The role of compressed air energy storage (CAES) in future sustainable energy systems

Energy Conversion and Management 50 (2009) 11721179

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Energy Conversion and Management

journal h omepage: www.elsevi er.com/locate/enconman

The role of compressed air energy storage (CAES) in future sustainable energy systemsHenrik Lund *, Georges SalgiDepartment of Development and Planning, Aalborg University, Fibigerstraede 13, DK-9220, Denmark

a r t i c l e i n f o

Article history:Received 21 November 2007 Received in revised form 4 July 2008 Accepted 27 January 2009Available online 5 March 2009

Keywords:CAESCompressed air energy storage Energy system analysis Electricity market optimisation

a b s t r a c t

Future sustainable energy systems call for the introduction of integrated storage technologies. One of these technologies is compressed air energy storage (CAES). In Denmark at present, wind power meets 20% and combined heat and power production (CHP) meets 50% of the electricity demand. Based on these gures, the paper assesses the value of integrating CAES into future sustainable energy systems with even higher shares of uctuating renewable energy sources. The evaluation is made on the basis of detailed energy system analyses in which the supply of complete national energy systems is calculated hour by hour in relation to the demands during a year. The Danish case is evaluated in a system-economic per- spective by comparing the economic benets achieved by improving the integration of wind power to the costs of the CAES technology. The result is compared to various other storage options. Furthermore, a business-economic evaluation is done by calculating the potential income of the CAES technology from both spot markets and regulating power markets. The evaluation includes both historical hour by hour prices during a 7-year period on the Nordic Nord Pool market as well as expected future price variations. The conclusion is that even in energy systems with very high shares of wind power and CHP, neither the historical nor the expected future price variations on the spot market alone can justify the investment in CAES systems. Other storage technology options are signicantly more feasible. CAES may operate both on the spot market and the regulating power market, which indicates potential feasibility. However, such strategy is highly risky because of the small extent of the regulating power market and if CAES is to become feasible it will depend on incomes from auxiliary services. 2009 Elsevier Ltd. All rights reserved.

1. Introduction

Substantiated by issues of energy security, climate change, as well as uctuating and rising oil prices, many countries around the world lead an energy policy focussing on energy efciency and increasing the share of renewable energy sources (RES) [1,2]. In some countries and regions, e.g. in the EU, these policies also in- volve increasing the share of combined heat and power (CHP) [3]. Such energy policies lead to the challenge of balancing electricity supply and demand. With a wind power production meeting 20% and a CHP share meeting 50% of the electricity demand, Denmark is one of the front runners in facing such problems. So far, Denmark has already faced excess electricity production problems. Various technological options have been analysed and several measures have been implemented including changes in the regulation of dis- tributed CHP plants [4,5]. The different technological options in question include electric boilers and heat pumps [6,7], exible de- mands, electricity for transportation [8], reorganisation of energy

* Corresponding author. Tel.: +45 9635 8309; fax: +45 9815 3788.E-mail address: Lund@plan.aau.dk (H. Lund).

conversion in relation to waste treatment [9] and various energy storage options [10].On a utility scale, compressed air energy storage (CAES) is one of the technologies with the highest economic feasibility which may contribute to creating a exible energy system with a better utilisation of uctuating renewable energy sources [11,12]. CAES is a modication of the basic gas turbine (GT) technology, in which low-cost electricity is used for storing compressed air in an under- ground cavern. The air is then heated and expanded in a gas tur- bine in order to produce electricity during peak demand hours. As it derives from GT technology, CAES is readily available and reli- able. Two plants have been constructed in the world so far; one in Germany and one in the USA of 390 MW and 110 MW turbine capacities, respectively. Given the limited pumped hydro energy storage potential of CAES, early literature focused on the technical description of CAES plant designs for load levelling and fuel saving applications in combination with coal and nuclear base load power plants [1316]. With the development of renewable energy, CAES has increasingly been analysed as a method of improving the inte- gration of uctuating wind power into the electricity supply. Bul- lough et al. analysed the technical development and economic feasibility of an advanced adiabatic CAES (AA-CAES) system in

0196-8904/$ - see front matter 2009 Elsevier Ltd. All rights reserved. doi:10.1016/j.enconman.2009.01.032

1174H. Lund, G. Salgi / Energy Conversion and Management 50 (2009) 11721179

H. Lund, G. Salgi / Energy Conversion and Management 50 (2009) 117211791173

various European countries with the EU target of 20% renewable energy by 2020 as a basis [17]. Denholm suggests a fully renewable base load power plant using a combination of wind power, CAES, and biofuels [18]. A hybrid wind/CAES system was also proposed by Cavallo as a compensation for the intermittency of wind power [19]. Greenblatt et al. compare the marginal production cost of a base load wind/CAES to coal and wind/gas turbine systems and conclude that CAES can be highly economically competitive, espe- cially if externality costs of GHG emissions are included. The GHG perspective is also presented in Denholm et al. 2004 [20], where CAES is compared to other electricity storage options seen from a life cycle perspective in relation to greenhouse gas emissions.The literature described focuses on specic CAES plant applica- tions (both alone and in combination with another technology such as coal or wind). This ignores the system perspective in which combined technologies interact with each other. Salgi and Lund perform a technical system analysis with an increased wind power penetration in Denmark [21]. The mentioned study, however, does not take into account the economic feasibility of a CAES plant. Swider presents a stochastic model for analysing the economic competitiveness of CAES in a system with growing wind power penetration [22]. The study concludes that CAES can be economi- cally competitive with other technologies in a system character- ised by the phasing out of nuclear power. While stressing the importance of exible technologies, the study does not compare CAES to other such available technologies.This paper uses a deterministic model to analyse the system- economic potential of a CAES plant in the Danish electricity system in comparison with other exible technologies. By use of detailed energy statistics, including hour by hour simulations, this paper evaluates the system-economic feasibility of CAES plants in the present and future Danish energy system, and the results are com- pared to similar results of other alternatives including heat pumps and hydrogen storages. Moreover, the business-economic poten- tials of CAES plants on the Nordic electricity markets are analysed, including both the spot market and the regulating power market.2. Methodology

The evaluation of CAES plants in relation to the system integra- tion of wind power requires a combination of detailed hour by hour simulations and feasibility studies. Such combination can be achieved by using the EnergyPLAN computer model, which has been applied here [23,24]. The EnergyPLAN model is a general en- ergy system analysis tool designed for analysing regional or na- tional energy systems. It is an inputoutput model, which uses data on capacities and efciencies of the energy systems conver- sion units as well as the availability of fuels and renewable energy inputs. Hour by hour it calculates how the electricity and heat de- mands of the complete system will be met under the given con- straints and regulation strategies. In such analyses, the model refers to a database of wind power hour distributions based on ac- tual historical productions from Danish wind turbines. Fig. 1 gives an impression of the functioning of the model. It is seen how it fo- cuses on the electrical system but also incorporates other parts of the system which interact with it.As a result of the calculation, detailed knowledge is created on the production of the different units. From this, fuel consumption and xed and variable operation costs can be calculated and, sub- sequently, the system-economic costs and CO2 emissions caused by meeting the demands of society can be found. The model has previously been used in a number of energy system analysis activ- ities, including expert committee work for the Danish Authorities [25] and the design of 100% renewable energy systems [26]. The present version 7.0 of the EnergyPLAN model including documen- tation can be downloaded for free from the following home page: www.EnergyPLAN.eu.In general, the EnergyPLAN model has a focus on system analy- sis, i.e. the analysis of national or regional energy systems. How- ever, the model also facilitates the business-economic analysis of individual plants in the case of electricity storage systems with a special focus on CAES plants. The methodology used for identifying the optimal operation strategy is carefully described in [24,27]. The

Fig. 1. The EnergyPLAN energy system analysis model [23,24].

Fig. 2. CAES plant technical inputs in the EnergyPLAN energy system analysis model.

methodology has been tested against two independent computer tools and methodologies, and all three tools have identied the same operation strategy as the optimal one seen in relation to a business-economic optimisation of the CAES plant.The technical description of CAES plants in the simulations is simple and assumes isentropic efciencies of the individual com- pressor and turbine. The storage is assumed to be airtight with a constant wall temperature of 35 C [28]. As shown in Fig. 2, a CAES plant is identied by the following technical input data:

Turbine and Compressor capacities in MW and storage capacity in GWh. Compressor efciency (gc) dened as energy storage inputdivided by power input to the compressor. Turbine storage efciency (gt) dened as power output per unit storage energy input. The fuel ratio (gratio) dened as fuel input to the turbine per elec- tricity output.

The EnergyPLAN model can be used for system analysis of na- tional energy systems using two different regulation strategies.In the rst strategy, all units are operated in order to minimise

In the other regulation strategy, all individual plants are oper- ated on the international electricity market on the basis of a com- parison of short-term marginal production costs and market price. In such situation, the CAES plant seeks to optimise business-eco- nomic prots on the market. For a detailed description of the opti- misation procedures, please refer to [24,27].

3. Technical and economic assumptions

A state-of-the-art CAES plant with an electric turbine output of 360 MW has been dened for the analysis as described in Table 1. The investment costs of 182 million EUR with a lifetime of30 years and a real interest rate of 3% can be converted into an an- nual payment of 9.3 million EUR. Together with the xed operation cost of 4.7 million the total annual cost can be identied as 14

Table 2Technical and economic data of alternatives to CAES plants [10].

TechnologyDescriptionAnnual investment and xed operation costs (interest 3%)

excess electricity production and fuel consumption. In such strat- egy, the system will exchange electricity on the external electricity market only if such export cannot be avoided. The regulation of

CAES360 MW turbine, 216 MWcompressor, 1478 MWh storage, lifetime = 30 years

14 million EUR/year

CAES plants in such strategy is simple: The CAES plant seeks to consume electricity in situations of excess production and seeks to produce electricity at times when such production can replace power plants with no CHP production.

Table 1Technical and economic data of the CAES plant [27].

CompressorCapacity216 MW Efciency0.6843StorageCapacity1478 MWhTurbineCapacity360 MW Efciency2.4357Fuel Ratio1.1556InvestmentCosts182 Million EURLifetime30 years Interest rate (real)3%Operation costsFixed costs4.7 Million EUR/yearVariable compressor 2.27 EUR/MWh Variable turbine2.67 EUR/MWh

EB, electric boiler in CHPplants

HP, Large-scale heat pumps in CHP plants

ELC, electrolysers to replace Ngas with hydrogen in CHP plants

H2 electrolysers, H2 storage and fuel cells

1300 MW electric boiler14 million EUR/year0.13 million EUR/MW Lifetime = 20 years Operation costs = 12%

85 MW-e heat pump14 million EUR/year2.1 million EUR/MW-e COP = 3.5Lifetime = 20 years Operation costs = 1%

535 MW electrolysers14 million EUR/year0.25 million EUR/MW-e Lifetime = 20 years Operation costs = 3%360 GWh H2 storage0.05 million EUR/GWh Lifetime = 25 years Operation costs = 0%Efciency = 0.72 H2 + 0.1 Heat

180 MW electrolysers14 million EUR/year 120 GWh H2 storage90 MW Fuel cell0.8 million EUR/MW-e

Transmission paymentConsumption (compressor)

2.00 EUR/MWh

Lifetime = 20 years Operation costs = 6%

Availability payment on the regulating

Production (turbine) 0.53 EUR/MWhUpward (monthly)3330 EUR/MW

Efciencies:Electrolyser + storage: 0.72

power market

Downward (monthly)

1070 EUR/MW

Fuel cell: 0.56Total: 0.4

Nord Pool (West Denmark) Spot Market Prices Year 200490

80

70

EUR/MWh60

50

40

30

20

10

01 344 687 1030 1373 1716 2059 2402 2745 3088 3431 3774 4117 4460 4803 5146 5489 5832 6175 6518 6861 7204 7547 7890 8233 8576Hours

Fig. 3. Nord Pool spot market prices in year 2004.

million EUR plus variable fuel and operation costs. In the system- economic evaluation, such costs have been compared to the vari- able operation and fuel cost savings achieved in the energy system, including better use of excess power from wind and CHP. More- over, the CAES technology has been compared to a number of alter- native options as listed in Table 2. The costs of alternative options are based on [10] and have here been adjusted so that all technol- ogies have the same xed annual costs of 14 million EUR, which al- lows for a comparison of the net operational income.With regard to electricity market prices in the business-eco- nomic evaluation, historical prices from the Nordic Nord Pool mar- ket in the period from 2000 to 2006 have been applied and combined with expectations to prices levels in 2030. In Fig. 3, the price variation of the spot market prices in year 2000 is shown in which the average price was 122 DKK/MWh equivalent to 16 EUR/MWh. In Table 3, the average price levels are shown to- gether with natural gas prices for the same years. The prices do not include taxes or CO2 payments. The expected prices for year 2030 are based on the forecast of the Danish Energy Authorities (2007) according to which natural gas prices are expected to in- crease to 6.5 EUR/GJ and the average Nord Pool price to 54 EUR/ MWh, both including the effects of introducing a CO2 market with an expected price of 20 EUR/ton.The hour by hour price variations of the expected spot market prices in 2030 have been designed in the following way: CO2 pay- ment has been dened as a xed price while the rest has been dis- tributed using the Nord Pool price variations of 2005, which by the system operator is considered a typical year. A sensitivity analysis has been done using the German EEX market price variations of 2005. The German market is dominated mainly by coal-red steam turbines and it has a more volatile structure than the Nord Pool market, which is dominated by Norwegian Hydro power.

Table 3Natural gas and electricity market prices.4. Results of the regional energy system-economic analysis

The purpose of the system-economic evaluation is to examine the feasibility of CAES plants when applying load levelling in order to improve the integration of wind power into regional or national energy systems. Part of such analysis is to compare CAES plants to other technologies with the same aim. In its nature, such analysis of course depends on the energy system and especially on the share of wind power and other production units with limitations or restrictions, such as e.g. distributed CHP plants. Here, the start- ing point for the evaluation is a Business as usual extension of the present Danish energy system into year 2030 as conducted by the Danish Energy Authorities [8]. By use of the EnergyPLAN model, such a system has been analysed, applying different shares of wind power and leading to low or high shares of excess electric- ity production.First, an innite CAES plant has been added to the system. The analysis showed that when the wind power share was up to 59% (wind production compared to electricity demand), the innite CAES plant was able to remove all excess electricity production and use all stored energy to replace the power production of non-CHP power plants. With a wind power share above 59%, even the innite CAES plant was not able to utilise all excess production for the simple reason that the power plants did not produce en- ough power which could be replaced by the turbine production. Similarly, the innite CAES plant is able to replace all non-CHP power production in the system when the wind power share is down to 59%. Below 59%, the lack of excess electricity production will set the limit for lling the storage. In other words: In systems with low wind power shares, the lack of excess power sets the lim- itations, and in systems with high wind power shares, the lack of non-CHP power production sets the limitations to a full utilisation of CAES plants. In the Danish system as expected for year 2030, the optimal use of CAES is found to be a wind power share of 59%.In the next analysis, the innite CAES plant was replaced by the 360 MW plant described above in the optimal situation of 59% wind power. The results showed that the limited capacity of the specic plant signicantly reduced the inuence of the CAES plant. The reason for this is illustrated in Fig. 4. The diagram shows the duration curves of excess electricity (to the right) and non-CHP power production (to the left) and compares these to the turbine and compressor consumption and production, respectively. As seen from the diagram, the inuence of the CAES plant is marginal.The capacity of the high share of excess production is much higher

YearNatural gas price (EUR/GJ)Average electricity market price (EUR/MWh)20002.9516.320013.8523.620023.2225.220033.3833.320043.2728.520054.4536.920065.6943.92030 6.49a

54.1a

than that of the compressor and, consequently, most of the excess

a Includes the inuence from an expected CO2 trading price of 20 EUR/ton.

production cannot be absorbed by the compressor. The problem is

6000

Duration Curves for Danish energy system year 2030 with 59 percent wind power CAES plant: 360 MW turbine, 216 MW compressor, 1478 MWh storage

5000

4000

MW3000

2000

1000

Pow er plant

TurbineCompressor

Excess

01477 953 1429 1905 2381 2857 3333 3809 4285 4761 5237 5713 6189 6665 7141 7617 8093 8569hours

Fig. 4. Duration curves of power plant and excess electricity productions compared to CAES turbine and compressor contributions.

Operational benefits of a CAES plant in the Danish 2030 energy system15

Million EUR/year40$/barr1068$/barr96$/barr5

0

0 EUR/MWh13 EUR/MWh27EUR/M/Wh-5

Fig. 5. Net operational income of a CAES plant in the Danish year 2030 energy system compared to the annual investment and xed operation cost of 14 million EUR/year (shown by the dotted line).

the same with regard to the power production and the turbine capacity. Also the storage capacity sets a limitation, which can be identied by conducting the same analysis of a CAES plant with innite storage. However, even in such a situation, the inuence of the CAES plant is marginal.Even though the inuence with regard to utilising excess pro- duction is marginal the CAES plant itself may be feasible to the sys- tem. Consequently, the feasibility has been assessed by identifying the value of the fuel saved in the system. The results are shown in Fig. 5 in terms of annual net operational income of the CAES plant. Such net income has been calculated as the difference between, on the one hand, the values of variable operation and excess electric- ity costs and, on the other, the fuel and variable operation costs saved in the system. Three different sets of fuel prices have been used, as expressed by the three different oil prices of 40, 68 and 96 US$/barrel. If the excess electricity produced is not utilised in CAES systems, one alternative is to sell it on the Nordic electricity market. In Fig. 5, three different selling prices have been analysed, namely 0, 13 and 27 EUR/MWh.In Fig. 5, the annual net operational income is compared to the investment and xed operational cost per year of 14 million EUR (marked by a dotted line). As shown, variations in the fuel price mean little to the results. This is due to the fact that CAES plants burn natural gas and consequently, fuel savings at the power plants are counterbalanced by fuel costs at the CAES plant. The price of excess electricity production is important. Meanwhile, even if the excess power produced is free, annual net-earnings

are far from the level of annual investment and xed operation costs.In Fig. 6, the system-economic feasibility of CAES plants is com- pared to other technologies which may also utilise excess electric- ity production and contribute to a better system integration of wind power. All alternative technologies have been designed in such way that they all have the same annual investment and xed operation costs as explained above, namely 14 million EUR/year. Such adjustment has been made in order to compare the different options solely in terms of their operational benets. The calculations in Fig. 6 apply an oil price of 68 US$/barrel and an ex- cess electricity price of 13 EUR/MWh. However, only minor changes are achieved by applying other price levels, apart from the electric boiler, which is especially sensitive to the price of ex- cess electricity.It can be seen from Fig. 6 that CAES plants are not feasible and other options are signicantly more attractive. It must, however, be emphasised that such analysis solely includes the benets of better operation including integration of wind power. In one important aspect, the technologies are not comparable; the CAES and the hydrogen/fuel cell technology add production capacities to the system, which the other options do not.Consequently, CAES may replace power plants or reduce the need for back-up capacity and thereby save investment costs in the system. A sensitivity analysis has been made in which such saved investments costs have been included up to one million EUR/MW of steam turbines with a lifetime of 30 years. In such

System operational savings (excess electricity price of 13 EUR/MWh) (All technologies have annual costs of 14 Million EUR/year)50

million EUR/year40

30

20

10

0

Fig. 6. Savings of CAES compared to other alternative investments all with the same annual investment and xed operation costs of 14 million EUR/year (marked by the dotted line).

analysis, the CAES plant becomes feasible, even though it can still not compete with some of the other technologies.The conclusion on the system-economic analyses is that CAES plants cannot alone solve the problems of excess electricity pro- duction and other options are signicantly more attractive. How- ever, if CAES plants can save investments in power plant capacities in the system, the CAES technology has the potential of being feasible to the system.

5. Results of business-economic analysis

The purpose of the business-economic analysis is to examine the feasibility of CAES plants on historical and expected future electricity markets. First, the feasibility of the CAES plant described in Table 1 has been analysed using both historical market prices and expected future prices. The results are shown in Fig. 7. Both theoretically optimal and practically obtainable net operational in- comes have been identied and showed in the diagram. Again the net operational income is dened as the income from selling elec- tricity subtracting the variable costs of fuel, operation and buying of electricity. It can be seen that the annual net operational income differs very much from one year to another. Hence, the net opera- tional income in year 2004 is below 2 million EUR, while in 2003 and 2005, it is above 9 million EUR. The huge variations between the years are due to the variations in the average electricity market price and the natural gas price. Those two very important factors

do not go up and down together and, consequently, high prots can be made in years with high electricity prices and low natural gas prices. In average, the net operational income is 5.6 million/ year and it is thus far below the annual investment and xed oper- ational costs of 14 million/year.With the future prices expected for year 2030, a better feasibil- ity may be achieved. This is due to the expected relatively high electricity market prices in combination with expected moderate increases in the natural gas price. Especially for the volatile Ger- man EEX price uctuations, the plant seems feasible. However, it must be emphasised that the feasibility is relatively small and the analysis is very sensitive to e.g. increases in the natural gas price.Since the feasibility on the spot market is low and sensitive, the potential income on the regulating power market has been calcu- lated. In the system of Western Denmark, the CAES plant can trade on the regulating power market in two ways. Either it can bid hour by hour. In such case, it is only required to deliver if a bid is made. Or it can make a stand-by contract for a month. In such case, the plant commits itself to delivering whenever called upon or a pen- alty has to be paid. Both types of involving the CAES plant into the regulating power market have been analysed, but in both cases, the likely income cannot justify the costs.It appears from the two analyses that neither the spot market nor the regulating power market alone can make the CAES plant feasible. In order to achieve feasibility, the CAES plant has to oper-

Expenditures Income (optainable) Indcome (Optimal)2020

Million EUR/yearMillion EUR/year1515

1010

55

02000200120022003200420052006

02000-20062030 (NP)2030 (EEX)

Fig. 7. Annual net operational income and xed expenditures when operating on the electricity spot market.

ExpendituresIncome (excl. Monthly) Income (Incl. monthly)2020

Million EUR/yearMillion EUR/year1515

1010

55

02000200120022003200420052006

02000-20062030 (NP)

Fig. 8. Annual net operational income and xed expenditures when operating on the electricity spot market in combination with the regulating power market.

ate on both markets in such a way that earnings can be combined without violating the requirements of the regulating power mar- ket. One such combined strategy has been identied as follows: The turbine operates solely on the regulating power market and asks for xed monthly availability payments, while the compressor operates solely on the spot market. The compressor in operated in such way that the storage is never empty, which again makes the turbine available at all times.The results of such a combined strategy are shown in Fig. 8. As can be seen, the CAES plant becomes feasible in all years in this strategy. Both the incomes with and without the monthly avail- ability payments from the turbine are shown, and it can be seen how important this contribution is. Consequently, it must be emphasised that the feasibility of the CAES plant strongly depends on the monthly payment from the regulating power market. This situation makes the investment highly risky since such payment is only given to a small part of the capacity and it is also likely to change in price during the lifetime of the CAES plant.

6. Conclusion

The evaluation of CAES plants in future sustainable energy sys- tems with a high share of uctuating renewable energy sources has to include detailed hour by hour simulations. By use of the Energy- PLAN computer model, such simulations have been applied to both system-economic and business-economic evaluations of CAES in the Danish electricity supply.The purpose of the system-economic evaluation has been to examine the feasibility of CAES plants in the load levelling applied to improve the integration of wind power into the national elec- tricity supply. The conclusion of the system-economic analysis is that CAES plants cannot alone solve the problems of excess elec- tricity production and other options are signicantly more attrac- tive. However, if CAES plants can save investments in power plant capacities in the system, the CAES technology may become feasible to the system.The purpose of the business-economic analysis is to examine the feasibility of CAES plants on historical and expected future electricity markets. The evaluation includes both historical hour by hour prices during a 7-year period on the Nordic Nord Pool mar- ket as well as expected future price variations. Moreover, both the spot market and the regulating power market have been included. The conclusion is that if CAES plants operate both on the spot mar- ket and the regulating power market they may be feasible. How- ever, it must be emphasised that the feasibility strongly depends on the monthly payment from the regulating power market. This situation makes the investment highly risky since such payment

is only given to a small part of the capacity and it is also likely to change in price during the lifetime of the CAES plant.

Acknowledgements

The work presented in this paper is the result of a research pro- ject carried out in co-operation with the Technical University of Denmark (DTU) partly nanced by the Danish transmission system operator Energinet.dk. Moreover, the companies DONG Energy and Energy and Environmental Data (EMD) have participated in the project. Especially we wish to thank Brian Elmegaard from DTU, Axel Hauge Pedersen from DONG Energy, Anders N. Andersen from EMD and Henning Parbo and Kim Behnke from Energinet.dk for sharing information and contributing with helpful comments.

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