Until now, the rationales for using storage systems have been to increase consumption at the point of generation or to heighten self-sufficiency, depending on how you look at it. The idea that the storage system could be used to provide services to the grid, or even as a way of marketing operating reserve power has been a marginal issue for domestic storage providers. That could be about to change in the German market, as the latest reports from storage system providers Sonnen and Fenecon suggest.
Both companies are now offering fee structures based on the use of their customers' battery storage systems for marketing primary operating reserve power. Although these models are currently only approved in Switzerland, the companies are confident that they will soon receive the go-ahead from German transmission system operators.
At first glance, it appears to be far more lucrative to market primary operating reserve power than to simply use batteries as a way of boosting on-site power consumption. The math is simple: Take one kW/h of storage capacity; if that power was consumed on site the system would be charged up once and then discharged once, on sunny days. In Germany, winter days have to be excluded from the calculation, which means that a battery storage system for on-site consumption can be used on about 200 days of the year. Based on the highly optimistic assumption that the quantity of energy the battery stores increases on-site power consumption by 100%, the value of that energy to the owner of the system can be calculated. The net cost of household electricity in Germany is around €0.24 per kW/h. PV system operators receive €0.12 per kW/h for the electricity they feed into the grid from small domestic photovoltaic systems. So, operators who consume the solar power they produce on-site, save €0.13 per kW/h. In the example above, that amounts to nearly €30 a year per kW/h of storage capacity.
Reserve power as an income source
Using the same battery capacity for primary operating reserve could bring in much higher returns. In Germany, the transmission system operators purchase primary operating reserve power at weekly auctions. Pre-qualified providers can submit their bids and, if successful, win contracts. During the week, the provider then has to feed power into the grid when the network frequency is higher than normal, and draw power from the grid when the frequency is too low. This helps stabilize the frequency of the network. Because the frequency also acts as a signal in emergencies, primary operating reserve continues to work even if the IT infrastructure fails – that is, without the need for remote control, if necessary. That is one of the requirements of transmission system operators; another is that providers must be capable of supplying operating reserve for 30 minutes at a time.
In principle, battery storage systems can do this. If a kW/h of storage capacity is halfway charged, then a kW/h of operating reserve can either be fed into the grid or drawn out of the grid for a half hour's time. In 2015, on average, a kilowatt of operating reserve brought in around €194, based on the optimistic assumption that the kilowatt was marketed continuously for the entire year.
In other words, marketing that kW/h of storage capacity for primary operating reserve in 2015 would have generated more than six times as much revenue as would have been possible just by optimizing on-site consumption. That, however, is offset by the added expense of prequalification and operation, which are difficult for an outsider to assess. SMA and E3/DC, both leading suppliers of battery storage systems in Germany, doubt that the scheme is really economically feasible for the domestic power storage segment. Sonnen responds that both the control electronics and the meters needed for billing are inexpensive in large quantities and that the pooled operation is highly scalable.
The fee model
The fee model Sonnen uses is already designed to make on-site consumption nearly irrelevant. The customer gets up to a certain amount of electricity at a flat rate for on-site consumption. That gives Sonnen the freedom to market the storage systems as best it can. Customers no longer have to be concerned about consuming an especially high share of the power they produce. To participate in the marketing scheme and take advantage of the flat rate, however, the customer has to buy a control unit for €930. The flat rate is also capped at a certain annual electricity consumption rate and users have to stump up a further €19.90 fee for membership in the Sonnen community.
Fenecon has a different fee model. The company provides storage system users with 1000 kw/h of free electricity per year in exchange for the right to sell that capacity on the primary operating reserve market. “We also want to make it as easy as possible for our customers. The customer has a single partner while acting as an electricity supplier, measurement station operator, excess power marketer, and flexibility marketer,” says CEO Franz-Joseph Feilmeier. At Fenecon, too, customers have to invest in a €500 primary operating reserve option up front. There are no monthly costs.
Future prospects under discussion
Not everyone sees the outlook of the operating reserve market in as rosy a light as Sonnen and Fenecon. “We expect a significant drop in prices in the primary operating reserve market in the next 8 to 12 months,” says Mathias Hammer, the managing director of storage system provider Senec. Two years ago, it had rushed ahead with a product that makes Senec home storage systems capable of marketing so-called secondary operating reserve power. Since then, Senec has abandoned the product before it ever got up and running, because the prices on the secondary operating reserve market fell so dramatically.
In addition to the question of the cost of marketing, another question arises as to whether revenues on the primary operating reserve market will stay as high as they were in 2015. Other players, too, have noticed that there is money to be made on the primary reserve market. In Germany, some 75 MW of large-scale storage capacity has gone onto the grid, mainly for marketing on the operating reserve market. A bigger supply automatically leads to falling prices. In 2016 prices for primary operating reserve were still just slightly more than three-quarters of their 2015 levels.
“The drop in price is probably due in part to new technologies such as large battery storage systems with combined capacities of more than 75 MW and the increasing integration of neighboring markets,” explains Raphael Hollinger, head of the Economic Operation and Business Models team at the Fraunhofer ISE, who spends a generous amount of his time on operating reserve issues.
But he has also demonstrated that increasingly fluctuating wholesale prices for electricity can be a cost driver in primary operating reserve power. “Where the prices end up when most primary operating reserve power is provided by batteries depends on the alternative marketing options for storage and opportunity costs,” he says.
Prices for secondary operating reserve have fallen even more dramatically. Requirements for this type of reserve capacity are not as strict as those for primary operating reserve – among other things, it does not have to be available on such short notice. The price for negative secondary operating reserve which requires providers to receive electricity, as needed, fell from €0.99 per kW/h in 2013 to just €0.05 in 2015. It is no longer even worthwhile to use that power for heaters because it is subject to network usage fees.
There is a further uncertainty that applies specifically to Germany. It may turn out that the total on-site energy consumption from the storage system, including power used for operating reserve marketing, could be subject to the EEG surcharge. That would essentially make the mixed business model impossible. But this may not matter to customers who do not even notice the difference between on-site consumption and electricity supply. The answer to this question depends on who, in the legal sense, is considered to be the operator of the storage system and whether this characteristic is transferred to the party responsible for marketing the operating reserve power. But that is not all there is to it. Senec argues, for instance, that PV plants connected to storage systems used for primary operating reserve which intermittently feed their power into the grid are no longer eligible for feed-in tariffs. Problem solved, says Sonnen.
The prequalification hurdle
Prequalification is another central issue in the provision of operating reserve. Sonnen scored its first success in this regard in Switzerland. In that market, Swisscom Energy Solutions, a 50% subsidiary of telecommunications company Swisscom, operates a pool of 6,500 heat pumps and off-peak electric heat storage units which it uses to supply primary operating reserve to the transmission system operator Swissgrid. In June the company announced that it had incorporated Sonnen batteries into its network. “Our system has been prequalified by Swissgrid for that purpose,” says CEO Frédéric Gastaldo.
In order to obtain prequalification, Sonnen used controller units developed by Swisscom Energy Solutions. These make it possible to connect the devices to the pool forming the virtual power plant. The IT platform enables the use of devices as if they were an actual large power plant.
A closer look at this task reveals that the data collection and processing alone requires a colossal effort. The capacity of the devices has to be measured every second. These data are transmitted to the platform for the purpose of reporting. That enables the operator of the pool to demonstrate that the primary operating reserve capacity is in fact available and can be supplied as needed. There is also the matter of controlling the devices. Not all of the devices in the pool have to be marketed simultaneously. Smart activation lets the pool use only the appliances available at a given time. “If the platform is prequalified, it is not necessary to inspect every battery individually; instead, the pool is evaluated as a whole,” says Gastaldo. The transmission system operators, however, have a right to audit and can therefore show up at any time and check the amount of capacity individual devices provide.
In Switzerland, Swisscom not only provides the hardware and the platform, but also markets the pool of small devices. That allows them, with the permission of the transmission system operator with which they are prequalified, to bid for operating reserve requirements in Germany, because the two countries have a joint network control scheme. “A Sonnen battery in Zurich can already cover the operating reserve requirement of a German transmission system operator,” says Gastaldo. The TSO's are doing this to drive down prices by expanding the supply and making the market more competitive.
This does not work the other way around, however. Sonnen batteries connected to the grid in one of the areas served by the four German transmission system operators cannot bid until the platform is also prequalified here in Germany. “We expect that to happen in the first quarter of 2017,” says Philipp Schröder, the managing director for marketing and sales at Sonnen. Customers can still take advantage of the product, however. “We want to start building up the pool now.” Until this happens, Sonnen will offer the bonus of the free excess electricity anyway.
Fenecon is taking a very similar approach. The battery storage system manufacturer, which installs systems from Chinese producer BYD, is collaborating with another Swiss technology company, in order to link the battery systems into a virtual power plant. Ampard says that it, too, has already marketed primary operating reserve in Switzerland, provided by BYD domestic power storage systems. In Germany, Ampard is in discussions with transmission system operators, according to Feilmeier, and is currently waiting for the “final signature” for prequalification. A raft of question and answer sheets have been exchanged with the transmission system operators. At Fenecon, too, customers will soon be able to sign up for the tariff. “Right now, we're paying the bonus out of our own pocket,” says Feilmeier. ”
There is already a system prequalified for primary operating reserve sale in Germany, offered by Caterva. However, the storage system is on a much larger scale and uses a different business model. Customers purchase a kind of shunting service for the solar power they produce and then have no idea how the storage system is actually used.
What about on-site consumption?
Operating reserve power with domestic storage systems has been under discussion in Germany for the past three years. It reduces the amount of storage capacity available for increasing on-site consumption – in principle; every kilowatt marketed is one kilowatt fewer available for on-site consumption. Companies say that in reality it is a rarity for a half-hour of operating reserve power to be needed at one time. Therefore, solutions are also conceivable in which batteries – in such extraordinary cases where operating reserve is needed for sustained periods – may be charged up more or less than they are designed for as on-site storage systems without any negative impact on the service life of the battery.
On-site consumption is increasingly in demand for a very good reason. Ultimately, customers opt for storage systems because they consider it desirable to have greater energy independence. That is the argument that companies like SMA, Solarwatt and E3/DC emphasize. After all, it is still the case that storage systems optimized for on-site consumption in combination with photovoltaics often generate a positive overall return on investment. But if returns were optimized, some operators may do without them after doing a detailed cost-benefit analysis. But for many customers, this may be beside the point.
Whether customers will jump at the chance to use their batteries more for operating reserve or for increasing their own consumption remains to be seen. Even if customers are completely on-board with operating reserve, there is still some small sense of self-sufficiency. In one case, a battery purchased mainly to market operating reserve does supply independence: during a power outage it is available for home use. Furthermore, providers stress that this model also offers them a kind of independence from the big power companies.
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