From pv magazine 08/2021
The main incentive for co-locating utility-scale storage with solar today in well interconnected locations is to optimize capex (grid connection costs) and opex (grid use-of-system charges), rather than to generate revenue from storing and time-shifting excess solar generation. The battery energy storage system (BESS) is unlikely to be dimensioned to store excess solar because the revenue that can be harnessed from this is relatively small compared to the cost.
In most of Europe, the target revenue for storage is ancillary services, notably frequency response and capacity market. In this context, the sizing of the battery is generally driven by (1) sizing the power to optimize the use of the grid connection and (2) sizing to meet the requirements of target ancillary services. But this does not solve the sizing problem, because the battery capacity will degrade over time, and the revenue source might change.
The jury is out when it comes to the “best” approach to “lifetime sizing.” On one side are those who prefer to oversize their battery assets up front for a long and comfortable life. Others argue for a “lean and mean” approach, planning to augment and possibly even repower later on as needed. But who is right? It’s complex because sizing affects so many different aspects of storage project development and operation.
- Oversize: Install more batteries up front than is necessary to deliver the intended revenue stack at the beginning of life.
- Augment: Supplement existing batteries with additional new ones.
- Reduce: Reduce service offered from the project in line with degrading energy capacity.
- Repower: Replace all onsite batteries, and potentially balance of plant, too.
These strategies are not mutually exclusive; in fact, two or more are often combined within a project’s lifetime. To frame this another way, when we talk about battery sizing, we need to be clear on the service to be delivered (current and future, base case and possible) and over what period of time.
There are two common objectives, often combined. Firstly, to anticipate degradation. MWh capacity of batteries inevitably decreases with time and usage, so the costs of dealing with this must be considered in the project’s base case. Secondly, many projects seek to retain the option to increase the energy-to-power ratio longer term. Unlike degradation compensation, this is not an essential objective. Instead, it’s a future-proofing consideration, which might be either a base case or upside scenario.
Oversizing is normally proposed as a solution for degradation only; it is less commonly proposed for revenue stack resets, because oversizing requires certain up-front capex, whereas the reset is a possibility rather than a certainty. By contrast, augmentation and repowering can be motivated by degradation anticipation or revenue stack resets, or both.
Each strategy strikes a different balance in the trade-off between near-term cost and longer-term technical complexity. Let’s take augmentation as an example: The pros include deferred capex, and the ability to exploit anticipated cost reductions in batteries down the line. In addition, augmentation means that you only ever pay for the capacity you need, in case your revenue stack reset never happens. But getting augmentation right requires a hands-on owner. Old and new battery cells need to be on separate strings, and that has implications for inverters, cabling, layout, and energy management systems. There may be planning risks if extra containers are needed. Outages should be anticipated and quantified. And what’s less often appreciated is that “lean and mean” systems experience faster degradation, too, due to cycling and state of charge patterns.
In short, there is no single “correct” strategy, so we offer some pragmatic guidance. The key drivers of sizing strategy should be (a) how confident an investor is in the future of flexibility markets, and (b) the investor’s risk appetite. But we note that other parameters may also be influential. See our summary matrix above.
Storage in Europe
Having worked on over 2 GW of storage projects in our core markets – U.K., Ireland, France and Belgium – we have seen some clear trends. And they strongly depend on which market the project is in.
In the U.K., where there is a strong ancillary services market, but also a relatively attractive market for energy arbitrage, investors generally have market confidence and high risk appetite. Here we see many projects that are built on day one to be able to deliver the target ancillary service for at least 10 years, but also have a solid plan for adding capacity even in the first few years to allow for the project to target energy arbitrage.
In mainland France, a market that is earlier in its development of commercial storage, we see investors assume that the battery will continue to provide today’s revenue stack – frequency containment reserve with capacity market. They are not anticipating a “revenue restack,” because there are no strong contenders for alternatives today. It is also a relatively young market and investors are steering away from the technical complexities of augmentation. A classic approach is therefore to oversize, so as to be able to deliver today’s revenue stack in the asset’s final year.
This isn’t a case of “anything goes.” Far from it. While decisions depend on market and project specifics, what is clear is that every project should consider this from the outset. For example, spontaneous augmentation in year five will cause a real headache if your original design didn’t anticipate this in its layout, inverter configuration, and cabling routes.
Simply put, you need a plan that is both technically credible and consistent with the financial model. Decisions on sizing strategy are also a “financability” question. The choice should not only be considered from a technical perspective, or even a techno-economic perspective, but also through the lens of an investor who will have wider views of the market and their own appetite for risk.
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