The integral role of storage in the energy transition

As the world races to curb carbon emissions and transition our energy systems away towards renewable power sources, energy storage has emerged as an integral part of the system, and an asset class that is growing rapidly in markets around the world.

Renewable energy sources like solar and wind power are great – they’re not only some of the cheapest forms of power, but are available everywhere and completely immune from the effects of volatile global hydrocarbon prices.

Unfortunately, however, solar and wind are not without their challenges. Unlike at a coal or gas plant, where we are able to control production levels in order to meet demand, renewable energy can’t be turned up or down as easily – this would involve controlling the weather!

This intermittency can create quite a headache for system operators as they seek to balance supply and demand at all times of the day. Load is variable – power demand generally goes up in the evening when everyone comes home and puts their kettle on, yet there’s no way to ensure this will be when the wind is blowing or sun is shining. The stakes are pretty high – even minor imbalances can result in a blackout.  

This is where storage comes in. To address these issues and maintain a stable power supply, energy storage technologies, particularly advanced batteries, have emerged as a leading solution, capable of not only bridging the intermittency issues inherent with renewables, but regulating frequency on the grid.

Load shifting

First and foremost, energy storage is pivotal in balancing supply and demand. This usually involves taking in excess power when consumers don’t need it and giving it back when supply isn’t enough to cover demand. Fortunately, in most countries (including all of those in which Elements Green operate) energy markets involve a competitive wholesale pricing mechanism, so power is priced based on the dynamics between supply and demand and the cost of the required supply.

Because renewables are very cheap on a levelized basis and have negligible marginal costs (it costs the operator of a 50MW solar farm the same to produce 50MW as it does 30MW) the price of power tends to drop when the conditions are favorable for renewable production. In very sunny countries, like Australia, so much solar power is produced during the middle of the day that the price can drop below $0 – a phenomenon known as the duck curve.

Later in the day, power demand may far outstrip renewable supply, a regular occurrence during the evening peak hours (16:00-19:00). Traditionally, this is when gas peakers have powered up to ensure demand is met, albeit for a hefty price that is ultimately borne by the consumer.

In this graph from Energy Synapse, you can see the price of power in Australia (the line) dropping significantly as solar (yellow and orange) produces more power during the middle part of the day. When more expensive gas (red) is required to meet evening demand, the price dramatically spikes

Energy storage offers a solution to this. A battery, for example, can charge up with cheap power during middle part of the day when the sun is shining, and then sell this power into the evening peak when people need it, bolstering supply at a critical time and taking the onus to meet demand away from expensive gas.

Because the price of power is different throughout the day, energy storage derives revenue from literally trading in this market. Hence, this form of operation is commonly referred to as ‘arbitrage’.

Services

Some forms of energy storage that are able to turn on and off quickly and with precision – notably lithium ion battery systems, have also proven extremely useful to grid operators in helping to maintain the grid's frequency within a stable range. Grid frequency must be carefully managed to avoid damage to equipment and to prevent blackouts. Frequency fluctuations can result from sudden changes in generation or demand, which can be exacerbated by the variable nature of renewable energy sources.

Advanced battery systems, with their rapid response times and precise control capabilities, are able to help by quickly injecting or absorbing power as needed. By detecting changes in grid frequency and responding in milliseconds, these systems can help grid operators maintain a stable frequency and avoid costly disruptions.

Assets capable of regulating frequency can participate in competitive schemes administered by grid operators. Energy storage owners are able to ‘stack’ revenue from such schemes with what they can earn participating in the wholesale market, creating a diverse, adaptable revenue base that is forecast to grow over the coming decades.

Just the start

To reach our climate goals defined in the Paris Agreement and limit global warming to below 2 degrees Celsius, a significant increase in renewable energy generation and energy storage capacity is required. According to a report by the International Renewable Energy Agency (IRENA), global energy storage capacity needs to increase from around 170 GW in 2020 to 5,000 GW by 2050 to support the energy transition.

Governments and private investors around the world are finally recognizing the importance of energy storage in achieving climate goals. For example, both the recently announced Inflation Reduction Act (IRA) in America and REPowerEU initiative in Europe contain provisions for accelerating the build out of energy storage and increasing investment into research and development within the asset class.

The widespread adoption we’re already seeing in some markets is just the beginning of a massive energy storage build out required to achieve global climate goals and pave the way for a greener, more resilient and more sustainable energy system for generations to come.