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Electricity storage under the spotlight - outlook and GO market impact

hydro plant
Photo by Kees Streefkerk on Unsplash

Recently, the EC has approved two support measures via State Aid dealing with the establishment of electricity storage infrastructure. Given the key role of electrification in the energy transition, storage is expected to play a sizeable part. We look at the storage situation in Europe, and how it relates to Guarantees of Origin.

Photo of Kevin Lim

Written by

Kevin Lim

Gas Analyst

MSc Innovative Sustainable Energy Engineering from the Norwegian University of Science and Technology (NTNU). Data science. Previously worked in electricity industry in Australia.

Key points:

  • Electricity storage is key to subduing the variable nature of renewable generation from wind and solar.
  • Traditionally, Pumped Hydro Storage (PHS) has been the dominant storage technology, although other technologies are now in play, particularly electrochemical batteries since 2000.
  • Storage certificates are likely to play a sizeable role in the GO market going forward, and their value would be enhanced by hourly tracking.
  • The AIB has proposed rules to this effect, and ENTSO-E also supports the use of more granular tracking.

The two announcements were for member states Greece (5 September 2022) and Croatia (9 September 2022), with the former amounting to more than EUR 300 million in funding.

Of the Greek announcement, which will also receive partial funding from the EC Recovery and Resilience Facility (RRF), EC Vice-President Margrethe Vestager said:

“Increasing available electricity storage capacity in the system is key to make grids more flexible and better prepared for a future in which renewables form the backbone of the decarbonised electricity mix.”

Fundamentals

While some RES-E technologies are essentially on demand, for instance, hydro and biomass, solar and wind technologies do not share this flexibility. This leads to a mismatch between peaks in demand and supply - in particular, the issue of burgeoning solar installations has given rise to the “duck curve” phenomenon.

This is problematic given that Europe’s ambitions in REPowerEU rely strongly upon the expansion of these two Variable Renewable Energy (VRE) resources. Electricity storage can help alleviate some of these issues, allowing storage and deployment of electricity in times of excess supply and demand respectively.

The European status quo

Data for the following section was taken from the Database of the European energy storage technologies and facilities, retrieved on 8 September 2022.

Facilities exist in most countries in Europe, with the UK having the highest number and total capacity of storage projects in operation or approved. As previously mentioned, the storage scene in Europe is dominated by PHS. Particularly pre-2000, when nearly all commissioned storage plants were of this type.

Recently, battery storage has become a competitive alternative, given that PHS must either be either installed with new hydro generation (which has slowed down as of late) or retrofitted (which will eventually slow given the former situation). Since 2000, the number of newly commissioned battery installations has exceeded the number of PHS installations.

Storage GOs

Until recently, GO issuances for storage devices were not considered due to difficulties verifying the energy sources for the devices.

However, given the proliferation of storage and its importance in dealing with Variable Renewable Energy (VRE) implementing GOs for storage will be an important aspect of the voluntary EAC market.

The operating electricity storage capacity in Europe is currently estimated at over 50 000 MW - at 20% availability, this would amount to around 90 TWh a year. Assuming 80% (notably, discounting the UK) of this supply receives storage GOs, this would be approximately 10% of the current AIB annual issuances.

AIB proposal – May 2022

The AIB has drafted rules regarding storage GO issuances, although these are subject to change. The basic premise that for storage GOs to be issued, the GOs representing the electricity input must be cancelled.

The AIB has laid out a few scenarios regarding storage corresponding to different labels:

S01 - Where the storage device is exclusively associated with a production device, this has three sub-categories although the storage device issuance here is essentially an extension of production device issuance rules.

S02 – Where the storage device has no assignment to a production device. GOs issued from such a storage device fall under two categories:

  • If the input and output into the storage device is electricity, GOs representing the input and output shall have hourly (or sub-hourly) tracking.
  • If the storage is for gas, hourly tracking is NOT a requirement (possible to default to yearly tracking).

The tag level 1 – S02 is of the most interest, particularly non-gas storage category where (sub-)hourly tracking is required. While the rules are subject to further development, the move towards more granular tracking of electricity-related EACs is not surprising given the impetus from ENTSO-E and EnergyTag.

Without hourly tracking, electricity GOs for storage devices essentially have the same value as those from RES-E facilities. However, if a consumer wanted to mirror their hourly consumption profile with similar GOs from production, they would be limited with regards to wind and solar GOs, as the VRE facilities may not necessarily have a matching output profile.

On the contrary, the flexibility of a storage facility allows it to match the user consumption profile; this increases the relative value of storage GOs in an hourly tracking regime.

The relative value of GOs for storage

While storage facilities incur a round-trip efficiency penalty (losses incurred during storage and release of electricity), this is offset by flexible operation, with the ability to take advantage of energy arbitrage. Furthermore, ancillary services are possible with many forms of storage, including frequency regulation, voltage support and load levelling which can lead to further income streams.

Except for scenarios where massive premiums for peak hour GOs develop, we expect the value of storage GOs relative to all other revenue for storage facilities to be lower than that of traditional generation facilities. Nevertheless, storage GO value may play a role for more marginal storage projects.

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