 60

WACC (%) 5 4 – 6

FO&M (% of investment) 0.5 0.25 – 1.0

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Results VS PSP conversion


VS PSP conversion

Comparing the VS PSP annuitized NPV to the regular fixed-speed PSP NPV, we determined the impact of the PSP to VS PSP conversion on the annuitized NPV (i.e. difference in PSP and VS PSP annuitized NPV)

Current balancing markets: no significant opportunities. Impact of increasing balancing market price spread differs per country, due to different balancing market characteristics.

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2030 - Yellow (balancing x2)



Key assumptions NPV Base Low - High

Investment costs (€/kW) 192 125 – 288

Lifetime (yrs) 30 25 – 35

WACC (%) 5 4 – 6

FO&M (% of investment) 0.5 0.25 – 1.0

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Results VS PSP conversion


Expected increase in annuitized NPV from a fixed-speed to variable speed PSP conversion - Belgium

Distribution of change in annual profit for Belgium in 2030 for a conversion

• 2030 – Yellow base scenario: small positive expected value: 1.3 M€/year (77% probability on positive NPV)

• 2030 – Yellow & balancing price spread x4:

o Large increase in operational profits due to added flexibility of the pump (larger share of revenues from balancing while pumping than German or French case)

o Strong positive business case for this scenario: 19 M€/year (11 to 25 M€/year) annuitized NPV

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Annuitized NPV (M€/yr)

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2030 - Yellow 2030 - Yellow (x4)

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Conclusion


New build

• The operational profits of a new-build VS-PSP are in the range of 13 to 18 M€/year in base case.

• In base case scenarios there is no profitable business case.

• The balancing price distributions strongly impact the operational profit distribution (e.g. balancing price spread of x4 improves the annuitized profits of more than 50M€)

Conversion

• VS PSP has higher operational profits due to increasing flexibility in pumping mode.

• In base case scenarios there is already a profitable business case.

• Higher balancing prices (to x4) lead to annuitized profits of more than 20M€ (at 49M€ conversion cost).

Country specifics

• The most attractive business case for conversion is to be found in Belgium.

• France and Belgium show comparable business cases for new build.

• German shows large width in operational profit distribution due to large spread in balancing prices.

Open issues

• Future balancing prices key in flexibility revenues but are also very uncertain

• Additional revenues from stacking services (FCR, intraday and congestion management,…), ownership model and portfolio benefits

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