The 2020 European financial services outlook
For all financial services practitioners, 2020 will be a year of dynamic developments.
2016 was the year when energy storage came of age globally. Cost reductions, particularly in lithium-ion batteries, together with an emerging ambition by governments and regulators to design flexible, resilient future electricity systems, drove storage towards the mainstream. The year was also characterised by new partnerships, mergers and acquisitions as utilities, oil majors and the automotive industry developed their storage strategy. Our global Energy team reflects on some of the highlights:
|Simon Currie, Global Head of Energy (Sydney, Australia): In 2016 we closed the first hybrid grid-connected solar/storage project - the Lakeland project in the far north of Queensland, Australia. The Pacific region is likely to be one of the markets which is an early adopter of storage technology due to the combination of thousands of islands and low population density - especially in Australia. There are already dozens of microgrids across Australia. At this stage it is all about sharing the learnings from each project with our global teams and other stakeholders.|
|Jeremy Hushon, Partner (Washington DC, USA): Energy storage will be key to helping the nations of Latin America achieve higher penetrations of renewable energy. For Costa Rica, with rich hydro resources capable of delivering 100% of the country’s power needs during certain seasons, storage could offer an opportunity for the country to achieve secure year-round reliance on renewables. Already, businesses are pursuing the benefits of commercial storage solutions. Demand Energy recently announced the commissioning of a battery storage and solar PV installation to be attached to a medical manufacturing plant in Costa Rica which will allow the plant to undertake power-sensitive manufacturing without systemic outage risk.|
|Rob Marsh, Partner (London, UK): In the UK, we saw grid-scale storage emerge as a big winner in both the Enhanced Frequency Response and Capacity Market auctions, as well as the first co-located storage projects being developed alongside existing solar PV schemes. The UK government, in its proposals for an Industrial Strategy, is considering how to become a global leader in battery technology. In 2017, we expect to see proposals for the removal of regulatory barriers to storage once the conclusions of the UK government’s call for evidence on a Smart, Flexible Energy System are published in the Spring. It promises to be an exciting year.|
|Matthijs van Leeuwen, Of Counsel (Amsterdam, the Netherlands): Last year we saw a significant focus on new energy technologies that enable an accelerated integration of renewable energy sources. For the EU, this resulted in the proposed Winter Package, a comprehensive legislative package that should facilitate energy storage for households and at grid-scale. New energy storage related business models, contract structures and cross-sector initiatives in the EU that are currently being piloted should benefit from the reforms. 2017 will be a fascinating year and we look forward to further shaping ‘enabling’ regulation through our EU-wide participation in regulatory reform and pilot projects.|
The partnership between Hydrostor Inc. and AECOM will develop, market and construct projects using Hydrostor's Adiabatic Compressed Air Energy Storage technology (which uses underwater air cavities or underground geological formations) by offering complete turnkey and warranted energy storage projects into the growing energy storage market.
Samsung’s energy storage facility is developing the next-generation of electrical vehicle battery with fast charging capabilities, greater range and a lightweight body. The batteries are intended to go on sale in 2021, which, could make Samsung the leader in electric vehicle battery market.
The U.S. Army have been developing a liquid battery that could store an unlimited amount of energy. The vanadium redox flow battery uses a vanadium electrolyte in a cell to store electricity through a reaction that is one hundred per cent reversible, meaning there is no degradation. The current costs per kilowatt-hour are extremely high, but are expected to fall as the technology develops.
Enel has bought software company Demand Energy, a leader in the New York City power storage market. Enel, which works in more than 30 countries, plans to use the software developed by the U.S. firm in its network business around the world.
In October 2016, construction of the Kathu solar project began. The project is a parabolic trough concentrated solar power plant to be equipped with a molten salt storage system capable of 4.5 hours of operational capacity that is being developed by a consortium led by ENGIE.
TrinaBEST has been awarded a contract to design and construct a hybrid energy storage system in Noukchoutt, Mauritania. The plant will comprise a 40kW solar system, a 415 kVA diesel generation system and a 320kWh energy storage system, and will be one of the largest microgrid storage projects in Mauritania.
Carnegie Wave Energy has secured further debt financing of its Garden Island microgrid project which will comprise of a 2MW/0.50MWh battery storage system and a 2MW solar PV system with Carnegie’s wave energy technology. This will be the first time that wave energy will be combined with solar and batteries in a microgrid configuration.
Narada Power Source Co. Ltd completed the design and construction of the first phase of a commercial energy storage system of 1.5MW/12MWh capacity. By the end of 2016 Narada had already completed and contracted 800MWh of energy storage systems, and is now working on the world’s largest system for an industrial park in China with total capacity of 15MW/120MWh.
ARENA will back the Kennedy Energy Park project with $18 million in “recoupable” grants to help fund the first stage of the project. The Kennedy Energy Park will be the first Australian project to combine solar and wind alongside battery storage. The first stage will comprise 19.2MW of solar PV, 21.6MW of wind and 2MW/4MWh of battery storage, and over time, the project may expand to 600MW of solar PV and 600MW of wind energy, and more battery storage - enough to meet one fifth of Australia’s renewable energy target.
India’s first grid-scale solar-plus-storage tender from Solar Energy Corporation of India (SECI) has received very strong interest with a total of 13 developers bidding. The tender called for 5MW/2.5MWh battery energy storage systems to be added to two separate solar projects of 50MW each in the Kadapa Solar Park. SECI is also due to carry out a similar tender for 150-200MW of solar-plus-storage in Karnataka.
An energy storage project, developed by Camborne Energy using Tesla Powerpack batteries, was opened by Baroness Neville-Rolfe on 7 December 2016 in Somerset, UK. The grid scale installation is the first co-located site in the UK, being co-located with a solar farm, and also the first significant installation of Tesla Powerpack batteries in Europe.
In December’s capacity market auction, Centrica won over 500MW of new capacity on 15 year agreements. One of the agreements was for a 49MW battery storage facility in Cumbria, UK – one of the world’s largest energy storage facilities. Construction of the plant is expected to commence in March 2017 by Younicos.
Under an exclusive licensing agreement, Dynexus Technology will commercialise the Idaho National Laboratory’s technology to aid in analysing and forecasting the health, ageing and safety of batteries. The technology could help find uses for electric vehicle batteries once they are too old and no longer capable of use in electric cars.
On 4 January 2017, Tesla Motors announced that it had started to mass produce lithium-ion battery cells in its “Gigafactory”. Tesla plans to begin production of cells for its eagerly awaited ‘electric car for the masses’, the Model 3, in the second quarter of 2017, working towards the factory’s planned annual battery production capacity of 35GWh which is expected to be achieved in 2018.
GTM lists companies that launched their first US energy storage product or created a new business to serve the US energy storage market in 2016. It includes, amongst others, Caterpillar, Borego Solar and Mercedez.
Demand Energy and Rio Grande Renewables, a pioneer in developing and financing microgrids in Latin America, announced that the two companies have commissioned a battery storage-plus-solar-PV microgrid at a medical manufacturing plant in Costa Rica.
The International Finance Corporation (IFC) and the Energy Sector Management Assistance Program have published a report which provides an overview of energy storage developments in emerging markets. The report discusses the services that energy storage systems (ESSs) can provide, as well as the key trends and barriers in emerging markets. Although most activity in the energy storage market has centred on developed economies with favourable regulatory frameworks, energy storage deployments in emerging markets are expected to grow over 40% annually in the coming decade. The report concludes that perhaps the most important factor in a successful energy storage market is the availability of low-cost financing. To unlock low-cost financing, the report finds that it is important to utilize technology from reputable and established vendors that can offer warranties and performance guarantees on their products, to rely on experienced and capable system integrators and for industry participants to educate relevant stakeholders on the benefits of energy storage. These factors can reduce the perceived investment risk, and greatly increase interest and trust in energy storage as a beneficial technology for emerging markets, reducing the cost to finance and develop such projects.
13 global industry leaders join together in promoting hydrogen to help meet climate goals and calling on governments to support the hydrogen ecosystem. Members of the ‘Hydrogen Council’ confirmed their ambition to accelerate their significant investment in the development and commercialization of the hydrogen and fuel cell sectors. These investments currently amount to an estimated total value of €1.4 billion per year. This acceleration will be possible if the key stakeholders increase their backing of hydrogen as part of the future energy mix with appropriate policies and supporting schemes.
Researchers at the Massachusetts Institute of Technology identify storage as being amongst the distributed energy resources which will create new options for the future of energy consumption. The study looks at the evolution of the utility business model and is aimed as a fact-based guide to policy makers, regulators and energy companies. For further commentary, see How regulations and technology brought us closer to Utility 2.0 in 2016
As the incentives of household solar panels decline in Australia, homeowners are increasingly looking to energy storage to capture excess energy for themselves. In response, the Australia Greens Party have proposed a policy to offer tax credits and grants (backed by ARENA) to assist with the cost of solar energy storage systems.
ARENA have backed a new trial by the Institute for Sustainable Futures, to test how small inverters can be used in conjunction with rooftop solar and home energy storage to improve stability and reliability in the Australian electricity supply. ARENA is providing $1.87 million in funding for the trial.
A 4.6-megawatt (MW) hybrid micro-grid project, using solar PV and advanced lithium-ion batteries, that will provide renewable energy access to over 16,000 people, was amongst the projects awarded funding in the fourth round of funding by IRENA and ADFD. The project will eliminate fossil fuel based generation on three outer islands and reduce it by more than a third on a fourth island.
For the first time, energy storage is proposed to be taken into account in the updated EU regulatory package. The draft electricity directive includes a definition of energy storage, which may support the emergence of a new asset class and encourages system operators to integrate storage into the European energy landscape in a non-discriminatory fashion. The proposals will need to be accepted or amended by national governments before they can proceed towards implementation.
The European Association for Storage of Energy (EASE) and the Joint Programme on Energy Storage under the European Energy Research Alliance (EERA) have collaborated to draft an updated Energy Storage Technology Development Roadmap. The Roadmap will be the subject of consultation (closing 17 February 2017). It includes a detailed analysis of different storage technologies, their level of maturity and the specific challenges they face, as well as market design recommendations for policy-makers.
Entso-E (the European network of transmission system operators for electricity) has launched a public consultation on “Frequency Containment Reserve cooperation” potential market design evolutions. In this consultation stakeholders were asked about several potential changes to the reserve control market design. E-storage providers, utilities and investors will be interested in the outcome of the consultation and any resulting regulatory changes, which are expected to influence business models for various kinds of storage systems.
The latest UK capacity market auction was a huge success for energy storage, with 500MW of new storage projects being procured in the auction. Only two large new gas plants were successful in the 52.4GW of power guaranteed for delivery in 2020-21 procured in the auction.
The UK Government’s proposals for an Industrial Strategy contained strong support for energy storage, including up to £9 million to be spent on a competition to reduce the cost of energy storage, including electricity, thermal, and power-to-gas storage and up to £600,000 for feasibility studies for projects that can store energy on a large scale, for use when it is needed.
Germany removes regulatory barrier to storage (email here for details)
E-storage systems in Germany were previously faced with regulatory uncertainty in respect of the taxes and charges which might be applied to either electricity imports into the storage system, exports from the storage system or even double-charged on both charge and discharge. The revised German Renewables Act (EEG) which became effective in January 2017 has now brought a substantial improvement regarding the regulation of e-storage systems. New section 61k EEG ensures that electricity which is temporarily stored in a physical or mechanical storage system will not be subject to the EEG surcharge, provided that the electricity is charged with the EEG surcharge when it is exported onto the public grid. Even if the electricity is used for self-consumption, there is relief of the EEG-surcharge to the extent the self-consumption does not exceed 500 kWh. This regulatory change now supports several business models for storage systems which are based on a multi-use approach such as the combination of reserve control electricity and self-consumption.
To open wholesale markets to energy storage, the Federal Energy Regulatory Commission (FERC) is proposing to amend its regulations “to remove barriers to the participation of electric storage resources and distributed energy resource aggregations in the capacity, energy, and ancillary service markets”.
It is unclear what Trump thinks about energy storage. Even under Obama, noting his efforts to expand clean energy and reduce greenhouse gas emissions, federal energy storage policy had not crystallised. It is expected that the cities and states that have largely driven the expansion of distributed energy resources through strong policy and regulatory action will continue to do so. However, the industry would be remiss if it did not seek greater representation in the policy agenda of an incoming administration.
For all financial services practitioners, 2020 will be a year of dynamic developments.
In the 1990s and 2000s, as everything from banking to buying books moved online, “brick and mortar” businesses were suddenly required to have an online presence and to design new business processes to accommodate the new online world.