Store more for the world of tomorrow

Tadgh Cullen, Statkraft, UK, investigates the current state of play for energy storage in Europe.

2020 may be looked back on as the year battery energy storage became truly viable in Europe and the UK. It was the year that saw many countries achieve a balance between the three fundamental requirements to make energy storage a success: increasing energy market volatility, effective single-buyer market design (explained next), and a growth in investor confidence.

In the UK alone, 2020 was the year that surpassed a gigawatt of installed battery storage, with a further pipeline of 15 GW. Single-buyer markets are now either operational or in the consultation stages for many of the countries that are explored throughout this article. That means designing a market that incentivises investment into energy storage through short- to medium-term bankable contracts. This has, and will allow for, a quicker ramp-up in renewable energy penetration while minimising the need to curtail renewable generation due to market or technical reasons.

Ireland

Ireland is in a unique position in Europe. It is an island with limited interconnections, has a 43% average renewable energy penetration, and is currently running a trial to increase the cap on the percentage of grid power being supplied by renewable sources to 75%. This is a significant challenge, and to manage this stability concern, Eirgrid – the National Transmission Network Operator – has designed a market that incentivises investment into energy storage by giving investors confidence that their investment in energy storage will make a guaranteed return in the first few years of operation.

The market is designed to reward flexible and fastresponding assets that improve deviations in system frequency. This means that during periods of either too little or too much generation on the electricity grid, batteries will respond quickly to either consume or export energy to help rebalance the system. The fast frequency market is technology-neutral; however, its technical requirements mean that few technologies other than battery storage can partake. The new market ensures embedded flexibility in the electricity system while reducing the reliance on fossil fuel inertia-producing generators and allows for a continued increase in renewable energy penetration.

UK

The UK appears to be at the beginning of what will be a significant energy storage deployment. Legislation and government supported single-buyer markets appear muddled, however, markets tend to evolve to solve their own problems, and that is exactly what is being seen in the UK.

An increasing pool of credit worthy third-party power purchase agreements (PPAs) are entering the market, offering contracted revenues to battery assets. These floor contracts, tolling or rental agreements allow for up to 60% of the required project revenue to be contracted, giving certainty in terms of revenue, allowing debt to be raised, and making battery storage projects fundable. It is a big step forward, and the UK is a world leader in terms of this unsubsidised market. But the country could be doing more and needs to do more to achieve its renewable energy targets.

The UK Government supported Contract for Difference (consultation document published March 2020) focuses on increasing renewable energy capacity without incentivising flexibility, which is going to become progressively important in an increasingly constrained market. The fact that a PV project will not receive income during negative pricing hours may not be enough to promote co-located PV and energy storage deployment, but may be enough to render standalone PV projects unattractive.

Figure 1. A battery site in Dörverden, Germany.

The Netherlands

With the current Stimulation of Sustainable Energy Production (SDE+) subsidy regime in the Netherlands, there is no incentive for solar power to be dispatchable. It is simply a subsidy and offers no value to flexibility. However, the Netherlands, along with Belgium, Austria, France, Switzerland, and some German regions take part in a common frequency market which dictates that up to 100% of their frequency power requirement can be sourced from the common market, with the remainder being sourced locally. This market is much larger, and less likely to saturate as quickly as other frequency markets have done. However, being a daily contracted market in fourhour segments, there is great uncertainty in relation to the future clearing price, and therefore it is currently a high-risk investment.

If this market evolves to offer longer-term contracts, and resolves the double taxation/charging issues, the uptake in investment could see a mass deployment of energy storage across central and western Europe.

Spain

The Spanish renewable energy market is incredibly compelling. In 2020 alone, 3.2 GW of solar PV was installed, with a further 1 GW anticipated to be installed every year for the next decade. However, the picture is not so favourable when it comes to

Figure 2. A battery storage facility in Killathmoy, Ireland.

storage. There are three balancing markets in Spain: Primary, Secondary, and Tertiary Reserve. The Primary Reserve, being the market requiring the fastest response time, is in theory the market most suited to energy storage, however, this market is unpaid and requires mandatory participation for energy generators. Historically, this approach has been incredibly successful (and cheap) as it has put a requirement on fossil fuel generators to turn up and down its generation to manage grid stability.

The challenge is, as renewable energy penetration increases, the amount of Primary Reserve available decreases, reducing security of supply. To combat this (and without affecting the unpaid Primary Reserve), the Spanish government has opened a consultation process to create a new two-tier capacity market. If it proceeds as planned, zero carbon emitters will receive a 5 - 10 year contract, while carbon emitters would receive less favourable one-year contracts that will importantly prevent the incentivisation of new-build fossil fuel generation. The ambitious plan has a target to open the new market later this year and, if successful, could see a swift deployment of energy storage.

Italy

Italy is a very interesting prospect in Europe for energy storage. The country is trialling a new innovative singlebuyer market. The Fast Reserve market will be piloted to operate alongside the existing primary regulation. The first auction closed late last year, with the successful projects contracted to begin participation on 1 January 2023. A significant guarantee payment was required to participate, with penalties applied to this payment if milestones are not met. The new service will target very quick responses to frequency deviation and will offer four-year contracts. It will be a fluid market, with each energy storage project required to be available for 1000 hr/yr, with participation in other markets allowed. This market, coupled with an extremely volatile merchant market in certain zones, allows a battery storage project to have an attractive mix of contracted and uncontracted revenue, and should see the beginning of a significant role out of battery energy storage nationwide.

Where next for energy storage in Europe?

It is inevitable that energy storage will continue to become an investable technology, and the signs are already starting to be seen that countries are coming to terms with how to incentivise flexibility within their energy system. With multiple countries taking different approaches, the next 12 months will be an incredibly interesting time for this sector.

As the world ‘hopefully’ enters the post COVID period, countries will look back and realise the learnings of the last 18 months, in particular the knowledge that a significant reduction in carbon emissions is possible. It is apparent that populations now have greater clarity on the things that are important.

It is important for every country to commit to the EU Green Deal and the fact is, there is a massive opportunity to clean up our electricity systems and build a system for tomorrow, not selfishly for yesterday.

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