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Chair of Energy Economics, Prof. Dr. Möst
Prof. Dr. Dominik Möst, Berlin, October 2014
www.ee2.biz
Economics of Energy StorageThe Role of Storage in
Energy System Flexibility
![Page 2: Economics of Energy Storage Dresden, Chair of Energy Economics, Prof. Dr. Möst 3 Storage applications – its the competition what matters … • Energy arbitrage • Ancillary services](https://reader031.vdocuments.site/reader031/viewer/2022011800/5ab0cb237f8b9abc2f8bdb51/html5/thumbnails/2.jpg)
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
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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!
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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
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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]
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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
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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
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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
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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
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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!
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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?
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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?
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TU Dresden, Chair of Energy Economics, Prof. Dr. Möst 15
-20
0
20
40
60
80
100
120
140
160
180
200
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
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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)
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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+)
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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?
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Fakultät für Wirtschaftswissenschaften, Lehrstuhl für Energiewirtschaft, Prof. Dr. Möst