In the near term, the COVID-19 pandemic and any subsequent recession will crimp that growth, according to research by Wood Mackenzie. It is now forecasting the installation of 12.6GWh of battery storage this year, down from a pre-COVID-19 forecast of 15.6GWh. This would still make 2020 a record year for energy storage growth, however, and the company still expects to see a 13-fold increase in capacity, to 230GWh by 2025.
Maximizing the value of batteries’ ancillary services
But the successful development of the volume of utility-scale storage needed will be challenging. It will require the right market conditions and, particularly, for the various functions that each individual battery can perform to be incentivized, valued and monetized properly. The functions that battery storage performs fall under four main categories.
Batteries can offer ancillary services, such as regulating the frequency and voltage of power grids. These services used to be provided by thermal power plants and can’t be supplied by renewable energy capacity. Providing these services can be lucrative; the UK’s frequency-response market helped to incentivize the significant growth of batteries in 2018, when 460MW of battery storage was commissioned.
However, these markets tend to be shallow, notes Richard Braakenburg, Managing Director, Investments, at Switzerland-based investment manager SUSI Partners, which manages a €252m energy-storage fund. “They can be quite quickly saturated and subject to price cannibalization,” as was seen in Germany’s frequency reserve market, the PJM Interconnection, and in the UK.
“The challenge is to build up a revenue model that provides for access to deeper and more liquid markets, and has some form of downside protection,” Braakenburg says.
Some of that protection can be found by installing batteries alongside renewable energy plants, allowing the project to store generation when demand is low, and dispatch it at times of higher prices. Such hybrid projects can improve the economics of both the battery and the generating capacity.
“Combining renewables generation with energy storage means that each component balances out the weaknesses of the other,” says Toddington Harper, CEO of Gridserve, a developer, builder, owner and operator of solar and battery hybrid systems.