“We’re marketing renewable energy with storage systems”
The “Sell or Store” study shows that energy storage systems make a significant contribution to the economic integration of renewables in the market, whereby the connection, efficiency and size play a surprisingly small role. Dr Stephan Krohns, head of the ENREKON young investigator group, operations research expert Dr Jochen Gönsch and econometrician Michael Hassler speak in an interview about the revenue-oriented use of energy storage systems and how they can be utilised to stabilise the power grid.
forschung-energiespeicher.info: It is not cheap to construct and operate storage systems. Nevertheless, a key finding of your study is that operators of renewable energy systems can compete better in the market through the integration of energy storage systems. Why is that?
Dr Stephan Krohns: First of all it should be noted that in providing a possible option for increasing flexibility when integrating renewable energy systems, electricity storage systems assume multiple tasks such as shifting the available electricity supply during periods with high demand or stabilising the power grid. In our study, we have been specifically investigating the so-called EPEX SPOT Intraday market where trading ends 45 minutes before the 15-minute interval in which the delivery takes places. This market has two special aspects for renewables: firstly, it appears to have only limited use for photovoltaics and wind energy. Here the submitted delivery offer must be maintained despite volatile feed-ins, or else this could incur penalties in the form of expensively purchased balancing energy. Secondly, prices can be achieved for these short-term deliveries that make direct marketing interesting. We therefore view storage systems as a kind of insurance against fluctuations in the electricity production. This enables significantly greater participation in direct, short-term power trading with renewable energies.
Based on the Braderup-Tinningstedt community wind farm in northern Germany, you have developed a scenario for improved marketing by exploiting storage systems. What do you envisage here? What sort of scenario is this?
Dr Jochen Gönsch: In Braderup, the Bosch company has supplemented a community wind farm with a battery storage system. The project is essentially nothing more than a wind farm with a large battery that stores the wind power and can supply 40 households for a week. In addition to the self-provision, they are also intending to market the electricity.
Michael Hassler: We have also used this project as an opportunity to develop a model for optimally marketing wind power, i.e. selling electricity on the power exchange using the existing energy storage system.
What are therefore the financial benefits of energy storage systems?
Hassler: Without the ability to provide intermediate storage, the wind power has to be consumed or sold just at the moment when the wind is blowing. The electricity is therefore fed into the grid randomly, leading to fluctuations and associated loads on the power grid caused by generation peaks. Storage systems therefore in a way refine the wind power – they make it more plannable.
Even small storage systems make a decisive contribution
Your study concludes that while energy storage systems make a decisive contribution to the commercial exploitation, the connection and efficiency play a lesser role. Why is that?
Krohns: From a certain size in terms of the capacity and energy content of the storage system – about ten per cent of the nominal power of each wind turbine – the revenue growth considerably reduces with a further increase in the storage system or an improvement in the grid expansion. This is due to the fact that the maximum generation capacity is only rarely available because the wind does not blow continuously strongly. Furthermore, it is also a very risky strategy to conclude supply contracts on this basis. The sale of the maximum generated output is therefore only rarely the case in our model and hence only has a marginal effect on the profit. Interestingly, it has been shown that although the efficiency is important, improvements above around 70 per cent hardly achieve any additional revenue. It is better to consider the efficiency and size in combination, since to some extent higher delivery volumes are agreed with cheap, large and quasi-inefficient electricity storage systems than with expensive, small, high-performance storage systems.
Which parameters are instead crucial?
Krohns: Decisive are the capacity of the storage system, the combination of the storage system size and efficiency, and economically important are the investment costs and the service life. It is therefore important to analyse storage types specifically for this scenario and to optimise them from the research side.
What distinguishes the commercial, profit-maximising markets and producers of electricity?
Gönsch: The notion of markets with profit-maximising actors is a cornerstone of the economy that has been well-established for many decades. If a market provides the right conditions, the participants will automatically behave so as to ensure the well-being of everyone. The challenge is to create precisely these conditions at the political level so as to ensure fair and innovative competition. The alternative would be centralised government regulation of prices and quantities. Experience has shown, however, that this is unfortunately often inefficient and cumbersome.
Trading with electricity from energy storage systems on the power exchange
Your model defines the decision structures for determining the size of future electricity deliveries. How is this calculated?
Hassler: The calculation of the delivery volume essentially takes into account two aspects: the first describes the available electricity volume. This includes, for example, weather forecasts, but also the estimated fill level of the storage system at the time of delivery. The second aspect takes into account the market price: Is it smart to supply electricity at the time considered or should I fill the storage system and sell the electricity at a later point at a presumably higher price?
Delivery commitments therefore have to be made in advance without knowing the exact electricity production. How do energy storage systems benefit the operators in this regard?
Gönsch: Without storage systems, the operators have to act very reservedly and can only make small supply commitments because they never know whether the promised amount of power will actually be available later. Energy storage systems provide a kind of insurance. If the electricity production is less than the delivery commitment, for example due to weak winds or cloudy skies, the electricity from the storage systems can balance out the deficit. The storage systems therefore encourage operators to act more boldly and make greater delivery commitments. On the one hand this increases the operators’ revenue from electricity sales, and on the other hand this enables more renewable electricity to be reliably fed into the grid.
Operators will use the storage systems so that their profits are maximised while at the same time the grid can be stabilised. When is such a win-win situation achieved?
Hassler: In the past operators received a fixed, statutory determined feed-in tariff, irrespective of when they fed electricity into the grid. They therefore provided the electricity precisely when the sun was shining or the wind was blowing, regardless whether electricity was needed or not at that moment in time. As long as only a few plants of this type were connected to the grid, this random electricity feed-in did not represent a problem. However, given renewable energy’s current share of the electricity generation, this leads to strong price fluctuations and generation peaks that can place extreme loads on the grid.
Gönsch: Today, however, the government is increasingly trying to integrate renewables into the market, for example by reducing the feed-in tariff. If an operator trades its electricity in a market such as the EPEX SPOT Intraday, it will preferably sell it when the price is high. And in a functioning market – as we economists say – the price is high precisely when there is a low supply and a high demand. If the market is functioning, the electricity is preferably fed into the grid when it is really needed. The operators therefore help to mitigate the price volatility. At the same time, the grid is relieved. To achieve that, however, the price must depict the local grid situation. When, for example, the wind blows strongly in the north and the power lines to the south are at full capacity, the price in the north must be lower than in the south.
Tailor-made energy storage systems of the future
In your opinion, which role will be played by energy storage systems in future electricity provision?
Krohns: Electrical energy storage systems are already an integral part of micro-scale systems in private households. However, we also see considerable potential with medium-sized and larger plants that are intending to or want to conform with market requirements. In the regional context – particularly in areas with a high proportion of renewable energy – energy storage systems could also be used incidentally to stabilise the grid if the legal framework and the local electricity pricing allow this. Although electrical energy storage systems are still very expensive, they nevertheless offer one of the most interesting options for increasing flexibility in the energy market because the energy remains in its existing form, in other words as electricity. We will refine the model in a targeted fashion to enable us to draw conclusions about the requirements for tailor-made energy storage systems. We will then incorporate these impulses in the material research for new energy storage systems.