Market and regulatory barriers to electrical energy storage innovation

Abstract

Energy storage has been identified as a priority technology for innovation. However, the rapidly developing family of storage technologies will find it difficult, under the current regulatory regimes, to compete with conventional generators for the provision of electricity system services, and this is likely to impede innovation. This paper analyses and categorizes 16 investment barriers hindering the near-term deployment of energy storage technologies in electricity markets, which are related to four regulatory and public attitudes barriers.The most important regulatory barrier is the current classification of storage as a generation asset, despite it being unable to provide a positive net flow of electricity, which is used to justify double network usage charges. The merit order design of balancing and ancillary markets makes it difficult for storage technologies to recoup their relatively high capital cost, while capacity markets penalize their limited discharge duration. Network companies are in the best position to realize the system value of storage, but their ownership may only be acceptable if system operation is made independent of network operation.Current initiatives to address these issues include flexible connection agreements and the development of enhanced frequency response and aggregate fast reserve services. However, to remove the identified barriers, a market structure that valued the flexibility offered by storage, viewing it as complementing rather than competing with network and generation assets, would be required.

The Role of Domestic Integrated Battery Energy Storage Systems for Electricity Network Performance Enhancement

“…A recurring barrier to integration of domestic BESS and any sort of storage in general is the unclear or often non-existent definition for electricity storage in most electricity network system regulations [25,101]. Thus, storage units may be categorised as generation assets although not capable of generating a net flow of energy [110] making competition with conventional generation challenging. Additionally, as storage units are both loads and generators, owners are intended to pay twice for the connection charges [111].…”

“…For a full utilisation of the potential of domestic batteries, real-time information of the state of the network is required. The transmission or distribution network operators are the most likely to possess these information, still they are not allowed to own and operate storage systems by most regulations [110,111]. Reports such as [9,101] agree on the benefit that could be drawn by giving-careful, limited and regulated-freedom to network operators on the control of such assets.…”

“…According to Ugarte et al [111], the main challenge to the integration of batteries in the current context is economic. Capital costs are still high and discourage investors, making it difficult for the technology to compete with other better-established centralised generation solutions and conventional grid reinforcements [110]. It is interesting to note that the strictly speaking storage part "only" represents 30% to 40% of the total cost.…”

“…Moreover, the capital cost challenge would have a lower impact if more and more effective remuneration mechanisms [25] or pricing signals [111] were in place. Batteries have been traditionally used for arbitrage and more and more for renewable self-consumption increase [113], but according to Castagneto Gissey, Dodds and Radcliffe J [110], and Fitzgerald et al [9] and others, they could valuably participate in balancing and ancillary services markets thanks to their potential to provide (ultra) fast response. Regarding the Capacity Market, BESSs still struggle to be competitive, first due to the current requirement of 2 MW, therefore requiring the aggregation of enough assets.…”

“…Regarding the Capacity Market, BESSs still struggle to be competitive, first due to the current requirement of 2 MW, therefore requiring the aggregation of enough assets. More importantly, the mechanism setting no limit to the duration for which the output must be maintained, largely plays in favour fuel-based generation and against BESS [110].…”