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The business cases for electricity storage are very complex and rarely viable under current market conditions and existing regulatory frameworks
The economics of electricity storage are difficult to evaluate since they are influenced by a wide range of factors: the type of storage technology, the requirements of each application and the system in which the storage facility is located.
The initial investment in a storage facility comprises two principal components: a cost per unit of power ($/kW) and a cost per unit of energy capacity ($/kWh). The costs of power of a pumped hydro storage plant, for instance, comprise the cost of the pump/turbine ($/kW) and the cost of energy capacity, which depends on reservoir capacity and elevation differential ($/kWh).
These costs vary significantly according to the technology being deployed. Reflecting their attractiveness in power-driven applications, flywheels and supercapacitors are characterized by low capital costs for power (from $200 to $400 per kW) but prohibitively high investment in energy capacity (from $500 per kW in applications with low energy needs to $50,000 per kWh for high energy requirements). Conversely, compressed air energy storage has relatively high capital costs per unit of power (from $400 to $800 per kW), but is considerably cheaper per unit of energy (from $2 to $150 per kWh). The combination of power rating and energy capacity is therefore crucial in assessing the competitiveness of different technologies. Applications dictate another major component of storage economics: the frequency of charging and discharging cycles. Cycling affects the amortization of capital costs and annual replacement costs, which have significant impacts on battery economics.
Finally, the price of electricity is equivalent to fuel cost. Consequently, electricity-price distribution – depicted by the location-dependent price-duration curve – is a key factor in storage economics. Usually, storage operators try to take advantage of electricity price spreads (charging when the price is low and discharging when it is high), but this is not possible in all applications.
Overall, compressed air energy storage and pumped hydro storage are the most cost-effective technologies for large-scale electricity storage with frequent cycles. Flywheels and supercapacitors will be preferred for very short storage periods and frequent use. Batteries are likely to be the cheapest solutions when the number of cycles is low.
However, the economics of electricity storage remain shaky. The benefits of storage can be evaluated according to three methods, based on: the market (e.g. bidding to supply power to the control market); avoided costs (e.g. deferred investment); or the intrinsic value of storage, using the willingness-to-pay of the customer (e.g. provide power quality). Costs tend to outweigh the financial benefits, although price arbitrage and grid-investment deferral may make investments in storage profitable in some countries. Bundling several storage applications together seems a strong lever in helping electricity storage to become profitable. Removing regulatory barriers, such as making storage plants eligible to participate in ancillary services, rewarding fast response assets, or allowing network operators to own storage facilities, is also required to enable the monetization of storage.