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Batteries – Are we deploying fast enough?

Many are bullish on grid-connected battery energy storage systems, trumpeting their importance for grid decarbonization. In their Net Zero Scenario, for example, the IEA estimates that 650 GW of grid scale battery storage will be needed by 2030 (more than a 20-fold increase). Based on Flextool’s experience integrating batteries into Nordic balancing markets, installations are not happening apace. In this article, we’ll unpack the reasons why and opportunities to accelerate deployment.   

Battery energy storage systems (BESS) are a hot topic. To achieve their global Net Zero Scenario, the International Energy Agency estimates that grid-connected BESS must scale over 20-fold by 2030. (1) BloombergNEF estimates that BESS will grow exponentially – from 9GW/17GWh deployed as of 2018 to 1,095GW/2,850GWh globally by 2040 – garnering an estimated $620 Billion in investment. (2)  

It may not be surprising then that there is a “gold rush” feeling in this market. In Europe, new players are flooding in response to falling hardware prices, volatile power markets, and rising demand for frequency services as more intermittent renewable generation comes online.  

Some new players are making bold claims: lightning-fast payback periods for grid-connected BESS with outstanding financial returns. Such claims are based, for example, on the recent high prices that asset owners received for participating in the Danish/Swedish FCR (balancing) market.  

What is the reality and what is hype?

What can asset owners expect in terms of simple payback and financial returns? Where do projects get stalled? What are the risks that these systems under perform?  

Based on Flextools’ experience working with flexibility markets and battery-grid integrations in the Nordics (3), it is not unusual for battery projects to be delayed by up to six months. We’ve also, unfortunately, seen instances where the projected returns did not materialize due to planning oversights. 

Unpacking deployment risks   

Let’s break down some of the key factors that can hinder deployment. We’ll organize the challenges and risks according to when they occur in the lifecycle: 

    • Project & site planning,  
    • Installation & pre-qualification, 
    • Operations & performance.

     

    Project and site planning

    If not well thought-through, the planning process can be fraught with potential delays and higher-than-anticipated costs. Some of the key factors include:

      • Supply chain delays. Many BESS are from China and delays of several weeks is not uncommon. This makes scheduling the installation trickier. 
      • Lack of installation experience: Few local electricians are familiar with newer BESS or the specialized control hardware necessary to integrate these systems in balancing markets.  
      • Grid connections: Assets must be approved for a grid connection by the local grid operator (DSO). This is a highly variable process. Some battery applications have taken up to 6 months to gain local approval. 
      • Stranded capacity: In some cases, the local transformer has insufficient capacity to deliver the full output of the battery system (e.g., if other generation resources are nearby). For the asset owner, the implication is that the battery could not deliver its full capacity to the market and the returns would be less than anticipated.  
      •  

      Pre-qualification & testing  

      To qualify for national balancing markets, TSOs mandate that assets go through pre-qualification i.e., a series of tests designed to determine adequate control and response to balancing events (as prescribed by market). Delays and other risks that arise in this phase are due to:   

      • Lack of information access: key information about the battery may not be readily available or control may be locked. There may be a delay in receiving an external signal, risking qualification for certain markets. 
      • TSO testing & approval: In Sweden, for example, the duration to receive a testing date and notification of qualification takes at least several weeks and can drag on for several months especially during the summer. 
      •  

      Operations & performance 

      Once a battery is approved and operating in the market, some asset owners face challenges with transparency and visibility related to bidding, asset performance, and revenue. These include: 

      • Opaque or sub-optimal bidding approach, 
      • Limited/no visibility of bidding process, prices, and volumes, 
      • Limited/no transparency of accepted bids and price levels, 
      • Minimal information on asset performance/health. 
      •  

      What’s next?

      There is enormous potential for grid-connected BESS to meet increasing demand for frequency and flexibility services in the Nordics and Europe. Just the other week, Svenska Kraftnät, the Swedish TSO, announced the need for an additional 45MW for the FCR-D (frequency) market.

      Given the number of stakeholders involved, project delays and risks are to be expected. The ramp up has just started.

       

      At Flextools, we aim to speed up deployment of flexible resources like BESS. Reach out to our experts with questions or a consultation. 

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