This article was original published in Project Finance International in December 2017.
Renewable energy has moved to the mainstream. The tumbling costs of renewables, from solar photovoltaic (PV) to offshore wind, has grabbed headlines globally in the last two years. Increased penetrations of renewable power are expected in the coming decades; a recent report1 by the International Renewable Energy Agency (IRENA) found that over 80% of the world’s electricity could derive from renewable sources by 2050, with solar PV and wind power accounting for 52% of total electricity generation. However, at higher penetrations, these variable renewable power sources make balancing the system more complex and so will require a transformation in our power systems. Electricity system operators are increasingly considering how procure flexible capacity to integrate high penetration of intermittent, often distributed, renewable energy sources.
Storage is an essential element in this energy transition. Recent cost reductions in storage technologies have meant that storage is on the cusp becoming of competitive. IRENA predicts further cost reductions of 48% to 64% between 2016 and 2030, with total electricity storage predicted to grow from approximately 4.67 TWh in 2017 to between 6.62 TWh and 7.82 TWh by 2030; an increase of 42-68% from 2017. Batteries in particular are gaining market-share. In 2016, lithium-ion batteries made up almost half of all new battery deployments, whilst advanced lead-acid and sodium-sulphur batteries also held large market shares.
Battery storage is readily scalable and can respond in milliseconds. It can be located either ‘behind the meter’, as part of a hybrid site smoothing generation output or providing back-up power, or ‘in front of the meter’, providing electricity grid services.
Behind the meter, batteries may be combined with renewables or fossil fuelled plants in order to reduce potential grid integration challenges, reduce grid connection capacity requirements, and, for variable generation, reduce balancing costs and allow access to revenue from the provision of grid services. Storage may facilitate an energy intensive industrial user’s participation in the demand-side reduction market or provide important back-up power for critical processes. Off-grid industrial users may also find battery storage an interesting proposition, lowering power costs and reducing reliance on diesel supplies. For example, the DeGrussa Copper-Gold mine project in Western Australia is powered by a 10.6 MW solar PV farm and is coupled with a 6 MW battery facility to power the off-grid mine2. The solar+storage system has been combined with a 19 MW diesel generator, supplying the whole mine and its processing operation with power during daylight hours3. The DeGrussa system is expected to reduce the site’s reliance on diesel by approximately 20%.
In front of the meter, stand-alone battery storage systems connected to large power grids provide an array of grid services including frequency response and firm capacity in times of system stress. For example, Renewable Energy Systems has 90 MW of standalone batteries in operation and more than 55 MW under construction, including two 55 MW projects in the UK that provide enhanced frequency response to the utility grid. AES Energy Storage is also a market leader for commercial energy storage solutions, operating across four continents. To date, AES has a total of 476 MW of interconnected energy storage, which is equivalent to 952 MW of flexible resource, in operation, construction or late stage development.
Battery systems may also be combined with fossil fuelled or renewable generation in non-interconnected grids or island grids. These mini-grids have historically been developed by the public sector (governments, state-owned utilities, NGOs or community groups), however, the scale of the challenge to electrify remote communities means that private sector funding will increasingly be required. Some of the Hawaiian islands, for example, require renewable generators to couple any new generating facilities with batteries to help manage the local grid. In emerging markets, small, renewable, off-grid solutions with battery storage are a sustainable alternative to the traditional centralised generation model. With the support of export credit agencies and development banks, investment is increasing They are also comparatively easier to finance given lower capital costs, shorter construction periods and fewer risks and complications involved.
As energy storage gains importance in the global electricity mix, so the question of how to finance energy storage installations increases in importance.