Ever ready: will batteries power up in 2016?
David Hill, Business Development Director, Open Energi
Open Energi tends to extol the virtues of Demand Side Response as a solution to the energy storage challenge. It provides a no-build, sharing economy approach which is cheap, sustainable, scalable and secure.
By harnessing flexible demand and tapping into the thermal inertia of bitumen tanks or the pumped energy stored in a reservoir for example, we have created a distributed storage network able to provide flexible capacity to the grid in real-time without any impact on our customers.
But flexibility comes in many forms, and as the cost of energy storage systems tumble, it looks like 2016 might be the year when commercial batteries become a viable part of the UK’s electricity infrastructure, with recent analysis suggesting they could deliver 1.6GW of capacity by 2020, up from just 24MW today.
The price of energy storage systems is expected to fall sharply over the next three decades, with Bloomberg New Energy Finance predicting the average cost of residential energy storage systems will fall from $1,600 per KWh in 2015 to below $1,000 per KWh in 2020, and $260 per KWh in 2040.
As costs have fallen we have seen increasing interest from industrial and commercial customers keen to explore the benefits of installing batteries on-site and looking at systems capable of meeting 50%-100% of their peak demand – depending on their connection agreement (although it is worth noting an export licence is not a prerequisite).
In addition to providing security in the event of power outages, battery systems can help companies to reduce their demand during peak price periods, enabling them to seamlessly slash the astronomical costs – and forecasting difficulties – associated with Triads, and minimise their DUoS Red Band charges.
When they aren’t supporting peak price avoidance – which may be only 10% of the time – batteries can help to balance the grid – earning revenue for participating in National Grid’s frequency response markets. For example, discharging power to the system if the frequency drops below 50 Hertz and charging when the frequency rises above 50 Hertz.
National Grid’s new Enhanced Frequency Response market has been developed with battery systems in mind – requiring full response within 1 second – but isn’t expected to be up and running for a year or more.
In the meantime battery systems can generate significant revenues today via National Grid’s Dynamic Firm Frequency Response market, tendering alongside loads from companies like Sainsbury’s, United Utilities and Aggregate Industries, to help balance the grid, 24/7, 365 days a year. And in the longer term the opportunity exists for companies to trade their batteries’ capacity in wholesale electricity markets.
With these saving and revenue opportunities in mind, we’re now at a point where battery systems can be installed behind-the-meter and deliver a ROI within 3-5 years for industrial and commercial sites. The ROI will be subject to certain factors, such as geographic location, connection size and of course the cost of the battery system itself, but these figures would have been unthinkable only a few years ago.
There are important technical factors to consider, including both the battery sizing in terms of its kW power rating and kWhr energy storage capacity, and also the underlying battery chemistry. By taking into account the physical location of the battery along with models of different markets that it will operate in, it is possible to narrow down to the most appropriate technical parameters. Another consideration is the gradual effect of wear and tear on the battery with continuous usage. By analysing these effects it is possible to reduce some of the uncertainty around battery lifecycles (likely to be in the region of 10 years) and get better predictions of the likely revenue in each year of operation.
But whilst a payback of 5 years seems reasonable from an energy infrastructure perspective (where 15-20 years is more typical) for most companies used to a ROI within 2-3 years on energy projects it is not easy financing battery systems.
Some larger, capital rich companies may have the appetite and money to finance these projects themselves, but the majority of the companies we are talking to are keen to take these assets off balance sheet and finance installations via banks and other investors under third party ownership.
In these circumstances, managing the performance of battery systems – so that they meet their warranty and their lifecycle is maximised – whilst optimising their potential as a flexible resource able to cut energy costs, earn revenue and deliver a vital uninterruptible power supply during outages will be key to their commercial success and scale of deployment.