Multiple deployment opportunities for large-scale storage

ultra-short- to long-term and which help to accommodate new challenges related to VRE variability. This makes them suited to providing different aspects of the range of services electricity storage can provide (Table 7).

Notes: RE = renewable energy; T&D = transmission and distribution.

Arbitrage opportunities have driven storage deployment in the last 40 years, in particular pumped storage hydropower (PSH). Recently, battery storage technologies have seen rapid cost declines, and although not suitable for seasonal storage, could play a greater flexibility role in the short term in future power systems. Finally, synthetic fuels that can be reconverted to electricity are a possible avenue for seasonal storage.

Optimising the use of PSH

PSH is currently the most mature and widespread technology for electricity storage. Globally, 153 GW of capacity are installed, of which 29 GW are located in China. While future expansion is limited by the availability of suitable sites and public acceptance issues in a number of countries, PSH is expected to increase by 26 GW over the period 2018–23 (IEA, 2018c).

PSH can provide a variety of services to the grid, including all types of short-term and mediumterm flexibility services. Due to the technological maturity of this option, future cost reduction potential is limited. However increasing system flexibility needs may bring about new opportunities for deploying PSH, through modernisation and conversion.

adjusting minimum bidding size in reserve markets, where batteries could be excluded due to small size (Stephan et al., 2016). In the United States, this has been enabled by FERC ruling 841.

Internationally, the deployment of battery storage varies both by size and application. Very large-scale batteries above 5 MW represent a greater share of installed battery capacity in Europe. This is due to a number of reasons. For example, in Northern Germany pilot projects for large batteries have been seen as an alternative to relieve the grid in areas with high wind penetration. Installed in 2014 with an original 5 MW of output, WEMAG’s Schwerin battery project was expanded in 2017 by a further 10 MW in order to provide frequency regulation and balance the output of about 800 MW of installed wind generation in the region.

Large battery storage is also relevant in the United Kingdom where, until recently, they were encouraged to participate in the country’s capacity market. Owned and operated by Statera Energy, the Pelham battery storage power plant was commissioned in 2017. With an output of 49 MW, it is able to extract revenues from frequency regulation as well as the capacity market.

Outside Europe a number of very large battery storage projects serve very specific needs. With 100 MW, the Hornsdale battery project in Australia is the largest grid-interactive battery storage facility in the world and is further example of revenue stacking, accessing both the wholesale and frequency regulation markets.

Box 13. Reducing the cost of ancillary services in Australia – the Hornsdale battery

Due to its abundant solar and wind resources and favourable policies, South Australia has seen a rapid increase in VRE installation. In 2017 wind accounted for 36% of installed capacity in the state, while rooftop PV accounted for 14%. At times of low demand and abundant VRE resources, wind can reach 143% of maximum incident penetration, while solar can reach up to 41%.28 The speed of ramps is also particularly relevant, as wind output can have a maximum variation of 763 MW/5 min, which increases the need for fast-responding assets to cope with fluctuations in VRE supply.

Built in 2017, the Hornsdale battery project, with 100 MW storage capacity, is operated by Neoen and has been built adjacent to a 315 MW wind farm. By accessing various markets, the battery is able to obtain revenues from both frequency control and wholesale market arbitrage. The project has reserved 70 MW for frequency control, with around 10 minutes of storage capacity for ancillary services, leaving 30 MW with around 4 hours’ storage for wholesale market arbitrage.

Due to its speed of response and precision, the project has managed to displace steam turbines, which would have usually been used to balance the grid.

The battery has had a noticeable effect not only in keeping the system in balance, but also on the market for FCAS. Within four months of operation, the Hornsdale battery deployment was associated with a 90% drop in FCAS prices, and within South Australia alone the battery has taken up 55% of the FCAS market. On a national level, demand response and large battery storage now represent 20% of the country’s FCAS market.

However, the advantages of large-scale batteries need to be balanced against the increasing need for flexibility. This is particularly important because, despite the substantial drop in the price of FCAS, the market’s volume has continued to increase and, with a potentially saturated market and low prices, it may be difficult to finance similar utility-scale projects.

Source: AEMO (2018), Initial Operation of the Hornsdale Power Reserve Battery Energy Storage System, www.aemo.com.au/- /media/Files/Media_Centre/2018/Initial-operation-of-the-Hornsdale-Power-Reserve.pdf.

Until recently, the US market for battery storage was characterised by smaller batteries than in Europe and Asia-Pacific, with the bulk of installations ranging between 1 MW and 5 MW. The diversity in battery storage applications in the United States shows the importance of policy design and prequalification requirements for market development. This is reflected in different capacity-to-energy ratios for different market regions (Figure 15).

Figure 15. Battery storage deployment by market region in the United States, 2017

Notes: AK/HI = Alaska and Hawaii; CAISO = California ISO; ERCOT = Electricity Reliability Council of Texas; MISO = Midcontinent ISO; ISO-NE = ISO New England.

In 2017, PJM and CAISO were the most relevant markets for energy storage in the United States.

The most striking difference in usage can be seen in the PJM and CAISO jurisdictions. In California (CAISO) a significant amount of large battery storage had been procured, mainly for reliability reasons to address constraints in natural gas supply. Thus, large battery storage installations in California tend to have larger energy volume contributions, with an average installed capacity of 5 MW and a four-hour discharge. By contrast, battery storage in PJM on the east coast is typically deployed for frequency regulation, with an average output of 12 MW for large batteries and a discharge time of 45 minutes. The US market for battery storage is set to grow further following the Federal Energy Regulatory Commission’s decision to require the participation of energy storage technologies in wholesale markets.

Policy action is needed to make best use of storage. Regulation should allow companies to supply services that cut across multiple independently regulated markets (long-term, shortterm, balancing, etc.). A number of studies highlight the importance of establishing pricing