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PÖYRY POINT OF VIEW BLOG / 6 Apr 2016

Rise of the Batteries: Part 1 - Overview

There are many signs that batteries are becoming the preferred option for new investment in electricity storage. While many battery technologies are being developed, lithium-ion batteries are the best known because they are found in mobile phones, tablets, and electric toothbrushes. And in electric cars.

This article was originally written for Utility Week.

Even though they were only invented in the 1980s, lithium-ion batteries have become a part of everyday life – be it in a mobile phone, a tablet, or electric toothbrush.

And through their use in electric vehicles – hybrids and pure electric cars - a large family of lithium-ion technologies is well established. Although the numbers on the road is well below forecasters’ expectations, they represent a substantial, and growing, sector of the car market.

As the batteries are such a high part of the costs of an electric car, there are strong incentives to improve production processes, reduce supply costs and improve performance.  Tesla’s Gigafactory, which started construction in 2014 will be a step change in the supply chain for batteries – with clear ambition to dramatically lower battery costs through economies of scale.

Availability of far cheaper batteries has coincided with developments in the power systems of nearly all countries that are decarbonising their energy economies by deployment of renewables.  Solar PV and Windfarm output is dependent on the weather – so other forms of generation are needed to ensure demand is met.  Coal plants would have historically been able to absorb such fluctuations, yet the UK and other countries are closing their coal fleets.

With large volumes of PV and onshore windfarms being connected to the distribution system, these networks are also increasingly stressed – for example, at the times that the generation output on a local distribution system exceeds the local demand, it cannot cope.

As well as matching generation with demand, grid operators need to maintain system frequency and voltages and, particularly for more islanded systems like GB and Ireland, this is now leading to the use of new technologies as an improved way to provide power at very short notice and to replace the conventional methods, which may currently be at lower cost, but with slower performance. 

Increasing fluctuations in wholesale prices caused by intermittent renewables are also proving a driver to developers of storage to capitalise on its capability to buy power when prices are cheap and then sell back at a higher price, even if there are some losses in the total conversion cycle.

In the UK the LCNF has funded a number of projects which included energy storage, but two in particular illustrate the mould breaking nature of the technology: 

  • UKPN’s Leighton Buzzard 6MW 10MWh Lithium-ion technology
  • SHEL’s Shetland 1MW 3MWh Lead-acid

More recently, and importantly without any particular market support, in January AES commissioned a 10MW battery adjacent to its Kilroot power station in Northern Ireland – largely targeting price differentials.  On the other side of the Atlantic, California has set targets of deployment of 1.2GW of energy storage to deal with its own PV glut.

We are now seeing a dramatic rise in uptake of battery technologies in large scale static applications - Anthony Price, Director of Swanbarton

The revenue streams available to large battery projects like these are strongly influenced by the licences and electricity market rules and regulations.  In principle the revenues can come from four main activities:

  1. Consuming electricity (i.e. charging up) when there is surplus of electricity
  2. Supplying electricity when in discharge mode (combined with consumption this effectively timeshifts power use)
  3. Playing a role in the local distribution network (to avoid or defer line or transformer upgrades, or to reduce demand charges or system charges which are measured at times of peak demand)
  4. Providing a range of reserve services to the TSO, e.g. frequency support

Currently an operator of a  large scale battery is not able to simply access all of these because of our market structure,  even allowing for the limitations on whether these value streams are additive.  But that has not stopped progress.

Our work on the UKPN project clearly shows that with the right market structures in place, battery projects can be highly attractive - Simon Bradbury, Principal Consultant at Pöyry

It is also worth mentioning that like all distribution connected power units, there are a range of embedded benefits available: these now represent a considerable factor in overall project economics.

Interestingly, we have seen a shift towards a commercial framework over the past two years, which encourages early adopters to develop large scale battery projects which can now achieve satisfactory returns within the current market rules.  The obvious market risks are also quite a problem.  To some extent, the market risks are a particular concern to investors, who want certainty, and the contracts offered by TSOs (e.g. offering 1 year or 4 year contracts) can provide mitigation – whether this is equitable, or it is realistic to expect longer contract duration remains a moot point.  It is certainly a step in the right direction and National Grid are to be applauded for their innovative approach to using advanced technology for new services.

With the outlook for more intermittent renewables being commissioned in coming years, the growing realisation by policymakers that batteries can offer a realistic and economic route to decarbonisation.  Indeed, by enabling wind and PV deployment in so many ways, batteries could be at the heart of a revolution.

Undoubtedly, the drivers are there – large‑scale batteries may play a key part in achieving renewable deployment - but the path to GW deployment of battery storage in the UK will have many trials and tribulations.

At risk of plagiarising Mark Twain it would be fair to say of batteries that “rumours of their growth are somewhat exaggerated” – but on the other hand the prospects look very exciting.

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