From pv magazine 08/2020
The European Union and national governments are beginning to recognize that battery energy storage will play a key role in the expansion of solar PV and other renewables across Europe.
Grid-scale batteries are still a niche technology, and the rollout of projects will have to accelerate much faster to fulfill its potential. It is, therefore, a boost for the industry that more nations are removing regulatory barriers to allow a level playing field for storage to compete with power generators, for example in capacity auctions. Italy, the United Kingdom, Portugal, and Ireland have designed capacity markets whereby storage operators can bid for contracts in auctions. This provides storage operators with a fixed and predictable revenue stream in return for committing capacity in future years.
“Historically, grid codes were written with thermal plants in mind. But there are signs that continental Europe is opening up in a technology-agnostic way and that barriers to storage are being removed,” Paul McCusker, vice president of EMEA at Fluence, a Siemens and AES energy storage company, told pv magazine.
Batteries for Europe
In Italy, for the first time, battery storage operators were awarded capacity payments in auctions that took place in November last year, totaling 95 MW for 2022-23 delivery. It is worth noting that coal-fired power plants were excluded from the auctions due to their high emissions levels. In Portugal, auctions have been delayed due to Covid-19, but they are expected to take place shortly after the July 31 registration deadline. Germany – which is planning to install a 250 MW battery to strengthen the grid in Baden-Württemberg – is also beginning to show more support for battery technologies.
“Battery storage cleared at Italy’s capacity auctions. Portugal has designed a capacity auction for solar and storage which is ongoing. And the grid booster project in Germany has recognized battery storage as a tool for flexibility. These are all positive steps,” said McCusker.
In the United Kingdom, capacity auctions are up and running again after being suspended for almost a year, following a challenge by Tempus Energy before the European Court of Justice. The court’s verdict put the U.K. government under pressure to redesign the scheme in order to grant contracts with longer durations –up to 15 years – to demand side response (DSR) operators.
The revival of the UK capacity auctions is a boost for the storage industry. The latest T-4 auction for 2023-24 delivery took place in March and saw around 120 MW of contracts awarded to battery storage. In Ireland, battery storage operators secured 127 MW of contracts in April’s T-4 auction. Ireland’s grid operator EirGrid is also financially rewarding fast response through grid services, as it recognizes the value of the flexibility that storage provides, according to McCusker.
“The UK and Ireland are two examples of markets where flexibility needs are greater. There is limited cross-border interconnection, coal plants are coming offline and renewables are expanding fast. Ireland is an extreme example where on certain days up to 70% of power generation is coming from wind, with limited interconnection,” said McCusker.
In the United Kingdom, the size of the storage market is around 4 GW at present, but that is mostly pumped hydro. Battery storage is more recent, with an installed capacity of around 880 MW. That is the largest share in Europe, ahead of Germany, which has just 530 MW of capacity, according to European Commission data. In the United Kingdom, 13.5 GW worth of battery projects are waiting to be built, of which 3 GW have planning permission and grid connection, according to energy recruitment firm Taylor Hopkinson.
“There is a huge pipeline of new projects in the UK but we need to remove barriers such as grid charges and lack of a dedicated support scheme, and also improve the availability of finance,” explained Frank Gordon, senior policy analyst at the Association for Renewable Energy and Clean Technology.
“Battery storage will be important for balancing the system as we move towards the net-zero target. We need 4 GW of extra power capacity by 2030 just for recharging electric vehicles and this will need to be balanced on the system using storage and flexibility assets,” Gordon added.
Grid-scale batteries in Europe currently account for less than 2 GW of installed capacity, of which around three-quarters are lithium-ion batteries. Other technologies include lead-acid, redox flow, and sodium-based batteries. Worldwide, capacity totals around 13 GW, with China, South Korea, and the United States ranking as the most advanced markets.
A study by the European Commission released in March suggested Europe may see 67 GW of installed battery capacity by 2030, but also cautioned that distribution system development could reduce the demand for storage in the longer term. Batteries also face competition from pumped storage. Cumulative installed pumped storage capacity in Europe is around 45 GW.
EU lawmakers are also beginning to lift market barriers for energy storage. The EU’s revised electricity directive (2019/944) stipulates that transmission system operators and distribution system operators should not own or operate storage facilities unless circumstances are exceptional. This is to increase competition and ensure fair access to storage facilities for all market participants. The new rules also prohibit discrimination of storage compared to other technologies. EU member states have until 2021 to turn this into law. Brussels’ support is also shown by its backing of the European Battery Alliance (EBA), launched in 2017. The EBA targets self-sufficiency of raw materials in battery production, such as lithium.
Four lithium mining projects totaling €2 billion of investment have been launched by Spain, Portugal, and French-German and Czech-German partnerships. The mines are expected to be operational between 2022 and 2024 and could meet up to 80% of Europe’s lithium demand by 2025. The EU is hopeful that the battery industry will create plenty of jobs and help mitigate some of the negative economic effects of the Covid-19 pandemic.
“There is support from the central EU level to boost a green recovery and initiatives such as European Battery Alliance are effectively encouraging energy storage adoption,” Sofia Goncalves, EIT InnoEnergy’s smart-grid and energy-storage project manager, told pv magazine. She noted that the residential market for energy storage is also beginning to pick up. Germany, for example, saw 55,000 home storage units installed in 2019 alone.
“National governments are beginning to realize that storage is essential to support the solar PV expansion,” said Goncalves. “In Germany, partnerships between rooftop solar panels and storage suppliers are out in the market to offer full solutions to behind-the-meter residential customers with solar+storage solutions including energy management systems.”
High upfront costs have traditionally been a barrier for investment, particularly for large-scale stationary batteries. However, costs are now beginning to come down. Financial support is available, for example from the European Investment Bank (EIB) and the EU Innovation Fund. The EIB has said it will lend €1 billion to battery projects in 2020 alone, which is more than it has lent to such projects over the last 10 years in total.
In addition to EIB loans, there will also be grants available under the EU Innovation Fund, which is one of the world’s largest funds for low-carbon technologies. Up to €10 billion of grants will be available until 2030. The fund draws on revenues from auctioning 450 million EU carbon allowances between 2020 and 2030, as well as from unspent funds from the now-expired NER 300 program. It will greatly benefit from rising carbon prices under the EU’s Emissions Trading System. European carbon prices have rallied in recent weeks and are tipped to move higher during the fourth phase of the ETS, which begins next year.
The cost of batteries must also be seen in relation to other, more expensive alternatives, such as grid upgrades and building cross-border interconnectors. Battery storage is also economical in the sense that systems can store electricity when supply is plentiful and prices are low, and dispatch this electricity when demand and prices are higher. Moreover, their quick response times make them ideal for frequency control on networks.
Around 17 GW of solar PV capacity was installed in Europe in 2019, taking the total to 131 GW, according to data from the European Commission. Solar PV will have to expand further if the EU is to meet its 2030 decarbonization targets, which are expected to be revised upwards this year, from the current 40% target to 50% to 55% CO2 reduction compared with 1990 levels. Battery storage combined with other technologies such as green hydrogen can support this solar expansion by addressing the intermittency challenge.
“One of the advantages of batteries is that they only take a few months to build, compared with several years for pumped storage. They are also very flexible in the sense that you can install them on the grid or next to a solar or wind farm,” explained Luis Munuera, energy technology analyst at the International Energy Agency.
Munuera added the spillover effect from technology improvements of mass-produced batteries for electric vehicles means that costs will come down also for grid-scale batteries.
“The rollout of battery storage could happen quickly in markets where the policy framework is supportive,” said Munuera.
Several European countries – including the United Kingdom, Italy, Greece, Germany, and Spain – have announced plans to phase out coal-fired power generation in the coming years. Plant closures may happen sooner due to poor profit margins, partly on the back of higher EU carbon prices. Germany is also expected to close its last nuclear reactors in 2022.
With thermal generation increasingly being replaced by renewables, there is a convincing business case for battery storage solutions. Support from national governments and the EU institutions should help shore up investor confidence. However, many challenges remain.
The storage capacity installation rate in Europe fell by 40% year on year in 2019, according to a report by the International Energy Agency. This decline was largely due to sluggish deployment of grid-scale applications, while behind-the-meter installations have fared much better, the report noted.
Yet there are reasons to be optimistic. Pilot projects are being rolled out in new markets, such as France’s 12 MW RINGO project in Vingeanne, which is expected to be commissioned in March next year. The project is being developed by the Italian industrial group Nidec. Moreover, Total’s 25 MW storage project near Dunkirk is expected to be commissioned by the end of the year. This signals that projects are underway, and that battery storage may well capture market share in the next few years. And the solar PV industry will monitor these developments closely.
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