What to expect from battery solutions deployment?

Renewable energies are spreading in Europe and in particular in Italy, where their importance is even more marked by the expected future coal phase-out and the strong commitment to reduce emissions.

Although renewable development is necessary and desirable, it brings with it a few problems of which the most important is the growing risks of inadequacy and interruption of the electricity supply due to a significant reduction in the programmable capacity available for the electricity system. Storage systems are the most suitable solutions and in this framework the batteries, in addition to long-lasting application of pumped hydro, are the main technological enablers thanks to their technical characteristics: TSOs, DSOs, energy producers and investment funds are increasing their activity in investment evaluation in a market that is expected to boom in the coming months. The batteries market is predicted to experience exponential growth worldwide in the electrochemical storage market, quantified at more than 1,200 GW in the next 20 years. Europe and the UK alone are expected to have some 5 GW of batteries installed in 2023. In this context, while waiting for the price curve of battery modules to continue decreasing at a pace of 6-7% in the coming years, the regulation to come at national and international level is fundamental.

A multi-disciplinary and multi-client study to analyze different points of view

Hence the idea to tackle the market with a multi-disciplinary team to address the issues relevant to batteries: market, regulatory, authorization/permitting, together with the development of business cases with the proper technical configurations. This was possible thanks to a great synergy at Fichtner Group level, in particular leveraging the know-how of head office in Stuttgart as well as the experience available across the Group thanks to a track record of more than 800 MW in BESS, and thanks to two expert firms participating in the study: Storage Solution Provider, a battery service provider located in Italy, and Legance, an international law firm very effective also in terms of permitting issues. The ability to cover a broad perimeter of analysis was a key factor in allowing us to set up a multi-client study that gained the interest of eight top tier participants in the Italian market under the umbrella of “Elettricità Futura”, the main association of the Italian electric sector, accounting for some 700 firms including manufacturers, distributors, wholesalers and service providers in the energy industry. An executive summary of the study has been distributed to all the associates. The discussions held during several workshops showed how useful it is in general to share different points of view coming from the stakeholders who joined the study. Knowledge sharing and agreement on assumptions has certainly been a distinctive element of the study itself.

What is the context of battery storage in Italy and what are the expected services?

One strong booster element in Italy is the new “Fast Reserve” concept established by Italian TSO ‘Terna’, similar to the one already existing in the UK that provides frequency regulation service in less than one second. The final regulation is expected in April 2020, and auctions will follow in the summertime. We are convinced that this opportunity will greatly support chances for investors to bid in the Italian market, also because, as anticipated in the preliminary text, the Fast Reserve service will be required only for 1,000 hours, leaving the possibility in all the remaining hours to use “revenue stacking” by adding more services. Some examples are “behind the meter” applications such as time shifting and curtailment reduction, but other services to be offered to the market have also been investigated, such as primary and secondary frequency control. The potential range of battery services is quite big, and the opportunity will become more and more effective in terms of battery price reduction and regulatory development, not only regarding market rules but also referring to specific provisions to allow a well-defined procedure for the permitting and authorization phase.

Potential range of battery services

What is the outcome so far?

The trickiness of this type of analysis is to define the proper set of assumptions, in particular in relation to market data and pricing issues. In this regard, the sharing experience within the whole team was fundamental. Through a benchmark of the best-in-class countries in the battery sector, it has been shown that the most regulated and accessible services were those relating to frequency regulation, while voltage regulation and black start services were still in an initial phase of application. With the assumptions made, the economic results proved that an adequate return on investment was only possible by adopting the Fast Reserve as a basic service to be combined with others, or at least with a longer contract period than the one identified by Terna, which at the moment is equal to 3-4 years. In the medium-long term, primary and secondary frequency regulation services are certainly most promising, but in Italy the appropriate regulation is in the development phase. Another important takeaway of the study is indeed that to stimulate the broadest interest among investors, it is fundamental that guideline rules on medium-term scenarios are available to allow a correct pros and cons evaluation of the opportunity. The project represents an instant overview of today’s possibilities but batteries are a constantly evolving topic, which needs continuous updates. Another demonstrative project dedicated to batteries will be launched in the coming months and open up further opportunities and investments.

Are the investors ready for the batteries business?

The focus toward batteries brought about by the Terna Fast Reserve service is a relevant factor of acceleration in a segment that sees the coexistence of a multitude of stakeholders: not only renewable players are the potential target for batteries investment, but also utilities and DSO operators could take advantage for stand-alone utilization and arbitrage services. Lastly, the investment funds are sure key investors due to the experience developed in wind and PV plants and the possibility to bring to a new market, like the Italian one, the capability and approach from an area where battery competition has already started, like Germany and the UK but also the USA, Australia and Canada. Very interesting experiences are already visible in Italy in the storage sector and much more are expected to come in the batteries application, and we will be ready to keep you informed on the evolution.

March 2020

Massimo Andreoni

Massimo Andreoni

Head of Management Consulting at Fichtner Italia s.r.l

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