Batteries with everything, please: the rise of colocation

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wind turbines and PV solar

By Gareth Dauley

The case for adding batteries to just about everything is growing. Recent research shows, for example, that hybridization could cut the capital expenditure and operating expenses of new renewables projects by between 10% and 15%, as well as opening up new revenue streams.

The report, by the Spanish renewable energy industry body APPA Renovables and the consulting company Everis, also notes that 41% of the wind and solar projects presented to the California Independent System Operator in 2019 had battery storage.

For those who understand the impact of growing renewable energy contributions to the grid, this should come as no surprise. After all, if you’re selling peanuts and you have a lot of them, would you try to sell them at the same time as everyone else is selling peanuts?

Or would you hang onto some of them until there’s a scarcity of peanuts in the market, and sell them when your peanuts could command a premium? The same logic applies to electricity pricing: the amount of money you get depends on supply and demand.

"...if you’re selling peanuts and you have a lot of them, would you try to sell them at the same time as everyone else is selling peanuts?"

Since solar and wind provide energy at zero marginal cost, adding them to the grid is a great way of reducing average electricity prices.

But as you start to saturate the grid with these intermittent renewables, the price of electricity tends towards zero and the return on your solar plant or wind farm drops.

So the smart thing to do is to deploy battery storage alongside your generation assets, and store some of the electricity you produce so you can sell it when demand goes up.

This strategy not only helps improve the profitability of the generation assets but also enhances the stability of the grid, since there is more likely to be energy in reserve for when demand outstrips supply.

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renewables
The smart thing to do is to deploy battery storage alongside your generation assets, and store some of the electricity you produce so you can sell it when demand goes up.

Batteries can of course be located anywhere on the grid, but the beauty of colocation is that it allows generation asset owners to capture additional value in their projects. Consider a solar farm that has a 100 MW grid connection, for instance.

By adding batteries to the system, you can install more than 100 MW of solar power and simply store the excess power that cannot be exported over the grid connection during the day. Then you can export that excess power at night when the grid connection would otherwise be unused.

Extending that thinking, you can even add new solar capacity that is purely dedicated to filling up batteries during the daytime, to sell the electricity at night.

This arrangement not only helps improve your return on investment in the grid connection but also potentially allows you to benefit from higher electricity pricing during evening demand peaks.

The value of colocation has led the analyst firm Frost & Sullivan to conclude that PV plus storage is one of the top opportunities for battery commercialization in 2021.

“Already a reality in the US, with further price declines for PV and batteries and upcoming regulations permitting hybrids in wholesale electricity markets, solar-plus-storage plants will be a major business opportunity for battery storage across the globe,” says the firm.

What is perhaps more surprising is that Frost & Sullivan also sees a growing opportunity for batteries to be collocated with legacy generation units. “Hybridization of thermal power plants, and even hydropower plants, with storage is an emerging and attractive niche,” it says.

“System integrators and OEMs [original equipment manufacturers] should assess this business opportunity to expand their project scopes and diversify businesses in line with energy transition trends.”

On reflection, it is not hard to see why it might make sense to tie battery storage to these legacy generation units.

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battery park

Although coal, gas and hydro plants are dispatchable and can be ramped up and down on demand, they are also increasingly affected by pricing fluctuations created by renewables on the grid.

Thus, for example, there may be little need for coal-fired generation during the daytime in Australia as the proportion of solar energy grows. Similarly, offshore wind capacity is already starting to crowd out other forms of generation in the UK.

Legacy thermal plants were not built to be switched on and off on a daily basis in response to varying levels of renewable generation. Their function is to provide constant, baseload power.

Their ability to ramp up and down is limited, and in the case of fossil-fuel plants a rapid change in output can exacerbate carbon emissions. So, what do you do with these plants when most demand is already being met by renewables?

Switching them down or off is not good for the plants or the environment. But there is an alternative: you can keep them running as they are and simply store the energy for later.

Colocation of batteries with legacy plants can help these units to run as efficiently as possible at all times, while making sure there is plenty of surplus power to tackle peaks in demand even at times of low renewable energy production.

This contributes to a more cost-effective, reliable and sustainable grid supply. The potential of adding batteries to legacy plants is so great that the US Idaho National Laboratory has even studied the possibility of hybridizing energy storage with America’s nuclear power plant (NPP) fleet.

“Energy storage technologies have the potential to provide a variety of benefits to power plants and the electric grid”

“Energy storage technologies have the potential to provide a variety of benefits to power plants and the electric grid,” concludes the study.

“In particular, energy storage technologies might be able to provide unique solutions for increasing the competitive nature of NPPs as changes to the generation mix and demand curves require more flexibility.”

What is evident is that battery storage has a growing role to play across all parts of the electricity system, including new renewable energy projects and the full range of legacy generation assets.

Based on this, it is hardly surprising that Frost & Sullivan expects the global grid battery storage market to grow to 135 GW in 2030, from 8 GW last year. If you haven’t thought about how to integrate storage into your project, then talk to us now. The impact certainly isn’t peanuts.