Cost-effective OPEX-models for energy storage as game changer for improving operation and resilience of electricity

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1 Cost-effective OPEX-models for energy storage as game changer for improving operation and resilience of electricity by Nicolas Boruchowicz, Daniel Günther and Lars Stephan, and EE Publishers How to Future-Proof investments in grid infrastructure in a Time of Changing Markets? Proven technology, a solid and reliable Africa presence combined with high financial and operational flexibility within turnkey contracts will allow modifying solutions or adjusting regulatory environments to secure growth. Economically viable solutions offer new innovative business-as-usual approach to communities and large industrial clients via efficient network upgrades and come with huge social/ community benefits. Where are we right now? Digitalization, Decentralization and Decarbonization: These buzzwords are symbolic for the many changes currently ongoing in electricity systems around the world. Renewable generation in all sizes and on all voltage levels are connected to the system, requiring new strategies for ISOs and TSOs in operating the grid. More fluctuating renewable generation also means new challenges in keeping voltage levels in holding the frequency in an acceptable band. With decreasing inertia on the system, due to conventional generation being phased out, gradients in frequency changes, also known as Rate of Change of Frequency, are creating new challenges, asking for new solutions in grid operations. Energy Storage is one possible solution to the many new challenges seen around the world for a secure operation of electricity grids. Based on fast reaction times and unmatched flexibility in service provision, energy storage is a vital tool for frequency regulation today and even more so in the future. In recent years storage thereby made the transition from a novel technological option to a field-proven working horse for TSOs in frequency regulation. Key facts and challenges beyond: Electrical transmission and distribution (T&D) deferral Microgrid Solution create grid resilience and enable integration of various resources Penetration of Intermittent energy/ Set up limit for Renewable Energy Electrical transmission and distribution (T&D) deferral: Transmission and Distribution grids are sized for peak demand, therefore T&D reinforcement at substations to service marginal demand growth above the existing grid capacity is often inefficient, due to system oversizing. Storage can be employed for load-shifting behind the grid congestion to service additional load and provide n-1 security and micro grid ability. Storage allows to postpone T&D deferral, allowing to save on capital costs and locked-down capital Storage is mobile and modular and can be sized and extended based on local need, or be made permanent Postponing the T&D deferral reduced uncertainty, as it allows to make investment decision, when predicted load growth takes place Figure 1: T&D defarral concept

2 Energy Storage solutions delay or substitute expensive grid reinforcement. Because of radial networks local communities suffer during faults on the transmission line as well as C&I customers (illustrated in figure 1). Batteryenabled micro grid will keep vital and critical community services running (clinics, police, supermarkets, etc.). Potential Stress in the Grid, caused by increased renewables behind the meter or at inter-connector level, can be mitigated by fast reacting battery storage systems. Microgrid solutions create grid resilience and enable integration of various resources: Generators running on diesel, heavy fuel oil or gas have been providing reliable power for years. Especially in remote areas, they were often the only choice to ensure safe and stable electricity supply to communities and businesses. With the rise of renewables this has changed. Once solar or wind plants are installed, generation costs for power are almost zero as are emissions! But unlike thermal generation, wind and photovoltaic (PV) are variable power sources. Therefore, the growth of renewables may lead to increased grid instability and operational uncertainty, especially on isolated networks. Figure 2: Microgrid Control System & Capacity installed1 1 Batteries already have been established as a proven application to provide ancillary services like Reactive Power, Frequency and Voltage Support worldwide. While increasing the share of renewable energy to 30% is a challenge for the stability of the grid, working towards a higher share of renewable energy within the supply requires smart control systems. Optimizing energy flow between the micro grid actors (generators and loads) will be carried out by the control system (see figure 2). During the last years a lot of progress has been achieved within controlling a microgrid system. Core feature of a microgrid control system is to enable an independence from a main utility supply during energy crisis or in remote areas where no gird is available at all. Beside of the integration of a high renewable share within the micro grid the provision of spinning reserve by managing Power, Voltage and Frequency is the key technical and economical challenge. Microgrids can now economically compete with T&D expansion in rural areas, as prices for storage decline and controllers improve. There is a growing demand of C&I clients to increase their renewable generation or to enhance power reliability and quality with microgrids. Thanks to cheaper prices and a good forecast ability throughout the globe, solar PV is now more attractive than wind and the main choice of new projects, especially in emerging markets. Financing is still one of the main challenges. New financial tools like microgrid-as-a-service or shared-saving contracts are making it easier for customers to consider and budget microgrids. The integration of renewable power into energy systems depends on the fluctuating nature of the renewable energy sources and the flexibility of the overall power system. The role of volatile renewable generation on the grid is thereby difficult to assess. System operators often claim a natural barrier of around percent of volatile renewable generation that can be connected to the grid. Such general rule does not reflect the real-life impact of volatile generation adequately, but presents a factual limit to renewable projects, if System Operators deny connection requests above such limits. This is particularly true in regions like Africa, where system operators yet lack control mechanisms and high sophistication in operating their energy system. Penetration of Intermittent energy/ Set up limit for Renewable Energy The integration of renewable power into energy systems depends on the fluctuating nature of the renewable energy sources and the flexibility of the overall power system. The role of volatile renewable generation on the grid is thereby difficult to assess. System operators often claim a natural barrier of around percent of

3 volatile renewable generation that can be connected to the grid. Such general rule does not reflect the real-life impact of volatile generation adequately, but presents a factual limit to renewable projects, if System Operators deny connection requests above such limits. This is particularly true in regions like Africa, where system operators yet lack control mechanisms and high sophistication in operating their energy system. The problem of volatility from renewables is caused by its fluctuating nature of its power source, e.g. an almost instantaneous power drop in case of cloud coverage of a PV plant, as portrayed in graph 1. This volatility requires system operators to balance the grid with flexible generation assets to secure operation within statuary rules as defined in grid codes. Figure 3: Volatility of power output of PV farm (blue) and power output of PV farm after ramping (red) This spinning reserve from flexible thermal assets for the secure integration of volatile renewable generation creates a conventional must-run limitation, which limits the share of renewable generation. Additional to this must-run capacity, system operators may choose to keep non-flexible baseload generation (such as coal) online, which can produce relative cheap baseload energy. Solar PV side has a high degree of forecast accuracy for seasonal and daily volatility and mainly suffers from instantaneous volatility, e.g. from cloud coverage or fog formations. This makes solar PV an ideal asset to combine with short-duration energy storage, which can firm out its volatility and up-value PV power to a firm power source, depending on intraday radiation levels. Figure 4: Conventional must-run limitation hindering renewable penetration, whereas firm renewable power can replace conventional generation

4 As the combination of PV with batteries does increase the LCOE from such plants, we further need to understand, under which circumstances, a system operator will accept firm but more expansive renewable power on the grid. As established above, energy storage can be used to firm volatile generation of renewable assets. Firming thereby means a. reducing instantaneous fluctuations in the plant s output (on second-to-second basis) and, b. limiting ramp-rates (ramp up/ramp down) of the generation (on minute-to-minute basis). Both above applications can be achieved using battery storage. The two main issues to address from a system sizing perspective in this context are: 1) What are the ramping requirements a PV+battery hybrid have to achieve in order to rate as a firm renewable asset, and based on this, and 2) What system sizing is necessary for a battery storage system to achieve such firm power output. Microgrid-as-a-service (MaaS): Flexible, feasible and financially friendly As energy storage markets evolve and solution sets expand, different business models and financing options are being introduced. System providers are now reacting and offer full Hybrid plants on mid-term rental agreements.. Terms (and performance specifications) can be easily adapted during the course of an agreement to fit a company s business needs or changing market conditions. In today's fast-evolving energy landscape, long-term commitments may lead to stranded assets and tied-up capital especially with relatively new technology like battery storages involved. That s why new, more flexible options will make it possible to bring batteries into expanded markets. By adding storage to the energy mix, customers in remote areas with no or only weak grid connections benefit from increased resilience and efficiency. As energy storage markets evolve and solution sets expand, different business models and financing options are being introduced. MaaS rental offerings can benefit customers in a variety of markets. Utilities can bridge temporary power gaps, such as adding incremental capacity within a network, until or during grid infrastructure modernization. C&I customers can benefit by having the option to try out storage and remain flexible if market conditions change. Furthermore, a flexbile option allows independent power producers (IPPs) to familiarize themselves with the opportunities and complexities around storage, and deepen their understanding about the way the technology works with PV and wind before making more substantial investments. For Penetration of Intermittent energy/ Set up limit for Renewable Energy, the rationale behind the rental proposal is to firm the solar output for only a limited period of time (e.g. 5 years) until the grid is able to accept more volatile solar power. There are several valid reasons to avoid committing significant financial resources toward a hybrid systems including energy storage so why not consider a risk-free, flexible turn key solution? Techno-Economical Outlook: Reliable thermal-renewable combination In the last 2 years the energy industry could have recognized a strategical development where conventional power producer/ providers start collaborations or did investments in the renewable sector including battery system manufactures and integrators. This movement will lead technical advantages regarding system integration and contractual advantages, bundling the whole micro grid into one single contract with performance guarantees. Acquisition of Younicos, world leader in battery solutions and Microgrid management software: Overall, we strongly believe that energy storage is an asset that can unlock tremendous value in many power projects. This is why Aggreko acquired Younicos approx. one year ago, a global market leader in the development and deployment of integrated energy systems based on battery storage. This acquisition allows Aggreko to increase its capabilities to deliver smart energy solutions integrating battery storage, enabling the seamless integration and management of all forms of power, including thermal, renewable and battery energy resources. Energy storage is a major player in the thermal-renewable combination. Adding energy storage to hybrid power plants allows to further increase the amount of solar power that can be integrated while preserving the power quality and reliability, thus displacing more fuel consumed and therefore reducing the costs for our customers. Energy storage also benefits the operation of the thermal plants allowing them to run more efficiently in the same way that batteries help increase the fuel efficiency in hybrid cars.

5 Before Aggreko s hybrid offering, several barriers prevented the use of solar energy for remote and temporary energy consumers like mines. The main barrier was the prohibitive initial capital expenditure that prevented the use of solar in a large number of cases. This barrier has been easily removed by Aggreko, as the hybrid offering implies that all the upfront cost is invested by Aggreko, allowing the customer to buy solar electricity without any initial investment. The other main barrier was the contract duration as solar plant s lifetime of approximatively 20 years usually implied that this should be the duration of the IPP contract. We believe that this should not be necessary and decided that our solar contracts start at a minimum of 5 years. References [1] Figure 5: Microgrid Control System & Capacity installed source: BNEF microgrid database/ Bloomberg (Microgrid Control Systems)