2017 Caribbean Energy Storage Report

Transcription

1 2017 Caribbean Energy Storage Report The market takes off in the islands Puerto Rico, Isabela PV plus storage plant, credit: MEKTA RGN September 2017

2 2017 Caribbean Energy Storage Report Executive summary Caribbean islands have for most set ambitious renewable targets and, for several of them, are already reaching high instantaneous intermittent renewables penetration. This high intermittent renewable penetration results in high uncertainties on the instantaneous electricity generation, as well as large variations from forecasts due to weather events such as clouds for solar generation. During the past year, many utilities have started seriously investigating how energy storage can help deal with renewables intermittency. This report shows how storage can help increase the resiliency of Caribbean grids to intermittent generation through synthetic inertia. Indeed, on these islands, Clean Horizon has shown that the most profitable usage of energy storage is often to replace spinning reserve. However, from an island to another, energy storage systems involve different entities in the energy storage value chain. Therefore, three business models for storage deployment are exposed and illustrated with real examples. They are analyzed to understand their strengths and weaknesses. Finally, this report establishes a ranking methodology to define each island s potential for energy storage deployment. This potential depends on the installed oil-fired capacity, installed renewables capacity and the ease of doing business in the jurisdiction. Finally, some key islands electricity systems are presented and analyzed. 1

3 Table of contents 1 Changes in the international energy storage market Lithium-ion as the leading technology The decrease in lithium-ion battery prices Island grids Island grid characteristics Impact of intermittent renewables on an island grid Increasing need for reserve in volume Reduced system inertia Value of storage in the islands Frequency regulation Colocating renewables with storage Ranking the opportunities in the Caribbean for energy storage Criteria for energy storage opportunity Share of intermittent renewable capacity Oil-fired generation Enabling environment for renewable energy investment Ranking of 31 Caribbean jurisdictions Analysis of top jurisdictions for energy storage business Guadeloupe and Martinique Jamaica Dominican Republic Curaçao Barbados Business models to deploy storage in the islands Power purchase agreement (PPA) for renewables plus storage The business model for renewables plus storage PPAs Illustration of the renewables plus storage PPAs with Puerto Rico Pros and cons of this business model Utility purchases and operates the storage system The business model for storage systems bought and operated by the utility The case of St. Eustatius - example of the utility as exclusive stakeholder Pros and cons of this business model Tolling agreement The business model for storage tolling agreement The case of California an example of a storage leasing mechanism to replace peakers Pros and cons of the tolling agreement business model Appendix: two storage case studies Barbados: storage to replace spinning reserve Off-grid large consumers or communities Appendix: energy storage projects in the Caribbean

4 Table of figures Figure 1: Technology split of energy storage systems (in capacity) installed globally in Figure 2: Cost of the DC battery container (Ex Works) for MW-scale systems... 5 Figure 3: Typical inertia constants of different generators... 7 Figure 4: Jamaica electrical system inertia for different variable energy production... 8 Figure 5: Frequency drift as a function of intermittent renewables penetration... 9 Figure 6: Opportunity for energy storage to replace spinning reserve and render less expensive generation capacity available Figure 7: Share of intermittent renewables capacity in the different Caribbean islands Figure 8: Amount of fossil fuel-fired generation in the Caribbean (in MW) Figure 9: Enabling environment for renewable energy investment in the Caribbean (Source: Castalia 2016) Figure 10: Ranking of the Caribbean jurisdictions based on the opportunity they represent for storage Figure 11: 2014 Electricity mixes of Guadeloupe (left) and Martinique (right) (% of electricity produced) Figure 12: Guadeloupe and Martinique renewables plus storage targets (in MW) Figure 13: JPS net electricity generation in 2014, excluding IPPs generation share (in GWh) Figure 14: Dominican Republic energy mix by generation source in Figure 15: Curaçao electricity generation capacity (in MW) Figure 16: Barbados electricity generation portfolio totaling 249 MW (MW) Figure 17: Stakeholders and roles - PPA for renewables plus storage Figure 18: Frequency regulation constraints in Puerto Rico for a PV farm Figure 19: Example of PV generation forecast and corresponding production plan in the French islands Figure 20: Stakeholders and roles utility buys and operates Figure 21: Operation of the PV plus storage plant in St Eustatius Figure 22: Stakeholders and roles tolling agreement Figure 23: Mitigating spinning reserve with energy storage Figure 24: Battery capital expenditure and yearly savings for each MW of reserve replaced 37 Figure 25: Economics associated to the use of a 5MW battery to supply reserve on Barbados Figure 26: Comparison of operational costs relating to the provision of reserve in Barbados and Europe Figure 27: Electricity generation cost for a genset fleet depending on the load and benefits of a 2 MW battery

5 1 Changes in the international energy storage market Technologies fold in categories depending on the form of energy used to store electricity (potential, kinetic, chemical, electrical). Going further, each category withholds different designs and concepts, thus resulting in a vast amount of technologies available today. However, the numerous types of energy storage solutions are at different stages of maturity, though for several reasons, lithium-ion batteries lead the stationary energy storage market today. 1.1 Lithium-ion as the leading technology In 2016, 571 MW of batteries were installed globally for energy storage applications. Most of these batteries are lithium-ion based as shown in Figure 1. 9% 3%1% Li - ion NaS Flow batteries 87% Lead acid Figure 1: Technology split of energy storage systems (in capacity) installed globally in 2016 This uptake of lithium-ion batteries can be explained by two reasons which are bound to one another: This technology has technical advantages in addition to its maturity. Indeed, Li-ion batteries do fare well technically compared to other technologies (such as flow batteries for instance), as they possess a reasonable lifetime and relatively high energy density which facilitates the transport and the installation. Lithium-ion batteries have an economic edge: the price per kwh of energy is lower than most other technologies in the MW range. Moreover, the uptake of the lithiumion batteries market for the mobility market has led manufacturers to scale up their production capacity. This has resulted in an overall increase in the economy of scale in the manufacturing process and thus reduction of Li-ion battery cost. 1.2 The decrease in lithium-ion battery prices A stationary energy storage system has three main components: the DC battery system, the power conversion system, and the software (the energy management system). The steep reduction in Lithium-ion stationary storage technology price comes from the decrease in the cost of the cells, which led to a reduction of the module price shown in Figure 2. As of 2017, the EXW cost of a DC container of batteries has reached 300 USD/kWh. 4

6 Containerised DC battery cost (USD/kWh) % % % Figure 2: Cost of the DC battery container (Ex Works) for MW-scale systems In addition to the DC battery system, components which need to be included are: The power conversion system, which costs approximately USD/kW including its integration The installation price, which amounts to 200 USD/kW in conventional locations and can be higher depending on the difficulty in transporting the storage system to the site. Overall in 2017, at utility scale, the cost of an installed battery system for one hour of storage is estimated at 650 USD/kWh. 5

7 2 Island grids 2.1 Island grid characteristics Most island grids share common characteristics, which are highlighted in this chapter: Few or very limited interconnections, and most often direct current (DC) cables since the line losses due to capacitance are much greater in the water than on land. As a result, islands are in most cases not synchronous with their interconnected neighbors. Preponderance of thermal generation. Thermal power plants historically represent the largest share of the electricity generation on islands even though many of them are currently transitioning to fossil-free power systems to reduce their dependence towards imports. High reliance on imports for fuels. Heavy fuel oil and diesel are the most commonly used sources of fuel on islands, but coal and gas are also part of the generation mix of larger islands as to shift away from oil derivatives in case of oil price peaks. Little solar and wind geographic diversity. Because islands are relatively small, they benefit from less geographic diversity than large continental grids in terms of wind and solar resource. The law of large numbers applied to distributed wind or solar implies that the aggregate output of intermittent renewables at different locations is less volatile than the output of an individual generator. Low system inertia. Since islands rely on small engines rather than large conventional power plants, the inertia of their power system is more susceptible to fluctuations than that of large continental grids. (More details on inertia and its consequence on grid stability is provided in the section ). However, all the islands across the globe do not share these characteristics and one should be cautious applying them to any location. For instance, Trinidad and Tobago benefit from large amounts of fossil fuel resources, which they exploit and export for the most part. Iceland is an island that has a very unusual electricity mix, with 71% of hydro and 29% of geothermal. Few islands do not share the high reliance on imported fuels characteristic because they have already transitioned to renewables, such as the island of Samso in Danemark which generates more renewable energy than what it consumes thanks to its offshore wind turbines. 2.2 Impact of intermittent renewables on an island grid To reduce fossil fuel reliance as well as carbon dioxide emissions, some islands incentivize renewable energies. However, installing renewables in the specific context of island grids impacts the exiting grid and its stability, as detailed in this section: The intermittency of wind and solar might require an increase in the amount of spinning reserve required to stabilize the grid. Issues linked with voltage and intensity in the network Reduced system inertia Increasing need for reserve in volume The amount of spinning reserve (fast reserves) is traditionally determined by a primary contingency event in the power system. A primary contingency criterion corresponds to an event that could trigger the largest power imbalance on the system most often a transmission line fault or a generator fault. Most power systems are designed to withstand such an event, as reserves (spinning generators generally) provide active power to make up for the generation loss. In small grids, the generators typically benefit from smaller rated 6

8 outputs than on continental grids, thus reducing the amount of available power needed if such an event occurs. However, this reserve criterion might change as a large amount of intermittent renewable capacity is connected to the grid. The increased reliance on wind and solar can create power imbalances that are inherent to distributed generation Reduced system inertia Islands generally have a lower system inertia due to the nature of the generation. The notion of inertia characterizes the dynamic stability of a power system. The inertia of a generator is indeed defined by the amount of the stored kinetic energy in its rotational movement per mega-volt ampere (MVA) of output. Hence the inertia of a generator depends on the mass and rotations per minute (RPM) of the machine. The inertia of a machine is defined as the time during which it can sustain its power output by draining the energy contained in its rotational speed. *+,-.+/ 1,-234! "#$#%&'(% = 567 "#$#%&'(% *+,-.+/ 1,-234 = 1 2 : ;< Where ; is the generator rotating speed, J is the moment of inertia of the spinning generator, and MVA generator is the nominal power output of the generator. Figure 3 below shows typical dynamic characteristics of generators. Diesel engines possess a smaller rotating mass than steam or gas turbines, therefore they have less rotational kinetic energy and provide less inertia to the power grid. Figure 3: Typical inertia constants of different generators Solar panels do not have any moving parts, therefore they do not have any mechanical inertia. Modern variable speed wind turbine generators do not naturally contribute to system inertia either, since they rely on an induction generator. As a result, both solar and wind power plants cannot contribute to primary frequency response without significant operational cost penalties (requiring headroom to increase their power output). Both wind and solar energy penetration require decommissioning some conventional generators or to dispatch them down to lower power levels, which results in a reduction of system inertia. However, there is an option called inertial response for inverters to respond to frequency changes,. The inertia of an electrical system (H system ) is defined by the weighted sum of the inertia of the different generators generating. This system inertia (measured in MWs/MVA or seconds) can be understood as the number of seconds the system can run on the generators kinetic energy. 7

9 =>='#? Where H i is the different inertia constants of the generators online, and MVA i is the nominal output of the generator i. An increasing share of non-synchronous generation reduces the amount of synchronous generation online and hence the total system inertia. The system inertia is crucial for the security of the grid, since the rate of change of frequency is inversely proportional to the system inertia: BC B. = E C $(? =>='#? Where f is the system frequency, f nom is the nominal system frequency t is the time, E is the power imbalance. Example of Jamaica The system inertia constant can be computed for the Jamaican power system for variable amounts of renewable energy generation. The results presented show that the inertia constant of an electrical system is reduced by a third when intermittent renewables reach 46% of the instantaneous generation. All the following analysis is a first order of magnitude computation based on publicly available data. Figure 4: Jamaica electrical system inertia for different variable energy production The impact on the grid rate of change of frequency can be directly perceived with the relationship mentioned previously since inertia response dominates initial frequency decline. During these few seconds, the synchronous generators release their stored kinetic energy into the grid. Assuming there is 500 MW of capacity online in Jamaica, and an event resulting in a loss of load of 50 MW, Figure 5 displays the effect of inertia on the rate of change of frequency with 8

10 the different system configurations previously introduced. These results use several simplistic assumptions: The inertia response of loads is not taken into account: synchronous machines using the electricity from the grid slow down when the grid frequency falls, thus providing some additional inertia to the grid Reserves have no effect yet on the frequency drift after 5 seconds: this assumption is conservative since plants that have a droop control system start increasing their real power output as soon as the frequency drifts. There is no friction in the generating power plants: spinning masses are hence assumed to be faster than they actually are, as to provide their kinetic energy to the grid. Grid frequency after a loss of load (Hz) 50, , , ,5 1 1,5 2 No VRE generating All installed VRE generating 100MW of additional VRE online Time (seconds) Figure 5: Frequency drift as a function of intermittent renewables penetration Figure 5 shows the influence of intermittent renewable penetration on the electricity mix. With a renewables penetration reaching 60% of the instantaneous electricity mix, the frequency can fall by 2 Hertz in 2 seconds following a loss of load, thus triggering load shedding on the island. 2.3 Value of storage in the islands Section 2.2 shows that a growing share of intermittent renewables contributing to an island grid reduces the system inertia and thus requires more reserve. This section shows the value of storage for such grids through two business cases: Providing frequency regulation with an energy storage system connected to the grid Collocating energy storage with intermittent renewables to facilitate their integration for the grid operator Frequency regulation An energy storage system can provide a fast response to a variation in frequency and can thus replace spinning reserves which are often very costly. This is due to the fact that generation 9

11 sources generally derive from oil-fired plants which keep a small (and most of the time inefficient) asset online to provide reserves. By providing a rapid frequency response starting in milliseconds and being able to deliver full power in 300ms, a battery storage system can provide synthetic inertia and thus decrease the rate of change of frequency more efficiently than a similar increase from primary reserve. Figure 6: Opportunity for energy storage to replace spinning reserve and render less expensive generation capacity available Figure 6 shows that by providing reserve, an energy storage system relieves an existing asset from its constraint to keep an operating margin. By doing so, an energy storage system increases the dispatchable capacity of these assets, thus shifting the merit order of the generation. This synthetic inertia will in turn allow the further integration of intermittent renewables by providing system stability and reducing the events of load shedding Colocating renewables with storage Colocating storage with renewables is an efficient way for the utility to integrate further renewables without modifying the fashion in which they operate. Indeed, an energy storage system can: Reduce PV generation fluctuations by smoothing the power plant output 10

12 Increase the accuracy of the generation forecasts Shift a portion of the generation output in time to deal with consumer demand peaks Regulate the grid frequency as described in part 1 therefore reducing the impact of the increased share of non-synchronous generation on the island 11

13 3 Ranking the opportunities in the Caribbean for energy storage 3.1 Criteria for energy storage opportunity In this section, Clean Horizon proposes a ranking of the 31 Caribbean jurisdictions based on their potential for energy storage. This ranking is based on three criteria which all characterize the market potential size or maturity: 1. Share of installed intermittent capacity (namely wind and solar) as of October 2016 based on the Castalia 2016 study 1. This criterion characterizes the market maturity. Indeed, the higher the intermittent renewable penetration, the higher the need for energy storage to stabilize the grid, solve grid congestions, and shift the production from low demand times to peak consumption. 2. Amount of oil fired generation (in MW) which is an indicator of the market size. Suggesting, the larger the grid, the larger the potential amount of storage capacity which can be strategically installed 3. Enabling environments for renewable energy investments (Castalia index 2 ). This index reflects how much support exists from local framework and government for renewable energy investments. Ambitious targets and transparency in the procurement of renewable plants is accounted for in this criteria Share of intermittent renewable capacity The first criterion used to rank the Caribbean jurisdictions is the share of intermittent renewable capacity on each island. This share is computed by dividing the total amount of wind and solar power plants (in MW) on the island by the total installed capacity (in MW). The result is obviously much larger than the share of intermittent renewables in the electricity mix since the load factor of wind and solar is generally lower than 30%; nevertheless, this percentage provides an idea of the amount of variable energy that can penetrate the grid. 1 Source: Castalia s website 12

14 Bonaire Aruba Guadeloupe Curaҫao Nevis Jamaica Martinique Dominican Republic Anguilla U.S. Virgin Islands St. Kitts Puerto Rico Saint-Martin Barbados Dominica British Virgin Islands Grenada St. Vincent & the Grenadines Sint Maarten Cayman Islands Bermuda Cuba Belize Antigua & Barbuda Haiti Bahamas St. Barthelemy St. Lucia Turks and Caicos Islands Trinidad & Tobago Montserrat 8% 8% 6% 5% 4% 4% 4% 3% 2% 2% 1% 1% 1% 1% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 18% 18% 17% 16% 16% 13% 44% 0,0% 5,0% 10,0% 15,0% 20,0% 25,0% 30,0% 35,0% 40,0% 45,0% 50,0% Figure 7: Share of intermittent renewables capacity in the different Caribbean islands Figure 7 shows that Bonaire has the largest variable energy penetration percentage due to a 10 MW wind farm that is almost as large in terms of nameplate power as the diesel generators installed on the island. The wind farm was actually installed with an energy storage system designed by Saft measuring 3000 kwh/780 kwh as to allow the diesel engines to trigger in case of swift generation decrease. Next in this ranking are Aruba and Guadeloupe with the same intermittent renewables share of 18%. Aruba has started negotiations to install large amount of energy storage so that the utility can integrate its large amount of renewables on its grid. Guadeloupe has a more than 70 MW of installed solar capacity and has set ambitious objectives regarding renewables installation in its 2017 generation planning (for more information refer to section 3.3.1). The fact the three first islands have already installed (or are in the process of installing) energy storage systems proves the relevance of this index to indicate the maturity of the energy storage market Oil-fired generation The second index used to estimate the relevance of storage for the Caribbean islands studied is the installed capacity of oil-fired generation. As mentioned earlier, this indicates not the maturity of the market but rather the potential market size. 13

15 Figure 8 shows the ranking of the Caribbean islands based on their installed oil-fired capacity. Oil-fired capacity here includes any type of asset that runs on diesel, aviation fuel oil, or heavy fuel oil. These assets can use any technology such as diesel engines, steam turbines or gas turbines. Cuba Puerto Rico Dominican Republic Jamaica Bahamas Martinique Guadeloupe Haiti U.S. Virgin Islands Barbados Aruba Bermuda Curaҫao Cayman Islands Sint Maarten Antigua & Barbuda St. Lucia Trinidad & Tobago Turks and Caicos Islands Grenada St. Vincent & the Grenadines Saint-Martin British Virgin Islands St. Kitts St. Barthelemy Anguilla Belize Dominica Bonaire Nevis Montserrat Figure 8: Amount of fossil fuel-fired generation in the Caribbean (in MW) Cuba is largest grid with 4.5 GW of installed oil-fired capacity, followed by Puerto Rico with 3.4 GW, and the Dominican Republic with 1.9 GW. These large and populated islands represent the largest potential markets for energy storage. Indeed, these islands are to watch since a regulatory change regarding energy storage could have large consequences in terms of capacity that could be installed. This was the case with Puerto Rico, where the establishment of minimum term requirements for PV led to a large number of contracts which were awarded but not honored. Since 2012, only 82 MWp of PV were built out of the 1260 MW of PV plants planned by developers Enabling environment for renewable energy investment This index computed by Castalia reflects the island s transparency and bankability in terms of renewables projects. This index can be understood as an ease of doing business metric in the Caribbean islands. It is computed using three different factors: The utility: if it considers renewables, if it is bankable, and the time frame required for 14

16 investment approval The IPPs: if they are paid in time by utility, if there are clear and effective processes, and if there are precedents Distributed generation: if incentives are in place to favor distributed renewables The enabling environment of the different Caribbean jurisdictions are ranked in the table below, their score is presented on scale from 0 to 5. Dominica Belize Nevis Montserrat St. Vincent & the Grenadines Bermuda Martinique Barbados Guadeloupe Aruba Jamaica Curaҫao Dominican Republic Bonaire Cayman Islands U.S. Virgin Islands Anguilla Grenada St. Lucia Saint-Martin Sint Maarten Trinidad & Tobago St. Barthelemy Puerto Rico British Virgin Islands Antigua & Barbuda Turks and Caicos Islands Cuba Haiti St. Kitts Bahamas 0,0 0,5 1,0 1,5 2,0 2,5 3,0 3,5 Figure 9: Enabling environment for renewable energy investment in the Caribbean (Source: Castalia 2016) 3.2 Ranking of 31 Caribbean jurisdictions Based on the three criteria mentioned previously, this report provides a ranking of the Caribbean jurisdictions for energy storage. The energy storage index is computed with the following method: A mark was given to each jurisdiction for its ranking on each of the three criteria (the island with the most potential for storage is givens 31 points and the last 0 points) The three marks obtained are summed, and the jurisdictions are ranked by highest potential for energy storage. Figure 10 displays the results of the jurisdictions energy storage potential according to Clean Horizon s index. This metric is not a silver bullet in addressing the different Caribbean islands, because with only three parameters, specific cases might not be accurately represented. 15

17 Guadeloupe Martinique Jamaica Aruba Dominican Republic Curaҫao Barbados U.S. Virgin Islands Nevis Puerto Rico Bermuda Dominica St. Vincent & the Grenadines Bonaire Cayman Islands Cuba Belize Anguilla Grenada Saint-Martin Sint Maarten Haiti Bahamas St. Lucia British Virgin Islands St. Kitts Montserrat Antigua & Barbuda Trinidad & Tobago St. Barthelemy Turks and Caicos Islands 0,0 10,0 20,0 30,0 40,0 50,0 60,0 70,0 80,0 90,0 Figure 10: Ranking of the Caribbean jurisdictions based on the opportunity they represent for storage However, this ranking enables an interpretation of past and future opportunities. Indeed, the islands with the highest score have already engaged in energy storage projects. First and second are Guadeloupe and Martinique which have already contracted for cumulatively 26 MWh of storage coupled with renewables following the 2016 RFP for 50 MWp of PV plus storage in the French islands. Third in the ranking is Jamaica due to its high shift towards renewables and its large generation fleet which in turn opens a potential large market for energy storage. This opportunity has recently resulted in a call for tender for a hybrid battery and flywheel energy storage project (see section of this report). Number four is Aruba due to its high wind penetration. Fifth comes the Dominican Republic, representing the third largest electricity system amongst the 31 jurisdictions analyzed. Curaçao and Barbados follow in the ranking with similar grid sizes, both expressing a clear will to foster renewable energies on their islands. These islands guarantee grid stability by keeping a certain amount of spinning reserve. Section 2.3 has shown that the most valuable application for energy storage on these islands is spinning reserve replacement. The spinning reserve requirement is established by each operator and represents approximately 10% of the peak demand on small islands (smaller than 16

18 1GW) and 5% on large islands (larger than 1GW). The oil-fired capacity installed always surpasses peak demand so that Clean Horizon estimates that the peak represents in average 80% of the oil-fired installed capacity. In total, more than 1GW of spinning reserves could be replaced by energy storage systems across the Caribbean. 3.3 Analysis of top jurisdictions for energy storage business Since Guadeloupe and Martinique are both French overseas territories and are very similar in size, politics, market potential, they are treated together in the first section. Secondly, the potential for storage in the Dominican Republic is analyzed. Aruba has already contracted high capacity storage contracts: more than 6 MW/ 8 MWh have been announced (namely with Hydrostor for a compressed air energy storage system and WEB for flywheels). 2 The Dominican Republic is featured in the next section and Curaçao successively. Finally, the island of Barbados is investigated regarding its potential for energy storage systems Guadeloupe and Martinique A new framework for centralized energy storage systems in the French islands In a document released in late March , the French regulator, the CRE, has set a new framework for energy storage projects to be developed in the French islands. This document sets out that any energy storage project that can lead to high enough savings on the utility s operating costs to pay back the energy storage system should be commissioned. For developers to submit relevant projects, the utilities have to publish this year some key data on their operating costs and lead a cost benefit analysis for each project submitted to the regulator Electricity sector overview France established an electricity tax, which was referred to as the contribution to the public electricity service (CSPE) and was recently incorporated in the interior tax on final electricity consumption (TICFE). This tax enables the French islands to have the same electricity prices as the mainland, even though the electricity production costs are significantly higher. In addition, this tax finances renewables installation. In 2016, the TICFE reached 22.5 /MWh. 2 For more information, please refer to the projects list in the appendix 3 Source: CRE, Délibération de la CRE du 30 mars 2017 portant sur la communication relative à la méthodologie d examen d un projet d ouvrage de stockage d électricité dans les zones non interconnectées 17

19 Hydro 2% Geothermal 4% Bagasse 4% Wind 3% PV 6% Petroleum products 53% Incineration 1% PV 6% Wind 0% Coal 28% Petroleum products 93% Figure 11: 2014 Electricity mixes of Guadeloupe (left) and Martinique (right) (% of electricity produced) 4 EDF SEI is the sole utility on both islands and has a monopoly on electricity purchase, distribution, and retail. The utility buys power from independent power producers for both conventional and renewable energy production Renewables development in Guadeloupe and Martinique Guadeloupe and Martinique have a high ratio of intermittent renewables capacity, representing 17.8% and 12.9% of the total installed capacity, respectively. A French law adopted in 2015 established a target to reach 50% of renewables penetration in 2020 (in terms of energy) as well as the aim of being energetically autonomous by This target implies that the French islands should not import any primary energy in Both islands have published their renewables targets as displayed in Figure MW PV + storage Wind + storage PV + storage Wind + storage Martinique Guadeloupe Figure 12: Guadeloupe and Martinique renewables plus storage targets (in MW) 4 Bilan previsionnel de l equilibre systemes energetiques insulaires : offre / demande d electricite, EDF, July Article 203, de la Loi relative a la transition eńerge tique pour la croissance verte (LTECV) publieé le 18 aou t

20 Due to the rapid growth in variable intermittent generation, the French government passed a law that sets a 30% instantaneous intermittent renewables penetration threshold to ensure that it can safely operate the grid. Beyond this threshold, variable energies can be curtailed and not compensated. However, as of April 2017, a decree was passed ensuring that from July 1, 2017, renewable installations such as biomass plants in the French islands shall benefit from a priority access to the grid. 6 A French decree from 2013 defines the electricity purchase tariff for hurricane-resistant wind farms with a smoothing system (which an energy storage system can provide) as 230 /MWh for the first ten years. 7 Only one project has been built under this tariff due to the difficulties linked to the development constraints stated in the decree: wind farms must be hurricaneresistant and require an energy storage system to smooth their production and follow the communicated day-ahead forecast generation. 19 MW p of PV projects combined with storage were awarded in these two islands following the RFP published in 2015 by the French regulator. 8 Estimating that the similar 2016 RFP will lead to the same amount of PV capacity being built, Clean Horizon estimates that this will lead to the installation of 26 MWh of storage on these two islands by the end of Regarding small renewable system installations, a feed in tariff is in place for solar PV installed behind-the-meter which depends on the size and the type of the installation. For the sake of illustration, rooftop solar panels smaller than 36 kw p benefit from a purchase tariff of 12.7 cts /kwh as of September Energy storage outlook Overall, Martinique and Guadeloupe have high renewable targets and energy storage is already understood as a key solution to integrate variable renewable generation. In December 2016, a new tender for 50 MW p of solar coupled with storage was published for the French islands. This application results in lower electricity costs than peak oil-fired assets, thus proving the rationale behind the installation of such projects. Moreover, both islands have published their renewable energy roadmaps which designate high renewable plus storage targets. In consequence, future call for tenders for PV plus storage are anticipated in the French islands. 6 Décret n du 19 avril 2017 pris en application de l article L du code de l énergie 7 Arrêté du 8 mars 2013, determining the conditions for hurricane resistant wind electricity purchase 8 For more details on these RFPs, please ask Clean Horizon s team and consult the CRE ZNI report on our website 19

21 3.3.2 Jamaica JPS recent RFP for a hybrid storage system This June 2017, JPS has published a RFP for an energy storage system, while it has submitted the project to the office of utilities regulation (OUR). In this RFP, JPS outines 4 possible energy storage systems: A hybrid solution of 13MW or 24.5MW consisting of either: o A 10 MW/ 2.5 MWh battery combined with a 3MW flywheel o A 16.5MW/ 4.125MWh battery combined with a 5MW and a 3 MW flywheel A battery only system of 10 MW/ 5 MWh or 24.5MW/ 12.25MWh The functionalities required for the storage system are the following: 1. Frequency support 2. Voltage support 3. Renewables smoothing to limit the net ramp rate of several renewable plants 4. Non-proportional load sharing among separate storage units, this means that the control system must dispatch the flywheels and battery so that the system is used at its optimum Electricity generation overview in Jamaica Jamaica is highly dependent on petroleum imports and is currently diversifying its electricity generation sources to mitigate its dependence on oil prices. The country consumes 4 TWh of electricity per year and has a single electric utility, JPSCO, which generated 60% of the electricity in 2014 and buys the rest from independent power producers. In terms of losses, Jamaica has high losses: the transmission and distribution losses represented 1100 GWh in 2014, thus representing 26.8% of the total electricity generation. These losses are due for 10% to the equipment, and for the rest to theft and illegal connections 9. Gas turbines % Hydro 136 5% Slow speed fuel plants % Figure 13: JPS net electricity generation in 2014, excluding IPPs generation share (in GWh) In Jamaica, fossil fuel power plants account for 770 MW of generation capacity, whereas hydroelectric power plants account for 29 MW. 10 The Bogue plant is a combined cycle diesel turbine with a capacity of 120 MW and was recently retrofitted to burn natural gas instead of diesel. Two additional gas power plants will also receive gas via the new liquid natural gas 9 Jamaica s government website: 10 JPSCO website 20

22 (LNG) terminal, which was inaugurated in August Future changes to the energy system include: A 190 MW CCGT which should be operational mid-2018 (Old Harbour Bay in St. Catherine) to replace the obsolete 292 MW oil-burning plant in Old Harbour bay. A gas supply agreement was signed with New Fortress Energy 12 (an US based LNG distributor) A 100 MW new natural gas plant has been contracted as well 13 This evolution towards gas generation is an important political decision; on the one hand it mitigates the risks in case of high petroleum prices, though on the other hand the electricity generation relies on another imported resource which also has relatively volatile prices Independent power producers in Jamaica Independent power producers, listed below, provide around a quarter of the island s generation capacity in Jamaica: 14 Jamaica Energy Partners has 124 MW of assets, consisting of two power barges of diesel engine sets in Old Harbour Bay (St Catherine). 15 Jamaica Private Power Company (JPPC) owns a 60 MW heavy fuel oil (HFO) plant in Kingston (note: JPPC is owned by Israeli Power Company, ICP). Jamalco is a bauxite processing company, which has generation assets for its industrial site and provides 11 MW to the national grid Wigton Wind Farm Limited (owned by Petroleum Corporation of Jamaica) Jamaica Public Service Company JPS is an integrated electric utility and the sole distributor of electricity in Jamaica. JPS is 80% private and 20% public. It purchases electricity from independent power producers and retains a monopoly regarding transmission, distribution, and retail Jamaican renewables development Jamaica has high renewable penetration targets: a 30% renewable energy share and a 50% reduction in energy intensity by This is equivalent to a 20% contribution of renewables within the energy mix. As of today, the renewable energy share within the electricity network of Jamaica is 7%. 17 Installed wind turbines total 102 MW: Wigton wind farm (owned by Petroleum Corporation of Jamaica and constructed in 3 phases totaling 62.7 MW), Munri with an installed capacity of 3MW, and Blue Mountain Renewable with 36 MW. 18 JPS selected Eight Rivers Energy Company (an international independent power producer) to build a 33 MWp solar plant in Paradise Park, and another 20 MWp PV was recently commissioned at Content in Clarendon Natural gas Intel : 12JPSCO s website: 13 Discussions with the Ministry of science, energy and technology 14 JPS website : 15 JEP website : 16 Jamaica s national energy policy Discussion with the government

23 As of 2014, the average retail price was 36 cents USD/ kwh, thus incentivizing the island to install distributed solar panels to contribute to its electricity mix. 20 The net billing program allows JPS customers to generate electricity for personal use and sell excess energy to the grid at a price called avoided cost of generation plus a premium of up to 15% on this avoided generation cost. JPS computes this price each month. Eligible participants include: homes with installations smaller than 10 kw p and businesses with less 100 kw p installed. In May 2015, NREL reported that 1.4 MW of distributed generation was part of this program. 21 In parallel, the Jamaican minister of energy voiced the desire to install an additional 150 MW of renewable energy systems on the island in the coming years Energy storage outlook for Jamaica Overall, Jamaica has strong renewable targets and is currently diversifying its electricity generation portfolio away from petroleum products to reduce generation costs. The choice of importing LNG and building gas-fired power stations is an important step towards these goals. Even though gas assets are well known to provide flexibility, the electricity generation cost is highly dependent on the gas supply agreement JPS signed with New Fortress for these gas-fired power stations. Clean Horizon s analysis outlines the strong potential for energy storage to integrate further intermittent renewables to hedge the risk on energy price fluctuation in the country. 20 JPS website: At the 2016 Caribbean Renewable Energy Conference in Miami 22

24 3.3.3 Dominican Republic Electricity sector overview The electricity sector in the Dominican Republic (DR) is unbundled in generation, transmission, and distribution Generation in the DR The Dominican Republic s electricity generation sector is mainly composed of private companies with the exception of two hydro resources which are operated by a state company named Egehid. In 2014, 14 TWh of electricity were generated on the island. There is a merchant market on the island combined with power purchase agreements concerning electricity trading. The Dominican Republic (DR) currently relies heavily on fossil fuel imports for its electricity generation; however, natural gas and coal reduce the dependence on global oil prices. The DR is currently building a 752 MW coal power plant in Punta Catalina. 23 Hydro 6% Wind 2% Coal 14% Natural gas 26% Fuel oil 52% Figure 14: Dominican Republic energy mix by generation source in The privately owned power generators in the Dominican Republic are introduced below: AES, a global power company operating a gas fired power plant EGE Haina, a generating company owned by Haina investment company and FONPER Monte Rio, a joint venture between Caterpillar Power Ventures International and the Paliza-Viyella Group It operates a 100 MW heavy fuel oil-fired plant Transcontinental Capital Corporation, employing 178 MW of diesel engines mounted on floating barges. The government has recently agreed to the construction of a coal power plant in Punta Calina, thus raising concerns amongst renewable energy developers that believe this solution is more expensive than developing renewables such as solar and wind on the island Transmission The electricity transmission company, ETED, is owned by the Corporacion Dominicana de Empresas Eléctricas Estatales (CDEEE). CDEEE is a government holding company gathering 23 Source : 24 Source: Organismo Coordinador del Sistema Eléctrico 23

25 the government involvement within DR s electricity system. For instance, the CDEEE also owns part of the distribution companies Distribution There are three distribution companies on the island; two of them which were re-nationalized in 2003: EdeNorte and EdeSur (through CDEEE and FONPER). The government has 50% ownership concerning the third distibutor, EdeEste, which is operated by AES. The electricity sector in the Dominican Republic has experienced frequent blackouts since the 2000s, which were indirectly due to very high losses on the distribution networks. In 2015, losses measured 31%. 25 As alluded to previously, this high figure is mainly due to theft and the lack of investments in the existing assets. Even though the DR has sufficient electricity generation assets to respond to peak electricity demand, there is on average 200 MW of scheduled power cuts each hour in order to limit the financial deficits of the public distribution companies. As a matter of fact, this load shedding also known as financial blackouts results from distribution companies having difficulties to received financial remuneration in the first place. To cope with this difficulty, the current solution utilized is to subscribe only the generation they know they will be able to pay for and reduce the number of operating hours. This in turn results in large load shedding events and black outs Vertically integrated utilities In addition to these distribution companies there are private vertically integrated utilities on the island. These private utilties are isolated from the national grid (also referred to as the Sistema Electrico Nacional Interconectado - SENI) and generate their own electricity or have power purchase agreements with independent power producers. This is the case of CEPM (Compania de Electricidad de Punta Cana Macao), CESPM (Compania de Electricidad de San Pedro Macoris), and CEPP (Compania de Electricidad de Puerto Plata). There is an independent system operator called Organismo Coordinador in DR that coordinates the electricity production. The regulatory body for the electricity sector in the DR is the Superintendency of electricity (SIE). The SIE sets the electricity tariff on the island each month. For instance, in March 2016, the tariff for residential customers ranged from 10 to 24 US cents/kwh depending on the household monthly consumption. 26 As of today, primary reserve and secondary reserve are compulsory for each dispatched generating units. Payments for frequency regulation services are currently in discussion with the regulator to reduce the system operating costs Renewables development The National Energy Commission (CNE) is responsible for designing policies; its latest national energy plan was published in 2004 for the period and does not take into account major centralized renewable plants within the system. A law established in 2007 set a target of 25% renewable electricity by The CDEEE reports that the 3 distribution companies bought 13 TWh and billed 9 TWh to consumers in Source: SIE, Evolutivo Tarifas aplicadas, with rate change 1US $= 46 Dominican peso 27 Ley No de Incentivo a las Energías Renovables 24

26 There is currently 127 MW of wind owned by EGE Haina. However, this installation did not require any changes to the reserve procurement process on the island because wind still represents a low proportion of the electricity mix 28. The DR has close to 50 MW of solar power plants across the islands. The Monte Plata solar farm was commissioned in 2016 and is one of the largest solar plants in Latin America, with 33.4 MW p installed capacity, which should grant a place to solar in the 2016 energy mix of the island. The project benefits from a 20-year PPA. A net metering agreement for distributed generation has been put in place by the CNE, it led to the installation of 7 MW of distributed solar PV. AES has announced that they will install 20MW of batteries in the Dominican Republic at two of their electricity production plant sites most probably to provide grid stabilization Energy storage outlook Overall, the Dominican Republic has high renewable targets, the controversial construction of the 752 MW Punta Catalina coal power plant displays the complexity of the political situation in the island. Clean Horizon s analysis points out the inadequate grid infrastructure leading to an overinvestment in grid extension, the deferral of which could represent an opportunity for energy storage systems. 28 Source : discussion with EGE Haina 29Source: Dominican Today 25

27 3.3.4 Curaçao Curaçao is a constituent country of the Kingdom of the Netherlands in the Lesser Antilles. It is mainly powered with oil-fired generators but has been one of the first Caribbean islands to install wind energy and still has one of the largest wind penetration ratio in the Caribbean region. The island also relies on power exporte by a petroleum refinery called Refineria di Korsou that exports electricity to the grid. Aqualectra is Curacao s utility company responsibe for the production and distribution of power and water. In 2015, Aqualectra has sold 667 GWh in , corresponding to an average 76 MW of electricity consumption Electricity sector overview Curaçao has a peak demand of 130 MW and mostly relies on diesel engines for its electricity generation, as well as the 20MW export capacity of the petroleum refinery operated by an independent power producer. The figure below shows the current share of renewables in the installed electricity generation capacity. Solar 13 MW Wind 30 MW Diesel engines 136 MW Figure 15: Curaçao electricity generation capacity (in MW) As mentioned earlier, wind energy has a historical part in the island s development, it now has two 15 MW wind farms at Playa Kanoa and Tera Kora. The latter is about to be developed further as 16.5MW of additional wind capacity were shipped by Vestas in early On top of this wind capacity, Cuaraçao has developed solar energy through its net metering policy, more than 13MW of distributed PV generation are installed as of Energy storage outlook Curaçao has focused its renewables development on wind energy, and even though wind s variability is not as great as solar, the reduced system inertia when the demand is low might result in operating difficulties that energy storage systems could alleviate by providing frequency support. 30 Source : Aqualectra 2015 annual report 26

28 3.3.5 Barbados Barbados has expressed its intention to install a storage system Barbados utility (BPL) is currently in the process of commissioning an energy storage system to replace the spinning reserve currently provided by a jet oil fired gas turbine Barbados electricity sector overview Barbados has oil resources but does not have the infrastructure to refine them. The island therefore imports 100% of its petroleum products. Concerning electricity generation, Barbados Light and Power (BL&PC) is the sole power producer on the island, even though the island has opened to independent power producers. BL&PC is owned by EMERA Caribbean. EMERA Caribbean also owns Emera Caribbean Renewables Limited, a majority of Dominica Electricity Services Limited and a part of St Lucia Electricity Services Limited. BL&PC relies on heavy fuel oil and diesel to generate most of its electricity. Renewables are being installed but still represent a small share of the electricity generation. Solar PV 10MW 4% Heavy fuel oil plants 86MW 35% Diesel & jet fuel gas turbines 153MW 61% Figure 16: Barbados electricity generation portfolio totaling 249 MW (MW) 31 Even though gas turbines represent more than half of the power capacity installed, they are used as peaking plants and provide only 15% of the annual 970 GWh of electricity generated on the island. Barbados has a peak demand of 168 MW. The diesel engines combined with the thermal HFO plants only accumulate to 153 MW, thus requiring the use of peak generation for the remaining 15MW. Barbados is equipped with 86 MW of gas turbine that are diesel or aviation jet oil-fired to cope with the remaining demand as well as reserves. The Fair Trading Commission (FTC) regulates the utility and for instance authorized the fuel clause adjustment. The fuel clause adjustment is a mechanism designed to recover the generation costs. This clause allows changes in fuel purchase costs to be passed along to consumers automatically. The monthly fuel rate adjustments are computed to allow a regulated return on rate base of 10% (approved by the Fair Trading Commission in 2010). This results in retail prices which have a fixed component and a variable component based on 31 Based on Emera Carbbean 2015 annual report updated with the recently commissioned St Lucy 10 MW solar PV plant 27

29 the cost of fuel. For example, the first 150 kwh consumed costs 15 cents BBD /kwh plus the fuel clause adjustment which reached 21 cents BBD/kWh in September This theoretically brings the overall electricity retail price for small consumers to 18 cents US/kWh Renewables development in Barbados Barbados has a goal of producing 29% of its electricity from renewable sources by In June 2016, a 10 MW p solar plant was commissioned at St Lucy, as a result of a request for proposal from BL&PC. Barbados is also a leading island for solar water heaters, which cover up to 88 MW of the heat demand. A net billing program is in place for small-distributed solar PV systems, a total of 5.2 MW p of capacity is installed as part of this program. 33 The surplus electricity generated by these small renewable installations is bought by BL&PC at a price defined as the Renewable Energy Rider (RER) tariff. This electricity purchased is credited on the customer s bills and can range from 1 to 1.6 times the fuel clause adjustment, which is currently at 21 cents BBD/kWh. 34 The 2014 annual report specifies that BL&PC asked the FTC to raise the cap from 9 MW to 20 MW for small scale solar PV Energy storage outlook for Barbados All in all, Clean Horizon s analysis reveals an interesting potential in Barbados for the development of utility-scale storage systems to replace oil-fired spinning reserves. Additionally, there is potential for energy storage to integrate variable renewable sources for the small existing installed capacity on the island and for the rapidly growing PV generation Source: Castalia study Emera Caribbean 2015 annual report 28

30 4 Business models to deploy storage in the islands There are several business models for energy storage to be installed in islands and support the grid. What changes from one business model to another is the risk the buyer is taking, the variety of uses that the storage system may have, and the flexibility of the operator. This section addresses these different business models and analyzes the pros and cons associated with them. 4.1 Power purchase agreement (PPA) for renewables plus storage In this case, the utility directly contracts with developers for renewables plus storage. This means that the utility must clearly specify rules and guidelines for tenders or PPA contracts concerning the installation of renewables plus storage on the island The business model for renewables plus storage PPAs In such a business model, the utility provides a contract to an independent power producer (IPP), who is most often selected through a competitive tender. The IPP is often a developer that owns the system. Role Stakeholder Buys the energy storage system Developer Operates the system Integrator / Energy Management System provider Benefits from the storage system Utility Figure 17: Stakeholders and roles - PPA for renewables plus storage Illustration of the renewables plus storage PPAs with Puerto Rico In Puerto Rico, the minimum technical requirements (MTR) dictate the required operation for an energy storage asset coupled with a PV farm. The system needs to control ramp rates and provide frequency regulation services simultaneously. The characteristics of the required operation are precisely defined in the MTR for interconnection of photovoltaic facilities, published in Figure 18: Frequency regulation constraints in Puerto Rico for a PV farm Ramp rate constraints in Puerto Rico for a PV farm (with an installed peak power denoted P peak ): 29

31 Active power variations must remain below 10% P peak per minute Battery minimum power rating is 45% P peak, and one minute of storage is required Puerto Rico is currently setting up a new regulatory body Puerto Rico Electric Power Authority (PREPA) delivered 18 contracts to solar plus storage plants but these contracts have been endangered by the recent economic crisis. However, Puerto Rico has recently elected a new Revitalization Coordinator to develop Puerto Rico s infrastructure. This revitalization coordinator is set to bring more transparency in the electricity framework as well as new market rules for electricity generation. This could for instance result in a viable business case for frequency regulation services by a storage system. Requirements to associate PV with storage also exist on other Caribbean islands (i.e. ramp control and/or frequency regulation). For instance, in the French islands (such as Guadeloupe and Martinique) the December 2016 RFP for 50 MW PV plus storage terms requires plants to shift a portion of the production from the day to the evening while respecting ramp rates as shown below in Figure 19. Figure 19: Example of PV generation forecast and corresponding production plan in the French islands Pros and cons of this business model This model to deploy energy storage is interesting for several reasons: The utility does not have to operate the storage assets and can integrate further renewables without worrying about their impact on the power grid Through ramp rate controls, variable renewables generation is closer to conventional generation, and in consequence does not require the utility to modify its operating techniques. Developers are able to size energy storage assets as to acquiesce desired applications and utility requirements associated. This results in an optimal storage sizing that leads to competitive pricing for PPAs. However, the value of energy storage is not maximized in this business model, as: Developers are responsible for finding an appropriate site and do not consider the local grid constraints when doing so. In other words, energy storage systems could be better located to support local grid constraints or defer investments 30

32 Energy storage systems which follow such minimum technical requirements are locked in a specific use case and cannot be used by the operator to provide other services to the grid that could potentially have more value The application described in the MTRs (or the RFP) for energy storage systems might not be the most efficient method of integrating renewables, thus leading to an increased electricity price for the end-user. 4.2 Utility purchases and operates the storage system The business model for storage systems bought and operated by the utility In this case, the utility plays all the roles and formulates its specific need for energy storage then buys the system and operates it according to its needs. This business model is well suited to small islands since the development process is easier and does not imply concertation with other actors to develop the project. Roles Buys the energy storage system Operates the system Benefits from the storage system Stakeholder Utility Figure 20: Stakeholders and roles utility buys and operates However, in this case, the utility requires the authorization of the regulator to possess and operate energy storage systems. For this reason, the utility is often asked to prove that these systems are economically viable and will result in savings more important than the capital expenditure they require The case of St. Eustatius - example of the utility as exclusive stakeholder St Eustatius is a small Dutch Caribbean island that shows an interesting example of this business model. In March 2016, STUCO (the utility) commissioned a 1.9 MWp PV plant coupled with a 1 MW/580 kwh storage system to reduce reliance on fossil fuels. As the island power system solely relies on diesel generation prior to said installation STUCO reported the steps required to commission the PV plus energy storage system: Choice between wind and PV Engagement of a feasibility study to determine the energy yield that can be expected Preparing RFP for the project Selecting the best proposal with criteria such as cost in $/kwh output, experience of the bidder, design, and landscaping The storage system is capable of providing several services as displayed in Figure 21: Frequency regulation, justifying fast variations in battery power output PV smoothing Energy shifting (only small amounts since the battery duration is 30min) Reserve at night in case of generator fault 31

33 Figure 21: Operation of the PV plus storage plant in St Eustatius The results of this energy storage project have been analysed as extremely positive for the grid, therefore, the island utility decided to expand the plant in the near future by adding 2.25 MW of solar power, and 4.4 MW / 5.2 MWh of battery energy storage Pros and cons of this business model This business structure has serval positive sides: The utility has the most appropriate and accurate tools and data to understand how variable renewables might impact other assets as well as the grid. In the case of STUCO, the pre-feasibility study executed by the utility was able to determine the yearly energy yield and the solar penetration that could be expected ensuring the best usage and functioning The utility also has the best understanding of its spinning reserve costs, which a storage system can reduce since it can provide frequency response The utility has the best knowledge of the grid constraints and can therefore place the energy storage system at the most useful/strategic location Moreover, the utility can use the energy storage system for any service that is relevant: Black start Frequency regulation Energy time shifting (if required to integrate more renewables) Voltage control Most importantly, the utility is able to compute the time value of these services, and therefore can prioritize services for each grid configuration. Conversely, a third party could not accurately compute the time value of services without the utility s costs knowledge. Finally, the utility can conduct trials for several services and test various operations in order to improve its service(s). On the other hand, this business model where the utility is the only stakeholder has several flaws by construction: The utility must buy the storage system, which requires a high initial investment. Indeed, Caribbean utilities tend to be more accustomed to dealing with operating expenditures such as fuel, power purchase agreements, operation and maintenance rather than capital expenditure 32

34 There is no third party assessing the value of storage or optimizing the storage size to deliver the highest cost to benefits ratio. The utility takes several risks when investing in the energy storage system: o Risk that the storage system does not perform as it should over its lifetime o Risk that the returns on investment are not as high as expected for the system bought o Risk of near future grid evolution which renders the energy storage solution less valuable or inefficient in a few years. The utility would then end up owning a stranded energy storage asset. 4.3 Tolling agreement The business model for storage tolling agreement In the tolling agreement business model, the utility pays a monthly fee to the developer on a regular basis to have an energy storage asset at its disposal which it can use according to its needs. In this business model, the utility is responsible for the system operation and hence pays for the electricity used to charge the system. As a consequence, the utility pays for the losses associated with the energy storage system. However, the monthly payment made to the developer and owner will be decided in the first place based on the characteristics of these systems. The monthly fee paid by the utility to the developer for the system availability is computed so that the developer can recover its investment over the length of the contract: The capital expenditures made in year zero to purchase the system The operation and maintenance costs (which depend on how the system is used each month) Roles Buys the energy storage system Operates the system Benefits from the storage system Stakeholder Developer Utility Utility Figure 22: Stakeholders and roles tolling agreement Figure 22 shows how the different roles are divided in this business model. In a nutshell, the developer buys the storage system and leases it to the utility, thus taking the risk related the performance of the asset through guarantees. 33

35 4.3.2 The case of California an example of a storage leasing mechanism to replace peakers In California, Assembly Bill 2514 required investor-owned utilities to support their peak load with energy storage: requiring up to 2.25% of their installed peak capacity to be installed by 2014 and 5% by Following this bill, the CPUC (the Californian regulator) set targets in October 2013 requiring the three main utilities to acquire 1325 MW of storage resource by 2020 with installation by First, tenders are requested by the utilities for 20-year (or 10-year) capacity provision contracts of a defined capacity. The contracts most often involve a monthly payment from the utility to the developer, which is divided into two parts: The fixed monthly payment is linked to the number of MW available for a 4-hour discharge The variable monthly payment depends on the amount of energy discharged from the storage system and includes mainly operation and maintenance costs Regarding the system efficiency, a value is contractually agreed upon. The utility pays for the amount of losses corresponding to the agreed efficiency value. Example of energy storage project using the tolling agreement An energy storage project developer, Convergent, contracted with Pacific Gas and Electric Company (PG&E) 10 MW / 40MWh of storage to relieve constraints at Henrietta substation. 36 The contract specifies a leasing price for the contract and the developer has provided guarantees that its system will have an agreed behavior within certain conditions. With suc a contract the utility can operate the battery without directly dealing with all its associated costs, rather it goes through a third party which it pays on a monthly basis for the system use Pros and cons of the tolling agreement business model The positive aspect in this business model is that the utility does not take any risk regarding the asset performance, using the storage asset is another operational cost to integrate in their costs and is not a liability. The main drawback of this business model is that the use of the storage system (i.e. the numbers of cycles, charging and discharging speeds, state of charge) might lead to very different module replacement timings and hence to drastic changes within the business plan of the developer. This in turn, will make the financing more difficult. Another drawback of this business model is that it requires the developer to have some level of understanding of the utility s planned usage for the battery. Hence the utility should be transparent in terms of its planned use as this will be the key factor for the developer to provide the most appropriate system. For instance, the utility s intentions could lead the developer to offer a default usage in its monthly payments that covers a specific use identified as relevant for the grid, namely frequency regulation. This option would encompass at best the utility s needs and would in turn allow the developer to suggest the most appropriate tariff associated to this usage. 36 Source: 34

36 This suggestion that the developer offers a basic usage to the utility requires transparency from the utility so that the developer can identify the most favorable business case for energy storage and not excessively degrade the battery components: The costs of spinning reserve (operational costs of generators) Electricity production costs for energy shifting Local congestions as well as and local voltage faults The costs of unserved energy and the associated volume track record 35

37 5 Appendix: two storage case studies In this section, we display two useful case studies of energy storage built in 2016 and available in our previous Caribbean report. 5.1 Barbados: storage to replace spinning reserve In this section, the Barbados generation fleet is analyzed, as well as the efficiencies of the associated assets and their operation and maintenance (O&M) costs. The analysis starts by assessing the current cost of providing reserve in Barbados, then the economics of providing the same reserve with an energy storage system are investigated in order to provide an effective comparison. Power (MW) η=30% 8 Reserve 6 η=85% η=40% Gas turbine (diesel) Battery Engine (HFO) Figure 23: Mitigating spinning reserve with energy storage Gas turbines act as peakers on the island, and play two major roles within the power grid: They provide power during peak electricity demand because the rest of the fleet (diesel engines) cannot match the demand They provide spinning reserve to adapt the generation to the consumption and offer a quick replacement solution in case of generator fault. The sole utility on the island (Barbados Light and Power Company) published an integrated resource plan in February and contracted with GE Energy Management Energy consulting a study on wind and solar integration in the island 38. This study shows that the Barbados grid operator currently uses a 20 MW diesel-fired gas turbine to provide 5 MW of reserve. This asset has an efficiency of 31% and a variable O&M cost of 52 US$ /MWh. The same reserve could be provided with a 5MW battery, which would be charged with an existing low speed diesel engine when needed. This kind of engine is more efficient than the gas turbine: the diesel engine is 44% efficient versus 31% for the gas turbine. Moreover, the diesel engine runs on heavy fuel oil (HFO), which is cheaper than diesel. Finally, the engine has a lower variable O&M cost (5 US$ /MWh). Regarding the storage duration, half an hour of storage seems reasonable so that the battery can provide 15min of up and down regulation. 37The 2012 Integrated Resource plan (BL&P 38 GE study for the BL&P Company: 36

38 Adding 20% depth of discharge and security margins, a conservative storage time of one hour was chosen for this business case. The business case study should thus answer the following question: is it worth replacing a part-loaded gas turbine with a 5MW / 5MWh battery to provide reserve to the power system? Assuming that this reserve is required more than 6500 hours a year (there are times when the power system does not need fast balancing), that the HFO price is of 40$ /barrel 39 and that the price of diesel is 30% more expensive, the Figure 24 shows that the project is highly profitable: it leads to savings of almost 500k US$/MW of reserve. Overall, the 5MW/5MWh battery would generate 3 million US dollars of savings per year k US$/ MW reserve 764 Battery capex 459 Yearly savings Figure 24: Battery capital expenditure and yearly savings for each MW of reserve replaced Figure 24 shows the costs and revenues per MW of reserve displaced from a gas turbine to a battery. One needs to be careful when representing this as linear yearly savings because the project only makes sense if the gas turbine can be shut down: replacing only 1 MW of reserve would not generate the same savings, as the gas turbine would still be up and running. Figure 25 displays the business model associated with the replacement of 5MW of spinning reserve by a 5MW/5MWh battery. The costs and savings are added up and discounted over the lifetime of the project (10 years) with a discount rate of 8%. The other assumptions (fuel cost, efficiencies) are the same as stated previously. 39 Using as a benchmark Platts HSFO from the US golf coast 37

39 Million US$ (discounted over the 10 years project lifetime) Figure 25: Economics associated to the use of a 5MW battery to supply reserve on Barbados Figure 26 shows that the battery system brings the cost of reserve down from a current 94 US $/MW/h to 24 US $/MW/h. This large difference is due to the fact that the gas turbine is replaced by a more efficient diesel engine, thus decreasing the electricity generation costs. However this decreasing operational cost requires the capital investment associated to the installation of the battery system. US $/MW/h Capex Battery Business model for Barbados spinning reserve replacement Total discounted battery OPEX (electricity + O&M) Discounted costs 19 NPV = Disc savings - Disc costs 30 Total discounted fuel savings Discounted savings Current operational costs of spinning reserve in Barbados 24 Estimated operational costs of reserve with a battery in Barbados 14 Average market price of primary reserve in Europe Figure 26: Comparison of operational costs relating to the provision of reserve in Barbados and Europe 40 The 2014 report written by GE shows through a simulation using the Plexos software that installing a 5 MW battery to replace the current thermal units used for the spinning reserve would save 2.5 million US$ per year, which is consistent with Clean Horizon s estimation of 3 million US$ savings per year. Moreover, Clean Horizon estimates that a 5MW / 5MWh 40 Weekly marginal price, extracted from 38

40 battery would cost (installation, power conversion system and balance of plant included) 3.25 million USD. Which means that this system would be paid back for within two years. Such a battery could last up to 10 years providing this service, hence providing a very lucrative business case. 5.2 Off-grid large consumers or communities The efficiency of a diesel generator increases with its load factor: thus, part-loaded regimes result in higher operational costs. Hence, an energy storage system can increase the efficiency of a genset fleet by slightly changing the operating point over a certain period of time. For a fleet of engines, storage behaves like a buffer to adjust the load (and hence the dispatch) so that the overall efficiency is improved. Figure 27: Electricity generation cost for a genset fleet depending on the load and benefits of a 2 MW battery Figure 27 displays the electricity generation cost for a fleet of three identical diesel generators depending on the load, with a fuel cost of 1$/L and typical diesel engines efficiencies. The three regions with high electricity generation costs correspond to inefficiencies the energy storage system mitigates by changing temporarily the operating point of the gensets and compensating the difference with the actual load. For the fleet corresponding to the illustration (three 4MW gensets), if the actual load is 1MW, a 2MW battery will optimize the energy cost by artificially increasing the load by 2MW, thus increasing the efficiency of the first genset and reducing the cost of electricity from 300 $/MWh to 230 $/MWh. Similarly, for a real load slightly larger than 4MW the second genset kicks in and the two gensets are partially loaded. A battery would artificially decrease the 5MW load by discharging 1MW of power so that the overall operating cost decreases. PV plus storage hybrid installations grant the tenants predictable electricity costs. Hotels and resorts are often pointed out as interesting examples because, on top of the potential economic incentive for the tenant, renewables bring additional value for the customers: noiseless generation as well as ecofriendly electricity. 39

41 Island Antigua Aruba 6 Appendix: energy storage projects in the Caribbean Project name VC bird airport 10 MW wind integration Size (kw) Energy (kwh) Techno Announ ced Vanadium Dec Underwater CAES Aruba WEB 5000 Flywheel Oct-15 Bonaire Guadeloupe Guadeloupe Guadeloupe Wind diesel hybrid. (2min back up for diesel) Petite place project (Marie Galante) Various, rooftop PV Beaugendre Giurone (based on IM 20P high power product) Ni Cd Guadeloupe RFI only Li-ion Comissio ned Li ion Jun Jun-16 Jun-16 Companies meeco Group, PV energy Ltd 10MW PV, Gildemeister Comments Never commissionned Oct-13 Hydrostor Tentative contract Web Aruba, Temporal power Enercon, MAN and Saft Saft, Quadran, NIDEC Genergies, Freedom ingénierie, Alinea solar Deal signed Hybid Wind 9.75MW diesel 14.25MW 2.5 MW of hurricane resistant wind turbines CRE ZNI 2015 & 2016 tender Jun-16 Sunzil CRE ZNI 2015 tender EDF SA RFI for frequency regulation Guadeloupe Ecopole de sainte rose Jun-16 Albioma CRE ZNI 2015 tender Guadeloupe DESVARIEU X 2,1 3,15 Li ion Aug-17 NW Energy CRE ZNI 2016 tender Guadeloupe CENTRALE SOLAIRE FONDS CARAÏBES 2,5 3,75 Li ion Aug-17 Quadran CRE ZNI 2016 tender Guadeloupe Terre de Bas 1,5 2,25 Li ion Aug-17 Quadran CRE ZNI 2016 tender British VI Haiti Haiti Haiti Necker Island micro grid Triumphe: 110 kwp PV Hopital Albert Schweitzer 100 kw PV St Damien Hospital Solar (650 kwp) smart grid Tabarre Aug-15 NRG Energy Li ion May Li NMC Jul Lithium ion Oct-15 NRG, Sunora energy, Quinous Quinous 500/448, Samsung Integration of 900 kw of wind and 300 kw PV For lighting and Wifi for the Champ de Mars in Port au Prince, financed by the World Bank PV self consumption and backup PV self consumption and backup 40

42 Martinique Altais, PV Sodium Nickel Martinique Martinique Various rooftop mounted Grand Rivière wind plus storage project Jun Li ion aout 2017 May-15 AME demo platform CEA, INES, esims operates Apex, Alinea Solar, Freedom Ingénieurie Nidec ASI CRE ZNI 2015 &2016 tender Feed in tariff Martinique Lamentin Jun-16 Sunzil CRE ZNI 2015 tender Martinique RFI only Li-ion EDF SA RFI for frequency regulation Martinique Ti Morne Li ion Aug-17 NW Energy Martinique Puerto Rico Isabella Sonnedix (via MWp solar Li ion Sep-16 Aug 2017 subsidiary Oriana), farm with MEKTA EGN storage Puerto Rico Puerto Rico Puerto Rico Puerto Rico St Eustatius St Eustatius St Vincent Jamaica Antigua &Barbuda 10 MWp PV farm Coto Laurel Horizon Energy Solar Farm 16 MWp (Salinas) Horizon Energy Solar Farm 16 MWp (Salinas) San Fermin solar 26MWp 1.9 MWp PV plant 2.25MW PV plus storage extension Mayreau microgrid project Jamaica energy storage Frequency regulation 5500 Li ion Mar Sodium ion Apr Saft Li ion Dec Li-ion Mar Li ion Jul-17 SAFT, Windmar Sonnedix, Aquion Energy Candian solar Altair nanotechnolog ie, uriel renewables, Coqui power SMA sunny central storage May-16 Grenlec or min battery Flyheel & battery N/A 7000 Mar-17 Ramp rate control Ramp rate control Ramp rate control Jun-17 JPS RFP sent 41

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