Electricity storage systems are currently popular investment objects. But for the energy transition, we need a lot more of them and, above all, we need them fast. In this interview, consultant and industry expert Hans Urban provides an insight into the German electricity and storage market.
Electrical engineer and energy technology expert Hans Urban has been working in the solar industry for more than 20 years. He has been a free-lance consultant for photovoltaics, storage systems and electromobility since 2016 and is a long-standing member of PV Magazine’s and The smarter E’s panels of judges, amongst other things. When it comes to large-scale storage systems, he works closely with ECO STOR GmbH from Kirchheim near Munich. ECO STOR GmbH commissioned five grid-serving large-scale storage system projects with a capacity in the two-digit megawatt hour-range in Germany in 2022 alone.
How many storage systems are there at the moment and how many are at the planning or construction stages in Germany and in Europe?
This is difficult to say. Potential buyers don’t necessarily shout their interest from the roof tops. They usually try to secure properties and grid connections and to maintain a favorable negotiating position. If I were to guess, though, I would say that around 30 to 40 projects are currently in the planning stage. And I would say that in Germany alone, grid-serving large-scale storage systems with a total capacity of around 500 MWh went into operation in 2022.
What capacity should we expect for the next few years?
The answer depends on which area of application we are talking about. We have recently taken some storage systems for primary control reserve into operation, but it’s a limited market. The prices have dropped a little because the rather small market size for balancing power prevents further growth. The storage systems mentioned have a capacity of between one and ten megawatt hours. Add to this the “grid charges saved”, which the money storage system operators receive for feeding power into the grid during peak load. These savings provided another incentive for building storage systems with a maximum capacity of between one and ten megawatt hours. And then there are storage systems that are subject to innovation tenders. Such innovation tenders are for combinations of storage systems with PV installations to be constructed near a grid connection point, and they generally have a capacity of one to five megawatt hours, ten at a push.
More recently built storage systems often provide several tens of megawatt hours, or even more than a hundred. There are plans for building projects with a three-digit number of megawatts. This is unheard of. It really shows that grid storage systems are now moving up to the next level in size – and we need that.
I expect that from 2023, projects with capacities of around 1 GWh will become more frequent. This dynamic industry has started developing, financing, building and operating industrial-scale projects.
What we have done so far is just making a small dent in grid safety and the buffers filled by power from PV installation or wind energy, rather than long-term storage. These new, large projects are making longer and longer storage times possible.
How are these new storage systems financed?
The “grid charges saved” have been scrapped. But the price of electricity has risen and there is more volatility, so that it now makes financial sense to use intraday marketing for storage systems. The new storage systems are financed by intraday marketing and a little primary control reserve alone. After all, they are able to provide energy at extremely short notice.
Will the addition of new storage systems make further grid expansion (partly or completely) unnecessary?
Certainly not. Each and every storage system makes for grid relief. The more storage systems there are, the less will we need to expand existing grids. But this does not mean that building new storage systems does away with the need for new power lines, for instance for transporting wind energy from the North to the South of Germany. We will still need those power lines, at least some of them.
Who invests in storage systems today?
Most of our investors are funds, many of which are owned by private players, and most of whom are familiar with the industry. Often, these are people who have previously invested in photovoltaics, and are now turning to investing small amounts into storage systems.
However, there are some misunderstandings. Some believe that storage systems will make a profit as soon as they have been set up, as long as energy is procured to be sold again later. But that is short-sighted. The only way to make a profit at the moment is through short-term intraday trade. But the money invested here comes from private sources, it drives the energy transition and storage times are becoming longer. And the market is booming. The growing share of renewable energies in the power grid lead to more fluctuations, which means that the demand for storage systems is rising.
How do storage systems have to be operated to be profitable for intraday trade?
This certainly isn’t a manual process. It is managed by software which needs to know how much capacity the storage system in question has, as well as how much electricity is available how quickly. Another important aspect is that storage system that work as primary control reserves run one cycle per day, approximately. Storage system used for intraday trade may run ten cycles per day; this depends on their capacity and their output. Too many cycles lead to ageing, however, so it is not just a question of price fluctuations and the number of cycles: The software has to take into consideration the degradation of the storage system and then calculate the adequate price for a particular number of cycles. Otherwise, the operation is not profitable. The ideal number of cycles is currently around two. Compared with an e-car or a residential storage system, this is a lot.
How many storage systems will we need for 100% renewables?
There are various studies based on different starting scenarios. I once calculated my own model for a presentation and came to the conclusion that it would take 300 to 500 times more battery storage systems than we have today. In total, we would need 150 gigawatts for two hours, which equates to a capacity of around 300 gigawatt hours. Add to this gas storage tanks with a similar output, but a much higher capacity of around 270 terrawatt hours for long-term storage.
Two examples can illustrate the feasibility of this: If all of Germany’s 47 million passenger cars were electric and we had a storage capacity of 6.4 kWh for grid stabilization (this is roughly 10% of useable batteries), we would already have arrived at a battery capacity of 300 gigawatt hours. Or, we would already be there if all of Germany’s 41.5 million households had a 7.2 kWh battery storage system each and if these were able to contribute to the stability of the grid. As a matter of fact I believe that some interconnected small storage systems will be used in the future. This does not mean that they can replace a certain number of large-scale storage systems that are able to release power within milliseconds, which allows them to support the grid much more dynamically than small, distributed storage systems in houses and cars.
Which technologies are the most prevalent in large-scale storage systems?
In general, lithium-ion batteries are still the technology of choice, although there is a trend towards lithium-iron-phosphate. Lithium-iron-phosphate batteries are a little more heavy-going than the more usual nickel manganese cobalt batteries, which are often used today. What’s more, it makes sense to avoid using cobalt and nickel, both of which are becoming scarce. Also, they are often a little less expensive and the cycling stability is superior. Their flat characteristic curve is a disadvantage, however, because cells with a different charging state cannot easily be distinguished. This makes the synchronous operation of the battery management system a little more difficult. The next leap forward in battery technology could be when lithium is replaced by sodium. Lithium is expensive and difficult to come by. We are already seeing some large-scale sodium batteries by CATL. Sodium is widely available, which should help to reduce battery prices by another big step.
Construction times of two years are deemed fast. In view of the ongoing energy crisis, many would like to see battery storage systems to be built faster. What’s the holdup?
It could all be much faster. Putting a battery somewhere is the least of the problems. The reasons for delay are the same reasons that cause delays in conventional energy technology, such as delivery delays for transformers and substations, or waiting for permits. First of all, you need to buy or lease a property, then wait for all the necessary permits. Bureaucracy is the biggest obstacle for the expansion of storage systems. However, for storage systems these obstacles are not quite as high as they are for power lines, where hundreds of thousands of people are affected, which often leads to public resistance. Storage systems are usually built on some unsightly plot right next to a transformer station where they don’t bother anyone. Using today’s technology we could build up a storage capacity of around 250 MWh on an area of just one hectare. That’s an advantage. If we just had to set up the hardware, we could be much quicker. However, the delivery times for transformers are currently more than one year.
The EU Commission and the Federal Ministry for Economic Affairs and Climate Action want to work on reducing bureaucratic hurdles. Where should they start?
Well, grid operators charge construction cost subsidies for the construction of storage systems, the extent of which makes many projects unattractive to investors and therefore doomed to fail. This construction cost subsidy, which is actually intended for consumers who need a more powerful grid connection if the demand goes up, does not make any sense for the construction of storage systems. After all, the way that storage systems are operated means that they take load off the grid rather than add to it.
Another obstacle is the current process for obtaining a construction permit, in particular the fact that storage system require a construction permit. Storage systems are built right next to transformer stations, and those are always located outdoors and should therefore be exempt from requiring a construction permit. However, they are not, and as a result the process for obtaining a permit takes a long time. The only exception would be classification as an important infrastructure project, which would earmark the project as “privileged”.
The third obstacle I would like to mention is that local authorities don’t have the right to charge storage system operators trade tax. Local authorities are involved in granting construction permits, and if they had the incentive of a trade tax income, this would give them an incentive to speed up the process. Anyone who has ever tried to win over a municipal council for a large project will know that often, decisions are affected by “soft factors”. So if the tax income from a large project could go towards a new kindergarten, for example, this would help convince people more than the “necessities of the energy transition”, which are a very abstract concept for many. Even though of course the energy transition is of existential importance for the future of our children.