Extracting Value from Battery Storage

There is much focus on the cost of battery energy storage generally based upon single use application - charge during the day for use again to offset the afternoon-evening peak. Batteries have the potential to deliver more value than just that further supporting the initial capital investment and return on the asset.

Below are some extracts from World Energy Focus and Energy Storage News discussing the opportunity ahead. It’s time to shift thinking and lever the value that will be embedded in battery storage.

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, 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.”

Policy recommendations

Schiffer says policymakers and regulators should look at the broader picture when designing regulatory frameworks. 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.

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.

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.

Matthew Hunt, CEO Chargesync, discusses his approach for optimising batter storage to extract maximum value.

Optimisation is a balancing act, in which economic considerations are as important as technical ones

So let’s imagine for a moment that we’ve constructed a network of embedded batteries across the country which can all be controlled independently. What would you tell these batteries to do, and how could you be sure that what you’re telling them to do is correct? Which market signals do you listen to? What is your primary driver for actions?

Voltage? Frequency? There can be times when this might be useful, but can you justify the value of your battery on the basis of following frequency and possibly being paid by the grid?

Since placing a battery onto the grid is an economic investment which requires capital to purchase the box we need a strategy which will extract the maximum value from the battery in its position on the grid. The problem is complicated because there are many potential sources of value. Do you simply sell the control of your battery to National Grid, or the DNO? Do you try to control the battery in real time? Do you respond to market pricing in the form of time of use tariffs? Or do you try and use your battery in the balancing market? Are the services you offer mutually exclusive? Or can we partake in more than one service at the same time? Trying to solve the problem all at once is probably not possible, so the approach we take is to break the value chain into pieces.

Economic optimisation on a forward-looking basis

Here at ChargeSync our approach begins with an economic optimisation of the batteries on a forward looking basis against the next 24 hours of market prices and time-of-use tariffs. Once this is done we will devise an optimal instruction set for every battery under our control. We believe that maximising the economic potential for the batteries given market prices is a critical initial step as this provides us with a price against which to sell further actions, or change the strategy. Without performing an economic optimisation of the device in your own control you are unable to tell what the value/opportunity cost of providing any other services would be.

As well as an optimal strategy our economic optimisation provides us with a method to value changes to our strategy, and hence economically price and sell services into the spot market. Once the optimal strategy is computed changes to that strategy (e.g. withdraw when you were going to inject) can be evaluated, simply, if the value of the service (what you’ll get paid for the service) will exceed the value lost from the initial despatch, then we would perform the service, if not then we won’t. Without this methodology you either accept the value offered to you for grid services, or don’t, but no real criterion exists to make that decision. The key thing here is that current grid services alone are unable to underwrite the value of a battery, and nor would we expect them to.

The key thing here is that current grid services alone are unable to underwrite the value of a battery, and nor would we expect them to."

Repeat performance

So if you want to maximise the value of your battery based assets, and know how to price your services then we believe a market based optimisation is the logical stepping stone. There are complications of course. For instance, if you are participating in grid services then when do you need to commit to the service, and what is the cost of failing to provide the service you promised? These are all trade-offs that need to be evaluated by your optimisation algorithm and result in a changed, or unchanged despatch of the asset.

It’s worth mentioning that this process needs to be repeated at regular intervals. The optimisation needs to respond to real time events in the market, and to the evolution of charge levels within the battery. We expect price, weather and demand to be exogenous variables in our calculations.

Finally we should mention Distribution Network Operator (DNO) grid services from batteries. Our aim is to provide a real time price (a shadow price in economic language) for the marginal unit or charge or discharge. This shadow price will allow us to create a price for any opportunity. This means if a DNO wants to withdraw discharge batteries for a particular street then there’ll be a price for that. Local opportunity pricing can and will (in my view) create a whole new market for energy on the low voltage grid.

It’ll be interesting to see whether others look to follow our approach. Most folks seem to be plumping for grid services as a revenue stream, but our view is that just isn’t... optimal 

It is clear that batteries provide more than one potential service and much more opportunity than just displacing your personal demand. The full realisation batter storage value will require with the support of regulators and network operators.

It is true that this technology is disruptive and may take a while for the incumbent participants to see the value for them and transfer some of it back to the consumer. It’s probably worth the incumbents remembering that without a consumer they would not have a business nor a job!

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