The demand for energy is at an all-time high
Immense population growth and rising standards of living in developing countries are the key drivers of growth in energy demand. This has led to energy storage systems (ESS) playing a pivotal role in addressing the growing power demands.
A report titled “Grid-connected energy storage market tracker”, by IHS Markit, states that the global ESS market size was $1.5 billion in 2016 and is forecast to rise to $7 billion by 2025.
But this is not at all a cakewalk for the industry
While the ESS market is growing rapidly, a significant barrier to its growth is financing risk. ESS assets are built to last 10 years or longer; however, long-term performance data for grid-scale ESS does not exist. The median operating lifetime of grid-scale battery energy storage systems is about four years and nine months.
Major equipment vendors release new energy storage products every 12-18 months, which means that past performance may not be indicative of future results. In addition, many markets for ESS face uncertainties that make revenue forecasting a difficult task.
Battling revenue uncertainty
ESS solutions generally come with a usable lifetime of 10 or more years depending on the ESS technology and usage profile. But many of the crucial electricity market services that ESS offers are provided through short-term contracts.
ESS projects often drive revenue from auxiliary services and capacity markets, which do not offer long-term contracts in the majority of the cases. The procurement mechanism, as well as market value for these market services, transforms in unknown ways during the life of the ESS solution.
Encouraging renewable energy production
ESS also complement renewable energy sources such as solar and wind, which are witnessing significant traction in terms of deployment owing to the rising pollution levels, particularly in developing economies like India and China.
Typically, energy storage deployment follows the deployment of renewable resources like wind and solar. The reason is that energy storage is used to solve some of the grid issues that wind and solar create. These issues include grid frequency stability as well as temporal mismatch between energy production and energy consumption.
Evolution of hybrid systems
The ESS segment is also witnessing the evolution of hybrid systems that combine solar with ESS storage systems and also other generation resources.
With solar + ESS projects, many islands and remote grids are looking at solar PV and energy storage to help offset the high fuel charges. Solar + ESS can deliver evening energy at lower rates than diesel generation. ESS is also being deployed to increase the output from existing generation assets.
How can we future-proof energy storage?
To develop future-proof energy storage systems, storage developers should harness technology and project engineering tailored specifically for flexibility. Future-proofing also demands commercial agreements as well as analytical expertise to enhance the operational value of energy storage.
ESS projects can be future-proofed by installing a flexible controls architecture, planning battery capacity augmentation, and tracking the ongoing operation with a flexible warranty. We see flexibility as the number one factor. Battery storage can be scaled up in a building-block fashion, but a lot of money can be saved in future expansions if the design for capacity expansion is prepared initially.
While battery designs are changing rapidly, engineering design to ensure future flexibility is tricky.
Future-proofing a system is important for maximising revenue. It is valuable for an ESS operator as it increases the rate of return, which includes revenue and cost.
The way to future-proof a system is by building flexibility into the design. There are systems for which our customers do not have long-term contracts with their off-takers. By future-proofing an energy storage investment, we enable our customers to maximise their rate of return, regardless of the underlying market conditions.
While the factors associated with revenue generation vary from region to region by a great margin, ensuring maximum scalability for streamlined revenue generation is a strategy backed by a large segment in the industry.