The EU 2020 energy and climate targets have led to a significant increase in the share of renewable energy sources in the EU’s electricity supply mix. Going forward, EU’s ambitious goal of reducing the greenhouse gas emissions by at least 80% of the 1990 value by 2050 indicates that this growth in renewable generation can be expected to increase over the coming years.
A power system based on renewable energy needs flexibility to balance demand and supply. OFGEM defines flexibility as “modifying generation and/or consumption patterns in reaction to an external signal (such as a change in price, or an electronic message) to provide a service within the energy system”.
Storing electricity is one way of providing flexibility to the system. Electrical storage can be defined as any device that can store electrical energy and make it available when required. Therefore, it could be said that while “copper wires” transmit electricity over geographical distances, storage transmits electricity across time.
Traditional storage technologies, such as pumped hydro that accounts for most of the current storage capacity, have been around for ages, but due to rapid innovation, large-scale batteries (also referred to as electro-chemical storage devices) are only recently becoming economically viable. A significant growth in the battery storage installations in the EU has been observed since 2009. It is projected that storage capacity for utility scale applications alone is expected to reach 14 GW by 2023.
Batteries have some unique characteristics that set them apart from the traditional storage resources. Unlike traditional technologies, these devices are modular and can be installed quickly. Hence, they are not constrained by location. Not only can batteries be installed at any location but they can also be moved to another location as and when required in a cost effective manner. This makes them an invaluable resource for providing location specific services such as voltage control for distribution grids.
Batteries can participate in different segments of the electricity value chain. These devices can provide ancillary services, participate in the wholesale market (as both buyers and sellers) and can also be used for congestion management. The ongoing energy transition requires a lot of investments in transmission and distribution grids. Managing grids smartly by using batteries and other potential sources of flexibility can defer some grid investments. Thus the functional versatility of batteries truly make them the “jack of all trades”.
However, this functional versatility of batteries also makes it extremely difficult to define them in the current regulatory framework. In this regard, two key topics of debate are the following. The first is concerning the ownership of such assets, which can be aptly summarised by the phrase “who will master this jack of all trades?”. While the second debate centres around the (in) ability of the current market structures in providing a level playing field for new products such as batteries. We will look into the various aspects of these debates in depth.
Finally, in a discussion about batteries, the role of electric vehicles (EVs) cannot be ignored. EVs by some have been described as “storage on wheels” that could be used as yet another flexibility resources, while others see them as a risk to our existing system.
Who will master the jack of all trades?
One of the key debates on the topic of batteries revolves around its ownership. In this context, ownership could be defined, as the right to own, develop, manage and/or operate batteries. In the recent months, several industry associations have come out with position papers on ownership of battery storage (see for instance the joint statement by CEDEC, EDSO-Smart Grids, GEODE and EUROBAT). The European Parliament too expressed a position in the debate. It called upon the European Commission to allow TSOs and DSOs to invest in storage, arguing that it should be considered as a separate asset class. Others have expressed strong concerns that this would distort the market. In this post, some key aspects of the debate on battery ownership are discussed.
TSOs are required to balance the system in real-time to ensure operational security by keeping the frequency and voltage within the prescribed limits. Batteries are a valuable resource for providing these services. In a balancing market, the TSO is the single buyer of balancing services consisting of demand and/or supply resources that are available to respond in real-time to any signal variations in the system. In some countries, TSOs are permitted to own assets (such as batteries) that could provide balancing services. In this way TSOs may mitigate any market power issues that could occur when the system is stressed. However, if TSOs are allowed to own batteries, how can they at the same time be a neutral market facilitator and single buyer of these balancing services? A similar debate may follow at the DSO level due to increasingly decentralized power systems.
Locations specific grid services
Unlike frequency which is a network wide parameter, voltages occur across points in the network and can be considered as local parameters. Therefore, by definition, any voltage problem in the grid needs to be addressed locally. Moreover, in some parts of Europe, DSOs have been unable to follow the connection requests of wind mills and rooftop PV installations. As a consequence, distribution grids are now facing congestion and voltage problems.
System operators can solve such problems by procuring location specific services. For example a TSOs sometimes pay market parties to keep a power plant running in a certain location to support the voltage, even if the plant is out of the market. As market parties that provide location specific grid services have significantly more market power than those that provide regular balancing services, competition in the market will not work. Thus there is a case for permitting DSOs-TSOs ownership of assets for providing local grid services until these markets mature. Batteries which are modular, quick to install, and mobile are well-suited to deal with these local problems. However, the costs and benefits of TSO-DSO ownership of batteries vis-à-vis the current approach needs to be evaluated very carefully.
What does the “Clean energy for all Europeans” package say?
The “Clean energy for all Europeans” proposal includes provisions under which the regulatory authorities may allow TSOs and DSOs to invest in storage only under exceptional circumstances. TSOs and DSOs may invest in storage when no market party expresses interest to own, develop, manage or operate storage facilities in a competitive tendering process. TSOs and DSOs may also be allowed to invest in storage when the regulatory authority assesses it necessary to facilitate efficient, reliable and secure system operations. However, the proposal also include that the ownership of the asset should be limited in time, subject to consultation.
The “balancing act” of integrating batteries into the market
The use of fast responding resources such as batteries for balancing services has the potential to improve operational and economic efficiency and thus lower the cost for consumers. However, the current view appears to be that market structures are not yet adapted and would need to be modified in order to encourage flexible technologies such as batteries.
This view has been echoed by ENTSO-E in its position paper, where it mentions the need “for improving the market design to ensure adequate price signal for storage”. The European Parliament resolution of 13 Sep. 2016 on Towards a New Energy Market Design too calls upon the European Commission to adopt a market design structure that rewards flexible and fast reacting resources.
The same holds true in the United States, which nevertheless appears to be ahead of the EU in this aspect. In 2011, the federal energy regulatory commission (FERC O-755) ordered the overhaul of the frequency regulation market as it saw the current system as (negatively) discriminatory towards flexible and fast responding assets. Recently, FERC has proposed further changes to market design in order to facilitate a level playing field for storage technologies.
Examples of market adaptations
Some markets have already been modified to encourage flexible technologies. The three cases presented below illustrate some of the approaches that have been utilized in this regard.
SPECIAL MARKET: In the UK, National Grid created a special market for Enhanced Frequency Response (EFR) to support fast responding assets. During the first auction in 2016, roughly 200MW of batteries were able to clear this market and get contracts for providing the enhanced frequency response services.
MARKET MODIFICATION: In Pennsylvania-New Jersey-Maryland (PJM), after FERC order 755, the frequency response market has been restructured to provide fast responding resource an additional remuneration. In the new market structure, the additional power provided by fast resources as compared to the traditional resources in a given time frame is taken into consideration while calculating payments. This has allowed batteries and even electro-mechanical devices such as flywheels to participate competitively in the market.
TECHNOLOGY SPECIFIC PROCUREMENT: In California, local capacity requirement auctions are organised by the load-serving entities. These auctions can be considered as a type of local level capacity mechanism to ensure reliability. In 2014, while approving South California Edison’s local area requirements, the California Public Service Commission specified the share of different technologies that should be contracted, of which storage was one technology. This resulted in South California-Edison contracting 100MW of batteries. This was part of a solution provided by AES in combination with a CCGT power plant.
The way forward
From these examples it can be observed that there are various possible alternatives to encourage participation of flexible resources in ancillary markets. Whether it is just modification to the current market structures or implementing special markets, the key lies in developing an approach for boosting flexibility that does not favor one technology over another. However, the risk of discrimination, which can either be two similar resources treated differently or two different resources treated in the same way, will always exist. Eventually a familiar question arises: where to draw the line in this grey area of regulation?
Driving on the electricity highway
It is estimated that one in every hundred cars sold today is powered by electricity. The yearly sales of electric vehicles (EVs), considering both battery (BEVs) and plug-in hybrid (PHEVs), in the EU has increased from roughly 700 vehicles in 2010 to 149,500 in 2015. Globally, the threshold of 1 million electric cars on the road was exceeded in 2015, finishing with 1.26 million at the end of the year. Considering the automotive industry at large, the numbers may seem insignificant, but the trend indicates that the penetration of electric vehicles will increase rapidly in the coming years.
The rising number of electric vehicles has led to some concerns regarding its impact on the electrical system. The system may be put at risk due to a significant growth in the electricity consumption and the increase in unpredictability of consumption patterns owing to vehicle charging. Nevertheless, with the use of smart Vehicle to Grid (V2G) solutions, electric vehicles could become a solution rather than a problem by contributing significantly in integrating intermittent renewables into the system and by providing ancillary services. Apart from the system level benefits, permitting EVs to participate in the electricity markets would present new revenue generation opportunities for vehicle owners. This in turn would further improve the business case for EVs by reducing overall costs.
EVs as an electricity market participant
The primary function of EVs is to provide a sustainable alternative for transportation. However, when these vehicles are idle or parked, they may be viewed as a distributed storage resource (similar to a stationary battery) that can be used to provide flexibility to the system. It has been demonstrated in literature that from a techno-economic perspective, electric vehicles are best suited for short-term power regulation and thus participating in ancillary markets could prove to be the most attractive option. The UK’s National Grid foresees that by 2030, electric vehicles and heat pumps could contribute up to 80% of the country’s frequency response requirements.
Examples of ongoing trials on market participation of EVs
Various trials are being carried out around the world to study the possibility of using EVs for grid services. The University of Delaware and Pennsylvania-New Jersey-Maryland (PJM) independent system operator have been studying the possibility of using EVs for providing grid services since 2007. The aim of the study is to evaluate the viability of using EVs for frequency regulation and as spinning reserves. According to media reports, as of 2014, the pilot project was able to earn roughly $110 per vehicle per month for providing these services to the grid.
In May 2016, Italian power company ENEL and Japanese car manufacturer Nissan announced plans of conducting V2G trials in the UK. The trial will consist of installing one hundred V2G units at various locations for Nissan LEAF and e-NV200 electric van. These units will provide owners of these vehicles the ability to provide grid services. Since August 2016, a similar project has been undertaken by ENEL in Denmark where, 10 vehicle-to-grid (V2G) units have been installed at the headquarters of the Danish utility Frederiksberg Forsyning.
Gazing into the crystal ball
The early results from pilot studies appear to be promising. However, it is important to err on the side of caution as several hurdles still exist. One such hurdle is that the technology (hardware and software) for enabling a truly seamless V2G experience for the user is still maturing. Another is that the usage pattern for EVs appears to be changing from a single user to a multi-user (shared) approach. It may be relatively easy to integrate an EV that is parked most of the time and which has a predictable usage pattern. However integrating a shared vehicle may be much more challenging. In the coming months, further results from pilot projects would reveal much. Nevertheless one thing is certain, EVs are here to stay and will be pivotal not only in redefining the transportation market but also the electricity market.
This essay was originally published as a series of fully referenced blog posts on the FSR website which can be read here.