economics of energy storage dresden, chair of energy economics, prof. dr. möst 3 storage...
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Chair of Energy Economics, Prof. Dr. Möst
Prof. Dr. Dominik Möst, Berlin, October 2014
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Economics of Energy StorageThe Role of Storage in
Energy System Flexibility
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 3
Storage applications –its the competition what matters …
• Energy arbitrage
• Ancillary services
• Avoidance of renewable curtailment
• Generation, transmission & distribution grid deferral
• End user application
• Managing energy costs and RE-feed-in (also P2H)
• Emergency application
• Electric Mobility
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 4
Agenda for today …
How to determine the economic need of
additional storage power plants?
1. From a system perspective
• Which technologies are required in the future?
(also depends on the assumptions made)
• What need for energy storages, especially electricity storage exists?
Use of energy system models or bottom-up electricity market model!
2. From a market based view
• Is the power plant economic at todays market prices?
• What is my expectation about future market prices?
• How will the market look like and where are which incentives?
Expectation about price developments and use a model optimizing the
plant dispach at exogenous prices!
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 5
Simple peak load model
Technology 1
(Peaker) Technology 2Technology 3
(Base-load)
Time [h]
Costs
[€/MW]
P inst, 3
P inst 2
Load duration curve
[MW]
Time [h]
P inst, 1
t1 t2 t3
Cvar1*t1
Cvar2*t2
Cvar3*t3
Cfix1
Cfix2
Cfix3
But where can a storage plant
be sorted in?
• Is a storage plant investment
cheaper than a gas turbine?
No!
• Is a storage plant operation
cheaper than a gas turbine?
Yes!
• Storage power plant makes
arbitrage between low base-
load and high peak load prices
• What will change in the future?
8760 h
Storage plant ?
CST
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 6
What is the residual load curve and how do renewable sources affect
the residual load curve?
Residual load = Demand – Renewable feed-in
… has to be satisfied by flexible (in general conventional capacities)
How will residual load changein 2020 / 2030 due to RES-E?
• Peak: nearly no change
• Off-peak: increasing amount ofhours with surplus energy
Load duration curve[MW]
Time [h]
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 7
System perspective
Adaptation of „optimal“ capacity?
Technology 1
Technology 2Technology 3
Time [h]
Costs
[€/MW]
P inst, 3
P inst 2
Load duration curve
[MW]
Time [h]
P inst, 1
t1 t2 t3
Cvar1*t1
Cvar2*t2
Cvar3*t3
Cfix1
Cfix2
Cfix3
Necessary generation portfolio –
what will change?
• Reduction of base-load and
mid-load
• Increase of peak-load
• Increase of storage power
plants
What to do with the surplus?
• Store
Decreases variable production
costs (as surplus will probably
be „cheap“)
• Export
• Demand Side Management (Smart Market)
• Curtail surplus8760 h
Storage plant ?
CST
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 8
The integration of renewable energy sources (RES) significantly influences the
residual load:
Number of hours with negative residual load rises
Surplus of RES feed-in increase
Level of maximal negative residual load grows
What to do with the surplus?
• Store, export or curtail?
„Real“ data for Germany:
Hours with surplus renewable feed-in will increase
-70
-50
-30
-10
10
30
50
70
90
GW
w/o RES feed-in with RES feed-in
-70
-50
-30
-10
10
30
50
70
90
GW
w/o RES feed-in with RES feed-in
German load duration curve in 2010 German load duration curve in 2030
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 9
Electricity system model ELTRAMOD to analyse the interdependence
between storage need, grid extension and renewable curtailment
Model purpose
• Fundamental system analysis
• Integration of renewable energy sources (RES)
in the European electricity market
• Flow calculation based on Net Transfer Capacity (NTC)
• Trade-off between grid and storage extensions
• Optimal dispatch of power plant capacity
Main characteristics
• Bottom-up electricity market model
• Temporal resolution of 8760 hours
• Calculation of the cost-minimal generation dispatch and investments in additional
transmission lines and storage facilities
• Country specific times series of wind and PV feed- in
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 11
Removing the feed-in obligation and its impact on grid and storage
extension
Also for keeping up obligation feed-in a RES surplus supply will occur
The shifting to curtailment schemes has got a low impact no integrated RES generation
=> However: significant difference for grid and storage extensions settings
Central statement:
From the economic point of view it is not optimal to integrate every available unit of RES.
RES should be demanded for system stability and further market integration.
=> Mid term perspective: grid extension and stronger market integration, then storage…
feed-in obligation curtailment
Non integrated RES surplus supply withoutgrid and storage extensions
10.2% 11.9%
Non integrated RES surplus supply with gridand storage extensions
0.9% 3.7%
Additional transmission capacities up to 2050 (NTC)
252.2 GW 143 GW
Additional storage capacities up to 2050 35.7 GW 7.9 GW
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 12
Impact of RES-E share and CO2-prices
Share of RES-E generation
• Mid-term (< 40%): Nearly no change in storage demand
• Long-term (>60%):
Increase of storage demand, but still moderate
• Long-long-term (>85-90%)
Significant increase of storage demand!
Cost of CO2
• Low CO2-price (<15 €/t): Good for storage power plant (cheap base-load)
• High CO2-prices (>40 €/t): Amount of storage at 50% RES-E at about
todays storage level
=> Storage need is quite sensitive to RES-E share and CO2 costs, but
unfortunately in a cotradicting way!
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 13
How to determine the economic need of
additional storage power plants?
1. From a system perspective
• Which technologies are required in the future?
(also depends on the assumptions made)
• What need for energy storages, especially electricity storage exists?
Use of energy system models or bottom-up electricity market model!
2. From a market based view
• Is the power plant economic at todays market prices?
• What is my expectation about future market prices?
• How will the market look like and where are which incentives?
Expectation about price developments?
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 14
Decentral storage options /
End user applications
• Manage energy costs
(= arbitrage)
• In Germany:
Arbitrage possible between approx.
200 €/MWh and 300 €/MWh
Use for own consumption
and save 30 Cent/kWh vs.
feed-in (10 Cent/kWh) => 200 €/MWh
or even loose it => 300 €/MWh
Possibilities to commercialize storage capacities
Central electricity storage options
• Arbitrage
Decreasing price differences
(< 60 €/MWh)
• Ancillary services
Offer capacity
Decentral storage options have about 5 times higher incentives
• but strongly dependend on regulation (grid fees, feed-in tarif, market rules, …)
• Decentral option: strong drivers will lead to market uptake …
• Central option: how will energy prices differences develop?
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 15
-20
0
20
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60
80
100
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1 1001 2001 3001 4001 5001 6001 7001 8001
Stro
mp
reis
e [
€/M
Wh
]
2002
2003
2004
2005
2006
2007
2008
2009
Development of electricity prices and price gap
between peak and off-peak prices
2002
2003
2004
2005 2006
2007
2008
2009
Price duration curve 2002-2009
Zeit [h]
0
20
40
60
80
100
120
140
2002 2003 2004 2005 2006 2007 2008 2009[E
uro
/MW
h]
Durchschnittspreis1000-teuersten h
Durchschnittspreis1300-günstigsten h
Standard-abweichung
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 16
System perspective
Adaptation of „optimal“ capacity?
Technology 1
Technology 2Technology 3
Time [h]
Costs
[€/MW]
P inst, 3
P inst 2
Load duration curve
[MW]
Time [h]
P inst, 1
t1 t2 t3
Cvar1*t1
Cvar2*t2
Cvar3*t3
Cfix1
Cfix2
Cfix3
Extension of renewables
• merit-order effect of renewables
• Pressure on prices, but
„correct“ price signal
• market not in equilibrium
state and overcapacities
are not earning sufficient
money
phase-out of base and mid load
Policy interventions and
introduction of
capacity markets?
8760 h
Capacity phase-out
Surplus
for free?
Higher amount of peaker,
but up to now no price signal
(=overcapacities)
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 17
Base load units (lignite, coal)
Transition to renewables:
The merit-order effect of renewables (long-term effect)
(without introduction of capacity markets)
Euro
/MW
h
hIn a long-term view, the merit order effect of RES will change the price
duration curve and with it the generation portfolio.
=> Base-peak-spread will increase in the mid to long-term
Peak load units (gas, oil)
Peak price will increase
Base load under pressure(up to you have to pay for
“waste disposal”)
Current prices (under pressure)• RES-E extension underestimated
• Demand overestimated
Past (2006 – 2010)
Today (2011-2020)
Future (2025+)
TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 18
Conclusion
Storage demand is in the short-/mid-term (often) overestimated, while effort
for necessary grid extension is underestimated
Storage demand depends on RES-E share, but also on other developments,
such as CO2-price (unfortunately in contradiction)
In the long-term: storage demand will increase,
especially with RES-E shares > 60%
From load orientation towards RES-E orientation:
market prices under pressure (and this will be the case in the next years)
Role of Europe vs. national strategies?
Fakultät für Wirtschaftswissenschaften, Lehrstuhl für Energiewirtschaft, Prof. Dr. Möst