Apricum’s Energy Storage Briefing – Sample Report · Apricum’s Energy Storage Briefing...
Transcript of Apricum’s Energy Storage Briefing – Sample Report · Apricum’s Energy Storage Briefing...
Apricum’s Energy Storage Briefing – Sample Report
Regional focus: Europe
Biannual report: Volume 1, 2017
Best regards,
Florian Mayr
Partner, Head of Energy Storage
Apricum’s Energy Storage Briefing provides up-to-date
insights and actionable advice for storage in Europe.
Welcome to Apricum’s Energy Storage Briefing –
sample report. Supplementing our tailored strategy
and transaction advisory services, we are pleased to
offer an energy storage intelligence subscription with a
biannual briefing at its heart.
The report provides you with comprehensive analyses
of the business opportunities for energy storage in
Europe. It focuses on the two major markets, the UK
and Germany, but also covers key developments in
France, Italy and other countries relevant for storage.
With this sample report we would like to give you a
flavor of the scope and depth of the analyses provided
and demonstrate how it differs from other market
intelligence. As experienced strategy consultants, we
are well versed in extracting the “so what” for our
clients and providing recommendations based on
substantiated data and coherent reasoning – in
contrast to providing just another stack of data leaving
you alone to make sense of the figures.
2
Apricum, as the premier advisory firm for clean energy,
is poised to support you in identifying the true
opportunities and challenges for making money with
energy storage in the ever-changing European market.
Through the extensive insights gained in our day-to-
day advisory work in the energy storage industry, we
are well positioned to provide accurate and actionable
advice.
I hope this sample report sufficiently illustrates the
value we can add for you and your company.
We are ready to discuss how we can further help you
in realizing business in Europe and beyond.
Introduction
Apricum’s European Energy Storage Briefing is different to
what you have seen so far.
What it is…
• An answer to the one and only
question: How can I make money with
energy storage today and in the near
future?
• A deep, comprehensive analysis of the
European business opportunities for
energy storage, focusing on the under-
lying drivers instead of the “symptoms”
• A precise synthesis of the relevant
aspects for an energy storage player
…and what it is NOT
• Another high-level compilation of
generally available use cases that could
be attractive for energy storage (or not)
• Another massive data dump, including
detailed, quantitative forecasts for future
demand that creates a false feeling of
predictability
• Fragmented pieces of analyses that
leave it to the reader to “connect the
dots”
3
✔
✔
✔
✔ ✖
✖
✖
✖
Another descriptive market overview A valuable guide for business decisions
Overview Europe
UK
Overview UK
EFR
FFR
PV self-consumption
C&I grid fee reduction
Secondary use cases
Germany
…similar detail to UK section
Rest of Europe
France
Italy
4
General report structure.
• Detailed country analyses for UK & Germany:
• Major schemes/primary use cases1
• Selected secondary use cases1
See next slide for details
• Analysis of key developments in the rest of
Europe
• Varying focus markets depending on actual
events
• Status: Which use cases in Europe are
emerging, established or not yet viable?
• Outlook: Demand for which use cases in
Europe is growing, stable or even shrinking?
• Key developments across countries
1) Primary use case provides dominant share of expected revenue, secondary use cases are additional revenue streams (benefit stacking)
For the two dominant storage markets in Europe, Apricum
provides a structured assessment of the national schemes.
5
• Description of scheme1: Operation, counterparties, revenues streams, pricing
mechanism and project time frame
• Apricum’s assessment of attractiveness for energy storage today and in the near future
based on:
• Regulatory framework: Recent regulatory activities and impact on energy storage
• Economic viability: Revenues, cost and assessment
• Drivers for energy storage demand: Description, impact, outlook
• Energy storage installations: Existing and announced capacities, accumulated and
split into segments and projects, detailed description of representative “lighthouse
projects”, upcoming tenders
Detailed country analyses for UK and Germany
Detailed analyses of relevant aspects, synthesis of key “so what” takeaways
1) Country-specific set of regulations governing a use case
Overview Europe
UK
Overview UK
EFR
FFR
PV self-consumption
C&I grid fee reduction
Secondary use cases
Germany
Rest of Europe
Annex
6
Example contents of report.
Sample detail for the UK section will be
presented in the following pages
Energy storage expected to gain traction in the UK, based
on recent tenders and upcoming regulatory changes.
7
Summary UK
Source: Apricum analysis; 1) Enhanced Frequency Response; 2) Commercial & Industrial; 3) Contracted or
announced; 4) Incl. C&I and residential; 5) Excl. C&I and residential; 6) 31 July, 2017
Energy storage projects/systems (in MW) Schemes:
• Already commissioned large-scale energy storage
systems are mostly trial/pilot projects for various use
cases, e.g., by distribution network operators
• 201 MW of EFR1 frequency response projects
announced, partially applying benefit stacking
• Additional ~350 MW were awarded capacity market
contracts from 2020 onwards which serve as a secondary
revenue stream, e.g., on top of frequency response
• Distributed behind-the-meter systems are used for C&I2
grid fee reduction and residential PV self-consumption.
Several players active, but early stage market and so far
not economically viable on its own. Addressing social
housing and whole communities via city councils may
evolve as a typical strategy Outlook
• UK energy storage market expected to grow, following the
success of the recent EFR and capacity market tenders and
the current regulatory activities
• Energy storage will gain further relevance for frequency
response based on requirements of short response time
• Multiple storage players are currently entering the UK market
for distributed systems
Regulatory setting
• Individual revenue schemes (esp. EFR) are well
suited for or even tailored to storage applications
• Overall coherent approach to storage still missing
• Regulatory initiatives, including recent “Call for
Evidence”, and a new strategy for balancing services
(SNAPS) are expected to improve the framework
Announced /expected
Installed
~600
~75
Announced3
Exchange rate6:
1 GBP: 1.32 USD
Trial/demonstrator (~15)
Other (~60)4
Other (~65)5
EFR Capacity Market Auction
(353) (201)
Growth
• ~40 MW installed in last 6 months
• ~25 MW specific project announcements
in last 6 months (in addition to general
targets with unclear level of commitment)
UK elections had delayed “Call for Evidence” process, but
intended regulatory changes have now been published.
8
Regulatory framework for energy storage (1/4)
“Call for Evidence” on smart, flexible energy system by regulator Ofgem and BEIS1:
• Sought opinions from the industry which will be taken into account in upcoming regulatory changes
• Published in November 2016 after delay due to Brexit referendum, and ~150 storage-related responses were received
before the deadline in January
• Comments by Ofgem and BEIS on the industry input including intended regulatory changes were originally expected by
June and have finally been published2 on July 24 after a delay caused by the UK general elections
• Key approaches to reduce barriers for storage and to optimize its benefits include:
• Network operators are expected and will be incentivized3 to increase transparency on where connecting storage is
feasible and beneficial, e.g., by providing heat maps that take into account the local grid infrastructure, network fees
and substation utilization, thus avoiding a large number of “trial” applications for connections which will not be realized
• Additionally, a better queue management shall be implemented by the network operators, likely prioritizing applications
for connecting storage if the storage system is also beneficial for other parties that apply for grid connection
(e.g., because it provides relief to the grid instead of additional utilization). This would imply to connect the system
earlier even if other applications had been handed in before
• Storage shall be classified as a sub-class of generation assets, incl. specification of the requirements for planning con-
sent by governmental institutions, and a modified generation license for storage shall be introduced by Summer 2018
• Storage shall not face specific network (demand residual) and balancing charges with details soon to be announced as
part of the “Targeted Charging Review”4 process. Flexible connection contracts and fee structures may be introduced
that take into account the actual use cases and use patterns for the specification of connection/grid fees, potentially
implying lower costs for specific energy storage installations. Furthermore, final consumption levies will not apply to
holders of the new generation license for storage
Source: Apricum analysis, BEIS, National Grid, news reports; 1) Department for Business, Energy & Industrial Strategy; 2) “Upgrading Our
Energy System – Smart Systems and Flexibility Plan”; 3) Via existing “Incentive on Connections Engagement” process; 4) Cf. TCR consultation
dated 13 March 2017
Recent
regulatory
activities
Continued on next slide
National Grid plans to substantially modify balancing service
products, combining different types of frequency response.
9
Regulatory framework for energy storage (2/4)
• Key approaches under discussion to reduce barriers for storage and to optimize its benefits include (continued):
• Additional guidance by Ofgem announced for later this year on how to co-locate storage with renewables without
putting renewables support at risk
• Legal certainty on the classification of storage as a non-intermittent generation type which implies lower grid fees (so
far, typically treated as non-intermittent, but no formal definition in place yet) expected after further industry guidance
expected by the end of 2017
• Regulatory position on ownership and operation of storage by network operators will be clarified by Ofgem in the near
future and new reporting arrangements for DNOs owning generators (normally “small generators” <50 MW) will be
included. Focus is on ensuring proper “unbundling”, i.e., on requirements for not distorting the market which typically
involves operation of the asset by a third party
• Plans for future policy that optimizes system and consumer benefits from self-consumption and grid export, potentially
via “time-of-export” tariffs for new and existing generators
National Grid System Needs and Product Strategy (SNAPS):
• Lays out National Grid’s plan to substantially modify the suite of balancing service products according to system needs
and transparency requirements
• Currently under industry consultation with responses received by July 18 and expected to be published soon
• Further details on the new strategy are expected by end of September
• Energy storage mainly affected by changes to frequency response services planned to be finalized by March 2018:
• Introduction of a single product comprising EFR, FFR and potentially dedicated inertia
• Flexibility to bid several parameters (response time, duration, etc.) independently of each other and more freely than
with the current EFR and FFR schemes
Source: Apricum analysis, BEIS, National Grid, news reports
Recent
regulatory
activities
Continued on next slide
(Continued)
Changes to grid fees will decrease revenues for storage
systems that are used to reduce peak demand charges.
10
Regulatory framework for energy storage (3/4)
• Energy storage mainly affected by changes to frequency response services planned to be finalized by March 2018 (ctd.):
• High transparency on the criteria by which bids are selected – value functions for the bidding parameters will be
published and will allow to optimize the bids and understand at hindsight why projects were selected
Recently implemented or planned regulatory changes related to grid fees:
• “Benefits” (revenues or grid fee exemptions) for generators and storage systems connected to the distribution network are
going to be reduced. This refers especially to payments for compensating electricity consumption during times of peak de-
mand (“triads”1) and thus for effectively offsetting transmission network fees (which are determined by this peak demand)
• Also for behind-the-meter storage, the value generated based on transmission network fees may be limited in the future:
Currently, the fees strongly depend on electricity consumption during “triads” and are rising, but Ofgem indicates that this
strong dependency on peak demand – and thus the potential value add by time-shifting demand via storage – is under
discussion (however, no specific plans yet)
• Distribution network fees substantially differ between different times of the day/week (“red”, “amber” and “green”
timebands) for specific C&I2 customer groups, providing the opportunity to reduce fees by time-shifting consumption via
storage: Since April 2017, a larger group of C&I customers falls under this fee structure, but the difference between the
fees (and therefore the potential benefit of storage) has been reduced effective from April 2018
Further ongoing activities:
• National Grid has established an energy storage working group to interact with the industry, sitting within the “Power
responsive” stakeholder forum that primarily focuses on demand response
• UK emissions reduction plan for the upcoming years which may impact demand for renewable energy and storage has
been delayed, but is expected to be still published in 2017
• “Faraday Challenge”: GBP 246M public support over four years for companies investing into battery technology R&D –
funding provided via a new “Battery Institute” with a key focus on electric mobility
Source: Apricum analysis, BEIS, National Grid, news reports; 1) A winter season’s three half-hourly periods (at least 10 days apart from each
other) with highest electricity demand; 2) Commercial & Industrial
Recent
regulatory
activities
(Continued)
UK regulatory environment for energy storage currently
considered neutral to positive with key changes underway.
11
Regulatory framework for energy storage (4/4)
Source: Apricum analysis, BEIS, National Grid,
news reports; 1) Enhanced Frequency Response
Overall assessment of current regulatory framework:
• Individual revenue schemes are well suited for or even tailored to storage applications (especially, EFR scheme1)
and ongoing regulatory initiatives work towards further improving the framework, but for now, the UK regulatory
framework still lacks a coherent approach to energy storage. Implications of Brexit on future regulatory deviations
from EU standards are not yet foreseeable
• Developments positive for energy storage:
• Existing market barriers are currently addressed at different levels, including a far-reaching and promising
approach by the responsible ministry in the context of the recent Call for Evidence
• A new strategy by the System Operator National Grid regarding its balancing products is currently under
development as part of the overall System Needs and Product Strategy (SNAPS) and massive changes of the
frequency response products are expected, aiming at higher simplicity and transparency which will be beneficial
for energy storage deployments
• Procedures to derive regulatory changes for individual revenue schemes often imply formalized and transparent
public processes that also ensure participation of stakeholders
• Developments negative for energy storage:
• Regulator currently tends to reduce/limit the substantial dependency of grid fees on consumption during peak-
hours vs. off-peak hours, thus reducing/limiting the value of time shifting consumption via energy storage
• Regulator currently values large-scale generation assets connected to the transmission network higher than
before – therefore, payments to generation and storage assets connected to the distribution network are
reduced and this specific revenue stream is made less attractive
Negative environment for storage,
inhibiting market growth
Neutral environ-
ment for storage
Positive environment for storage,
fostering market growth
12
Status of UK energy storage schemes/applications (1/2)
Source: Apricum analysis; 1) See annex for detailed description of legend; 2) Additional benefits: Higher degree of self-sufficiency, potential
aggregation for ancillary services, profiting from time-of-use pricing
Scheme /
application
Use case Short description Status1 Recent developments
EFR Ancillary
services
• Frequency regulation
• Irregular pay-as-bid tenders
for 4-yr contract duration
• Batteries best suited to
adhere to response time <1s
Today:
6 months ago:
• 201 MW tender completed in August 2016
• Several winning projects additionally
participated in capacity market auction for
delivery from 2020 onwards
FFR Ancillary
services
• Frequency regulation
• Monthly tenders with high
flexibility of parameters and
contract duration of up to 2yr
Today:
6 months ago:
• Recent auction prices significantly higher
than those in EFR tender
• Limited battery contributions so far, but
participation possible via several aggre-
gators as well as by large-scale systems
PV self-
consumption
PV
self-con-
sumption
• Increasing PV self-
consumption by charging at
daytime and discharging in
the evenings2
Today:
6 months ago:
• Multiple new players entering the UK
market, e.g., E.ON, Daimler, Solarwatt
• Decreasing generation tariff, but stable
export tariff
• Continuous rollout of smart meters
Established Emerging Currently not feasible Primary use case:
Growing
market
Stable
market
Declining
market Outlook:
Significant
changes in
last 6 months
Relevant UK use cases fall into the categories of ancillary
services, PV self-consumption and peaker replacement.
13
Status of UK energy storage schemes/applications (2/2)
Source: Apricum analysis; 1) See annex for detailed description of legend; 2) Commercial & Industrial; 2) Demand side response
Scheme /
application
Use case Short description Status1 Recent developments
C&I grid fee
reduction
Peaker
replace-
ment
• Behind-the-meter energy
storage installations used to
reduce transmission and
distribution grid fees for C&I2
customers
• High electricity consumption
during specific time periods
leads to high fees – which
can be reduced by time-shif-
ting consumption via storage
Today:
6 months ago:
• Ofgem has realized and announced
regulatory changes that limit the rise of
relevant grid fees related to periods of peak
demand or even reduce them (e.g., triads)
• Since April 2017, a larger group of C&I
customers is required to be half-hourly
metered which is a prerequisite for time-
dependent grid fees to apply and therefore
for potential benefits of energy storage
Capacity market Peaker
replace-
ment
• Generators or DSR3 are
awarded capacity contracts
requiring delivery in case of
system stress events
• Contracts up to 15yr possible
when financing new assets
Today:
6 months ago:
(expected market
growth only as
secondary use case)
• ~500 MW of battery storage were awarded
15-yr contracts in an auction last December
(4 years ahead of delivery)
• Ofgem plans to list EFR as “relevant
balancing service” in Capacity Market
regulation, ensuring compatibility of the two
revenue streams
Established Emerging Currently not feasible Primary use case:
Growing
market
Stable
market
Declining
market Outlook:
Significant
changes in
last 6 months
Relevant UK use cases fall into the categories of ancillary
services, PV self-consumption and peaker replacement.
201 MW EFR projects and ~350 MW additional T-4 capacity
market projects form majority of announced installations.
14
Key energy storage installations/projects1 (excerpt from full list)
Source: Apricum analysis; 1) Only listing individual projects >500 kW; 2) Announced, commissioned; 3) Also participated in EFR auction 2016,
but no contract awarded; 4) UK Power Reserve names voltage regulation, peak shaving, triads, STOR, real & reactive power dispatch and
arbitrage all as other schemes/applications to be potentially addressed
Project/
segment
Status2 Capacity Scheme/
application
Key players involved Comments
Batwind Announced 1 MW /
1 MWh
Pilot project addres-
sing arbitrage, cap-
turing of excess wind
power, and reduction
of balancing costs
Statoil, ORE Catapult,
Scottish public bodies
On-shore co-location with Hywind
floating off-shore wind park (Scotland)
Pelham
Storage Announced ~48 MW Capacity market3 Statera Energy
15yr contract in T-4 (2016) capacity
market auction, delivery from 2020
Langley
Storage Announced ~48 MW Capacity market
Statera Energy
15yr contract in T-4 (2016) capacity
market auction, delivery from 2020
Norton
Storage Announced ~48 MW Capacity market
Statera Energy
15yr contract in T-4 (2016) capacity
market auction, delivery from 2020
UK Power
Reserve:
12 projects
Announced
12 projects
with a total of
120 MW
Capacity market4 UK Power Reserve 15yr contract in T-4 (2016) capacity
market auction, delivery from 2020
CES
Somerset
Commissioned
02/2017 500 kWh
FFR, arbitrage
(co-located with PV)
Camborne Energy
Storage, aggregator
Open Energi
Co-located with 500 kWp PV,
Tesla Powerpacks
Noriker
Power
Staunch
Commissioned
03/2017 20 MW
Capacity market,
FFR
Hazel Capital,
METKA EGN (EPC)
LG Chem batteries, 2yr FFR contract
(2.6 M GBP/yr)
Significant changes in last 6 months
EXCERPT FROM FULL LIST
Regular FFR and capacity market tenders upcoming – EFR
will be integrated into single frequency response product.
15
Tenders
Scheme /
application
Last tender Next tender Tendering authority Competitive position of energy storage
EFR 201 MW in 08/2016 Plans for single
combined FR1 product
in 2018 rather than a
second EFR tender
National Grid Full capacity in last tender assigned to
energy storage
Source: Apricum analysis; 1) Frequency Response; 2) Less attractive than EFR due to shorter contract durations;
3) Prequalification submissions July 24 – September 29 Weak Strong
Scheme /
application
Last tender Interval /
next tender
Tendering authority Competitive position of energy storage
FFR July 2017 Monthly (plans for
single combined FR1
product in 2018)
National Grid Currently low share of storage
projects2, but expected to increase
Capacity market:
Four years
ahead (T-4)
December 2016 Annual /
February 6, 20183
National Grid Success strongly depends on strategy
for benefit stacking and bidding – high
total capacity renders auction less
competitive
Capacity market:
One year ahead
(T-1)
February 2017 Annual /
January 30, 20183
National Grid 1-year contract makes auction less
attractive than T-4 auctions allowing for
15 yr contracts for new assets – but
well suited for bridging the gap
Monthly/annual tenders
Tenders at irregular intervals
Overview Europe
UK
Overview UK
EFR
FFR
PV self-consumption
C&I grid fee reduction
Secondary use cases
Germany
Rest of Europe
Annex
16
Example contents of report.
17
EFR scheme: Overview
Apricum assessment
Enhanced Frequency Response (EFR) service for stabili-
zing grid frequency was auctioned for the first time in 2016.
EFR scheme
Description of scheme
Source: Apricum analysis; 1) System operator of the transmission network; 2) Latest service start date March 01, 2018
Description of Apricum assessment
Status: Established primary use case
(No significant changes in last 6 months)
Outlook: Stable market
(No significant changes in last 6 months)
Installations: No installations commissioned yet, but
201 MW of storage successfully tendered in 20162
Regulatory framework: Framework of EFR tender well
established and a good fit with key properties of storage
(e.g., response time < 1s and allowing for benefit stacking),
but regulatory discussions and risks regarding specific
revenue streams which are suited for benefit stacking
Economic viability: Economic viability indicated by success
of tender and by analysis of revenue and costs, but strongly
dependent on projections for use after end of contract
Drivers: Further reduction of grid inertia due to increasing
share of renewables and shut-down of coal power plants
leads to further demand for projects with similar parameters,
expected to be contracted as part of a combined frequency
response product from 2018 onwards
Operation: Energy charged or discharged
(symmetric service) automatically in case of
frequency deviations to stabilize the grid within
National Grid’s1 license obligation of 49.5–50.5 Hz
Revenue stream: Fixed payments per MW/hr,
reduced by potential penalties for non-availability
Pricing mechanism: First and most recent auction of
201 MW was based on pay-as-bid principle and
completed in August 2016 with average price of
GBP 9.44 per MW/hr. No second EFR tender
planned, but launch of a combined frequency
response product which also covers similar
parameters expected for 2018
Counterparties: Auctions conducted and payments
provided by National Grid
Project time frame: Contracts provided for up to four
years starting with commercial operation
EFR installations have to respond to grid frequency
changes within a response time of less than 1s.
18
EFR scheme: Description
EFR scheme
Source: Apricum analysis, National Grid; 1) E.g., Low Carbon excluded 330 hr per year from EFR
Triggering of service Obligations and options
• Service must automatically be provided when system
frequencies exceed specified thresholds (“deadband”)
and pre-defined output profile must be followed (see
figure below). System must be able to reach 100% of
power output within 1 second (for 0.5 Hz deviation)
• Details on service obligation:
• Duration: 100% of capacity must be provided for
15 min when needed – new obligations only after
frequency has returned to deadband for full 30 min
settlement period
• Penalties: Second-by-second Service Performance
Measure (SPM) averaged over each settlement period
(30 min), deviations of more than 5% trigger reduction
of payments. Substantial failures to deliver (perfor-
mance <50%) may result in cancellation of contract
• Charging and discharging between service intervals
must adhere to prescribed ranges of ramp rates
• Options for service providers / tender participants:
• Deadband: Two options to take into account different
requirements for charging/discharging between ser-
vice intervals: Wide deadband (0.05 Hz) and narrow
deadband (0.015 Hz). Latter more expensive, but still
the only option successful in last tender
• Benefit stacking: Participation in the capacity market
allowed and high flexibility to exclude time windows
from the bid for alternative services1, but no additional
services during EFR service windows
Output (in MW) Max. positive
delivery
Deadband: No
response required
Max. negative
delivery
Frequency
deviation
Service envelope
with required output
EFR bids were ranging between 7 and 64 GBP/MW/hr with
a final clearing price of ~12 GBP/MW/hr.
19
Results of first EFR tender
Source: Apricum analysis, National Grid; 1) Each bar represents one bid (varying capacity)
0
10
20
30
40
50
60
70
Deadband 0.05 Hz, no contract awarded Deadband 0.015 Hz, no contract awarded Deadband 0.015 Hz, successful bid
Max. winning price
of 11.97 GBP
Bid price (in GBP/MW per service hour)
# of bid1
Note, that not all bids below the maximum winning
price were successful:
• Multiple alternative (and mutually exclusive) bids
handed in for variations of the same project
• Preference by National Grid for narrow
deadband option
Avg. price
of 9.44 GBP
EFR scheme
Overall assessment of current regulatory framework:
• EFR regulatory framework is well suited for storage: Maximum delivery obligation of sufficiently short 15 min, option to exclude time
windows for benefit stacking, explicit possibility to combine with capacity market and existing service option with larger deadband
• Recent and indicated regulatory changes reduce attractiveness of some secondary use cases, but initiatives discussed as part of the
recent “Call for Evidence” and National Grid’s “System Needs and Products Strategy”1 are expected to have a positive impact on feasibility
of storage installations
EFR regulatory framework well suited for storage, but
attractiveness of some secondary use cases declining.
EFR scheme: Regulatory framework
• No changes to specific EFR regulation since last tender. Next tender not yet announced, but intentions1 that a “blended”
product will be launched in March 2018 which addresses all different types of frequency response, including EFR
• Ongoing discussions to make connection and grid fees for storage installations more flexible (to reflect the actual use
case/pattern) as part of the recent “Call for Evidence”, independently of EFR
• Regulatory activities related to opportunities via benefit stacking:
• Ofgem plans to list EFR as “relevant balancing service” in Capacity Market (CM) regulation, ensuring that both use
cases can be addressed simultaneously without risk of penalties for non-delivery
• Ofgem reduces payments foreseen for generators connected to the distribution network (“embedded benefits”) from
1 April 2018 onwards2, especially regarding high revenues for offsetting transmission network fees by discharging
during periods of peak demand (“triads”) – first formal indications in July had already lead to six companies
(10 projects) withdrawing EFR bids tailored to benefit stacking
• From April 20183, distribution network fees will depend less on time of use (on “red”, “amber” and “green” timebands),
thus reducing potential value-add by generators and energy storage systems and impacting economic viability of
potential EFR projects which depend on benefit stacking
Source: Apricum analysis; 1) SNAPS report of June 2017; 2) Open letter by Ofgem dated December 2, 2016 and final decision made public on
June 20, 2017; 3) Modification DCP228
EFR scheme
Recent
regulatory
activities
20
EFR projects depend on benefit stacking and sufficient
revenue after end of four-year contract duration.
21
EFR scheme: High-level assessment of economic viability
1
Overall assessment:
• Total annualized (discounted) costs5 over a project lifetime of 10 years amount to 104 GBP/kW/yr
• Average revenue in the first 4 years amounts to 83 GBP/kW excluding and 105 GBP/kW including capacity market payments
► Economic viability for average EFR project only given when capacity market is taken into account. Furthermore, similar
revenue streams must open up at the end of the 4-year EFR contract despite declining battery costs to ensure overall
profitability.
Source: Apricum analysis; 1) Successful bids in first tender with 7.00–11.97 GBP/MW/hr; 2) Clearing price of T-4 auction for delivery from 2020/21; 3) Based on
usable energy; 4) Assuming that lost inertia will be replaced by EFR systems so that future grid frequency deviations resemble historic data; 5) Assuming a
WACC of 10% p.a.
2
Observed average auction price of 9.44 GBP/MW/hr1 (i.e., ~83 GBP/kW/yr for projects that do no apply benefit stacking
based on excluding likely triad time windows from EFR service)
EFR scheme
Additional capacity market payments of 22.5 GBP/kW/yr2 if participating in capacity market (majority of projects)
1
2
System cost estimate of ~750 GBP/kWh3, based on a power-to-energy ratio of 1 kW to 0.7 kWh and an EPC cost assumed
to be 15% of AC system cost
Revenue
Cost
Use of existing grid connection
3 Annual O&M costs of 1.6% of initial CAPEX
4 Net electricity charging costs of 11 GBP/kW/yr based on analysis of historic frequency data4 and an EFR deadband
of 0.015 Hz
Future opportunities depend on an arising need for
additional assets to guarantee frequency stability.
22
EFR scheme: Drivers and outlook
Source: Apricum analysis; 1) See annex for detailed description of legend; 2) Minimum system inertia expected to drop from ~100 GJ in
2016/17 to ~75 GJ in 2025/26; 3) Phase out to be completed by 2025, potentially already 2022; 4) National Grid Summer Outlook Report 2017
Driver for energy
storage
Contributing
factor(s)
Impact on demand for energy storage and
on its value
Outlook1
Need for
frequency
stability of the
grid
Overall Higher risk of future substantial frequency
deviations due to lower system inertia
implies need for mitigation and triggers
more EFR capacity to be tendered
Decreasing system inertia due to
decommissioning of coal plants and new
RE installations leads to stable demand2 for
additional projects with <1s response time
Phase-out of coal
power plants
Less active capacity with high inertia,
implying lower frequency stability
Decommissioning of further coal plants3
and thus decreasing system inertia
Increasing share of
variable renewable
energy
Less active capacity of conventional
generators with high inertia, implies lower
frequency stability
Decreasing annual RE installations
expected, therefore decreasing demand for
new storage: Annual wind installations in
2018/19 similar to 2017 (~4GW) and PV
installations in 2017–2019 (~400 MW/yr)
lower than National Grid’s 2017 projection
of ~1.8 GW4
EFR scheme
Significant changes in last 6 months (green positive, red negative) Growing
market
Stable
market
Declining
market Outlook:
Apricum assessment: Stable market
• Additional frequency response capacity with response time <1s expected to be tendered as a result of further reduction of
system inertia (in the course of continuous coal power plant phase out and despite expected slow-down in annual installations of
variable PV)
• Energy storage expected to remain the prevailing technology for frequency response with requirement of short response times
EDF Energy Renewables will build largest EFR facility right
below maximum eligible capacity of 50 MW.
23
Example: 49 MW EFR project by EDF Energy Renewables
EFR scheme
Project context
Energy Storage System
Key parties involved:
Integrator:
Nidec ASI2
Project dev.:
EDF ER3
Ownership:
EDF ER
Ownership/financing:
• Likely financed via balance sheet
Key parameters:
Source: Apricum analysis, EDF; 1) Prices adjusted at beginning of each delivery year according to consumer prices index; 2) Power
management system provided by EDF Store & Forecast and power conversion technology by Nidec ASI; 3) In-house development likely
Storage technology:
Lithium-ion
Energy capacity Power capacity
34 MWh 49 MW
Timeline
• Final investment decision was taken in December 2016
• Estimated start date in December 2017
West Burton,
Nottinghamshire,
England
Additional use cases addressed (benefit stacking):
• Capacity market participation via T-4 auction for 15 years from Winter
2020/21 with 47.2 MW at clearing price of 22.5 GBP/kW/yr (2015/16
prices1
Relevance:
• Largest EFR project that won a contract (~25% of total tender volume)
• Only EDF project assigned with an EFR contract (remaining 21 EDF
bids were variants of this project at the same site – with lower capacity
or wider deadband)
Offtaker:
National Grid
Overview Europe
UK
Overview UK
EFR
FFR
PV self-consumption
C&I grid fee reduction
Secondary use cases
Germany
Rest of Europe
Annex
24
Example contents of report.
(Complete set of slides for each scheme included in full report)
Overview Europe
UK
Overview UK
EFR
FFR
PV self-consumption
C&I grid fee reduction
Secondary use cases
Germany
Rest of Europe
Annex
25
Example contents of report.
26
Capacity market: Overview
Apricum assessment
~500 MW of battery storage awarded with capacity market
contracts, improving viability of other revenue schemes.
Capacity market
Description of scheme
Operation: In case of System Stress Events, an
adjusted load following of up to the contracted
capacity has to be performed with a 4 hour prior
notice by National Grid (Capacity Market Warning)
Revenue stream: Monthly payments at fixed MW/yr
rate reduced by potential penalties for non-
availability and aggregated with potential over-
delivery payments
Pricing mechanism: Annual auctions based on
clearing price principle: Largest share via auctions
four years ahead of delivery period (“T-4”),
remaining capacity auctioned one year ahead of
delivery period (“T-1”)
Counterparties: Auctions conducted and payments
provided by National Grid, refinanced via supplier
charge dependent on demand on winter weekdays
between 4–7 pm
Project time frame: Contracts duration depends on
asset: Typically, one year for existing assets, three
years for refurbished assets and up to 15 years for
new assets
Source: Apricum analysis; 1) Latest service start date March 1, 2018; 2) See page on “Regulatory framework, drivers and outlook”
Description of Apricum assessment
Status: No viability as primary use case,
but established secondary use case
(No significant changes in last 6 months)
Outlook: Declining market
(More pessimistic view than 6 months ago
due to more specific “de-rating” plans)
Installations: 501 MW of new (to be built) battery storage
assigned with contracts in 12/2016 T-4 auction and 10 MW
assigned with contracts in 02/2017 year-ahead auction
Regulatory framework: Modifications of benefit stacking with
frequency response products expected (with respect to the
maximum capacity to be accounted for and how charging
reduction of storage assets may count to the capacity
market2). Plans to count only a share of the physical energy
storage capacity towards the Capacity Market contract,
depending on the maximum delivery duration
Economic viability: No stand-alone economic viability
Drivers: Need for additional generating capacity due to
phase-out of old assets and higher demand; high auction
clearing price due to lower share of existing assets
• Details on obligations:
• Pre-qualification: All licensed generating units must pre-
qualify for the capacity market, but are not obliged to
participate in the auction
• Prerequisite: Testing requirements of 30 min power delivery
• Delivery obligation: Adjusted load following of up to the con-
tracted capacity in case of System Stress Events3 with 4 hr
prior notice via “Capacity Market Warning” by National Grid
• “De-rating factor”: For each generating technology class, the
permissible capacity (for payments) is the available power
times a “de-rating factor” determined annually based on
average availability. Maximum duration of delivery has not
been taken into account yet, but will likely be considered
from 2018 onwards4 to the disadvantage of storage
• Penalties: Failure to deliver results in penalties which are
capped at 200% of monthly and 100% of annual income
• Options for service providers / tender participants:
• Benefit stacking: Participation in relevant balancing services
is explicitly allowed and the service obligation is reduced
when any of these services are provided: STOR, Fast
Reserve, FFR, Constraint Management Service, Frequency
Control by Demand Management and soon EFR
• Relevant auctions:
• Largest share of capacity is auctioned 4 years ahead of
delivery with a contract duration of 1 year (existing assets)
• Further capacity gets contracts of up to 3 years (refurbished
assets) or 15 years (new assets)
• Remaining capacity is auctioned short-term 1 year ahead of
delivery for National Grid to retain flexibility to adjust volume
• Pricing: Bidding prices for existing1 assets are capped so that
participation of refurbished/new assets is required for high
clearing prices such as the 22.5 GBP/kW in the latest T-4 auction
Duration of capacity market contracts is 1 year for existing
and up to 15 years for new assets.
27
Capacity market: Detailed description
Source: Apricum analysis; 1) Not refurbished; 2) Demand side response; 3) Exact definition: Settlement period in which “System Operator
Instigated Demand Control Event” lasts at least 15 continuous minutes; 4) Capacity Market Consultation dated July 24, 2017
Capacity market
Capacity auctions and contracts Obligations and options
0
10
20
30
40
50
60
20
17
20
18
20
19
20
20
20
21
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
Contracted market capacity by auction (in GW)
T-1 2017 (Early auction, “EA”) T-4 2014 T-4 2015 T-4 2016 TA 2017 (DSR2 only)
Only refurbished or new assets (contracts for >1 yr)
Energy storage systems expected to receive contracts for
lower capacity to take into account limited delivery duration.
Need for new generation capacity:
• Projected demand is higher than projected generation
capacity so that increasing tender volumes (in MW) are
expected to limit loss of load to three hours per year
• Larger tender volumes imply that a higher number of
new assets receives Capacity Market contracts. Since
bids by existing assets are capped, new assets set the
clearing price and are called “price-makers”. A larger
number of new assets is expected to raise the clearing
price which is then applied to all contracts
• Expected “de-rating” of energy storage capacities is
expected to lower corresponding revenues
28
Capacity market: Regulatory framework, drivers and outlook
Source: Apricum analysis; 1) Ofgem’s plans and response to change proposals from the industry dated March 23, 2017; 2) Capacity Market
Consultation dated July 24, 2017
Drivers and outlook
Note: Capacity market currently only acts as secondary
use case. Therefore, the declining market outlook
corresponds to a decreasing revenue stream and a lesser
extent to which the capacity market supports economic
feasibility of projects that apply benefit stacking
Capacity market
§ Regulatory framework
Recent changes and discussions:
• Ofgem has published its intentions for modifying the
Capacity Market regulations1:
• So far, if one charges a system during the two
settlement periods prior to a Capacity Market
Warning (i.e., in times of high electricity demand) and
even continues charging up to the System Stress
Event, then the stop of charging may generate
additional capacity market revenue (“over-delivery
payment” from a demand response perspective).
Ofgem plans to inhibit this unwanted effect.
• Listing EFR as “relevant balancing service”, thus
eliminating risks in case of benefit stacking
• Ofgem plans to “de-rate” energy storage systems,
counting only a share of the physical capacity to-wards
the Capacity Market contract depending on the
maximum delivery duration – consultation ongoing2
Significant changes in last 6 months (green positive, red negative)
Growing
market
Stable
market
Declining
market Outlook:
Overview Europe
UK
Overview UK
EFR
FFR
PV self-consumption
C&I grid fee reduction
Secondary use cases
Germany
Rest of Europe
Annex
29
Example contents of report.
(Complete set of slides for Germany and for relevant schemes
in selected other countries included in full report)
Overview Europe
UK
Overview UK
EFR
FFR
PV self-consumption
C&I grid fee reduction
Secondary use cases
Germany
Rest of Europe
Annex
30
Example contents of report.
Definition of symbols related to use case status and
outlook.
31
Meaning Prerequisites Comments
Status: Established
primary use case
Significant capacities (MW) of non-pilot
installations in place, under construction or
awarded in a tender and additional
installations likely to follow
Installations seen as indicator for economic
viability1 (or attractiveness for other reasons) and
sufficient regulatory frameworks
Status: Emerging
primary use case
Potentially economically viable2 and/or
suitable regulatory framework and/or good
prospects based on expected tenders and
market developments
High-level calculation of economic viability is
provided and non-economic factors like preference
for self-sufficiency are taken into account
Status: Primary use
case currently not
feasible
None of the above applies Use case not feasible as a primary use case3, but
may be feasible for benefit stacking
Outlook:
Growing market
Strong drivers in place for increasing annual
storage installations or improving above
“traffic light” status
Depending on current status, outlook refers to one
or more of the following:
• Increasing/decreasing annual installation
numbers or overall tender capacities
• Upcoming changes in economic viability or
regulatory frameworks
Outlook:
Stable market
Drivers indicate relatively stable annual
storage installations or status
Outlook:
Declining market
Drivers indicate declining annual storage
installations or downgrading of status
Significant changes in
last 6 months
Significant changes in last 6 months
1) Potentially in combination with other use cases; 2) Deep dive assessment needed; 3) Primary use case: Providing dominant share of
expected revenue
Get the actionable advice you need to make smart business
decisions in the European energy storage market.
The report answers these key questions:
• Which opportunities for energy storage
currently exist in Europe?
• How robust is the regulatory and
economic basis?
• How can I participate – or is it too late
anyway?
• Which other companies are involved and
in what way?
• Which opportunities are about to emerge?
• What is driving the overall demand?
• What are the related regulatory and
economic developments?
32
At a glance:
• Subscription based (min.12 month duration)
• Cost of EUR 7,500 per year
• Receive 2 x 100+ page reports per year
• Includes analyst inquiries – speak directly
with an Apricum expert to ask questions
about the reports
Apricum’s Energy Storage Briefing – summary
Your direct contact:
Florian Mayr
Partner, Head of Energy Storage
Apricum GmbH
Spittelmarkt 12 | 10117 Berlin | Germany
T. +49.30.308 77 62 - 0 | F. +49.30.308 77 62 - 25
www.apricum-group.com