A narrow focus on ‘levelised cost of energy’ (LCoE) can be misleading when looking at the business case for energy storage. This is one of the major conclusions of a new study E-storage – shifting from cost to value carried out by the World Energy Council into the real costs of energy storage. The report is calling for the true value of energy storage to be recognised by taking into account both its cost and revenue benefits.
Storage has often been described as the Holy Grail of the transition to a low-carbon energy system. Affordable, efficient storage would enable variable renewable energies to be better integrated into electricity systems, it would greatly improve the economics of home solar systems, even allowing people to go off-grid, it could help catalyze a revolution in electric cars and it could solve problems of grid overload. The problem is that this Holy Grail is still eluding us, because storage is too expensive.
But is it? There are reasons to believe the cost picture for energy storage is actually considerably brighter than what is commonly understood. A new study from the World Energy Council, with consultancy DNV GL as lead authors, shows that the LCoE metric, which is used as a standard in measuring electricity generation costs, can be highly misleading when applied to energy storage. The most important reason for this is that this formula ignores the revenue side – in other words, it fails to take into account the value that storage can bring.
The cheapest technologies might not necessarily deliver the greatest value
In electricity generation, revenues are fairly easy to measure and compare, but when it comes to storage, the value supplied varies depending on the application, so the report shows. For example, storage can enable suppliers to deliver energy at specific hours, when the price is higher. It can also provide generation capacity that is needed in certain circumstances. Or it can allow users to go completely off-grid, which can be beneficial in rural or isolated locations. There may also be additional indirect benefits, such as greater security of supply or reduced price volatility.
Different elements
According to Hans-Wilhelm Schiffer, Chair of the World Energy Resources study group, which coordinates 15 Knowledge Networks within the World Energy Council, including the fairly new Storage Knowledge Network, storage should be viewed as a totally new, separate element in the energy system. “There are four different elements in the energy system: conventional and renewable generation, grids, customers and storage”, he says. “You cannot simply apply LCoE values of, for example, conventional generation to storage applications.”
Schiffer gives the example of a village where a diesel generator is replaced by a solar-plus-storage system. “Storage in this case can increase reliability, help reduce air pollution, lessen dependence on external sources, help integrate other new renewable sources. LCoE alone does not capture these benefits.”
Storage is usually not getting the same kind of policy support as renewables or as other flexibility options like demand response
According to the study, the preoccupation with cost is a hangover from the renewables industry, “which tends to have a narrow focus on LCoE due to benefiting from policy mechanisms which derisk its revenue streams”. In addition, it has to do with the fact that “in most energy markets, flexibility is not sufficiently valued or monetised”.
Costs of storage set to decline 70%
The Storage Network’s study not only shows that a narrow focus on cost can be misleading, it also concludes that costs will come down rapidly in the coming years!
The findings show a significant drop in cost for the majority of storage technologies from 2015 to 2030. Battery technologies show the greatest reduction in cost, followed by sensible thermal, latent thermal and supercapacitors. Battery technologies show a reduction from around 100-700 €/MWh in 2015 to 50-190 €/MWh in 2030; this is a reduction of over 70% in the upper cost limit in the next 15 years. Sodium sulfur (NaS), lead acid and lithium-ion technologies are leading the way. Pumped storage shows the lowest cost reduction, due to the current maturity level of the technology, followed by compressed air energy storage.
Policy recommendations
Schiffer says policymakers and regulators should look at the broader picture when designing regulatory frameworks. “Storage is usually not getting the same kind of policy support as renewables or as other flexibility options like demand response. In many countries energy storage is seen as belonging to end customers. That means: the electricity which is taken into storage is charged with dues and fees, in addition to the dues and fees the customer has to pay on electricity. This is a double burden which is not justified. We believe there should be a level playing field. And more should be invested in R&D.”
The study has led the authors to make three broad recommendations for policymakers:
To go beyond a narrow levelised cost approach to storage technology assessment. The renewables industry has become accustomed to technology assessment based on levelised cost, where only the lowest cost technologies are rewarded. This LCoE assessment is then used to inform policy development, so that the cheapest technologies are promoted. But this approach won’t cut it for storage. The cheapest technologies might not necessarily deliver the greatest value.
The local energy market is what critically determines the revenue available for each service
To examine storage through holistic case studies in context, rather than place faith in generic cost estimations. The best way to understand the value of storage is to consider specific applications – such as solar in combination with storage – or else specific services being offered by storage – such as frequency response. It is also important that these case studies are not examined in a geographic vacuum: the local energy market is what critically determines the revenue available for each service.
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To accelerate the development of flexibility markets, working with system operators, transmission operators and regulators. The growth of deployment in variable renewables is creating new urgency around flexibility markets, including the need to ensure that ancillary services markets are designed so as to be a level playing field for all. The development of flexibility markets will help address the revenue risk associated with storage plant. As clearer monetary signals are assigned to flexibility services, this will increase the energy sector’s literacy on flexibility, and help to build the business case for storage.
Editor’s Note
Energy Post publishes the monthly and annual magazine of the Council, World Energy Focus. This interview was first published in the January 2016 edition of World Energy Focus.
James Rust says
One of these days the world will realize carbon dioxide from burning fossil fuels causes increased plant growth and negligible increases in global warming and all this worry about uneconomical changes to our energy supply will disappear.
Anthony Muscio says
Plant growth increases in increased co2 for some plants however as plants adapt to these circumstances they produce less proteins as these are used to capture co2 and less are needed when co2 is readily available. Some plants also use the resultant savings to increase their toxicity to ward of pests making the food much less nutritional. There is no evidence that such changes offset the billions of tonnes of modern emissions so this responce displays cherry picking and ignorance. I expect it is an attempt to avoid facing reality.
Fintan whelan says
It is clearly the case that the insights this report comes up with, emerge equally from approaching the impact of storage on the electrical system as a fund manager would approach adding a marginal investment into a financial portfolio.
It is the impact on the risk reward profile of the portfolio that matters to the manager, not the standalone qualities of the marginal investment.
Doing this would impose the discipline on the analysis that would sweep up all the angles that conventional approaches might miss – like deferred investment in transmission. This approach could usefully be deployed for any addition to the Electrcity system.
F
Tim McCreary says
Whoa…there are no storage capabilities presently nor foreseeable in future development that can store anything close to the GW’s that even the smallest of cities needs, and none that can store and discharge for long periods of time (longer than 15 minutes, for example). Energy storage inherently is upside down in efficiency and output; it has to be. Double conversion is a huge waste of energy. Where does this analysis factor in the technical realities?
Every new development in battery storage has geometrically increased the risk of toxic hazard releases (imagine a freeway accident of 5 or 6 Tesla cars with exploding batteries releasing deadly hydroge flouride gas, releases of toxic chromium, lead and cobalt into the water stream.; in other words, every vehicle accident is going to require HazMat disposal). Liquid sodium batteries, demonstrated to have the greatest storage/release potential, take up acres of real estate and use huge amounts of energy-in to keep the sodium liquid. And the accidental release of such is also considered highly toxic. Further, there are abundant analysis tools, long-considered credible, which show that battery technology (such as lithium-ion) has likely already reached the most dramatic improvements in capability and cost reduction. In the recent steps forward in battery technology, there has been increasing reliance on hazardous metals increasing the prospect for more spectacular hazard episodes. Worse, battery manufacturers are presently NOT obliged to deal with the issue of spent batteries. We are burying multiple millions of lithium-ion batteries from hand-held devices in landfills that barely meet EPA requirements for preventing lead (older batteries) from leaking, for example, much less these more caustic/toxic materials leaching. Good old capitalism…the consumer pays on the front end and the back end.
Anthony Muscio says
It is both possible and economical for many households and small businesses go off grid and be self sufficient for power. Multiple private self sufficient solutions can add up to many Giga Watts. So we know it works and is economical at once scale, there is no reason why this can’t scale up especially if we maintain a distributed model. What is your double conversion claim? Standard Led Acid batteries are very recyclable. Yes we must remain aware of environmental issues but this is not stopping progress to Solar PV / Energy storage solutions.
Fintan whelan says
Anthony
I completely agree. If you look for reasons to do nothing in this world you will find many. Progress is made by doing what is possible today in sufficient volume to enable further progress to accrue
Today the cloud based IT already enables the aggregation of which you speak. It will be a very interesting time indeed as the ripple effects of this aggregation emerge.
Donald says
Good article !
Flexibility is quite important for a full transition to renewable energy. I think that the best market design for flexibility rewarding is made of both energy+capacity markets. The same design is relevant for load shedding as well as storage system.
Virtual Power Plants made of storage system is probably a future business model for flexibility suppliers.