Battery energy storage systems are becoming an increasingly important source of flexibility in the power system, both as an addition to PV systems in the form of co-located projects and as standalone utility-scale storage systems.
In this interview, Claus Urbanke, VP Wind, Solar and Storage Development, and Klaas Bauermann, Head of New Business, at Statkraft Germany discuss economically viable projects, new marketing opportunities, and the importance of battery storage for solar PPAs (power purchase agreements).
Claus Urbanke: We are definitely seeing a large number of hybrid projects. We developed, built, and commissioned one such project in Zerbst/Anhalt last year. It remains the largest project of its kind to have been realized under the EEG Innovation Tender, and it is performing very well. At the moment, however, we do not have any new PV hybrid projects in our German development pipeline. Our current focus is more on standalone battery storage systems that are operated independently of a generation asset at dedicated power plant sites in Germany.
Klaas Bauermann: At the same time, it is very clear from the discussions at “The smarter E Europe” and the large number of inquiries we receive that the combination of PV and battery storage is becoming the new normal for many developers. In particular, co-located projects can be implemented significantly faster than standalone projects, which often face challenges when it comes to grid connection. From a power marketing perspective, we are particularly interested in projects with clear framework conditions that can be connected to the grid in the near term – especially projects where the battery is not restricted to charging exclusively with electricity generated by the co-located renewable asset.
Claus Urbanke: From a power-system perspective, what we need above all is flexibility and storage. Initially, it is secondary whether a storage system is located directly next to a generation asset or connected to the grid independently. From a project perspective, however, combining PV and storage can make a great deal of sense. The system is not developing through centralized planning; rather, it is evolving from the bottom up.
Claus Urbanke: As with other energy projects, the location is the first key factor. The ideal conditions are a suitable site, an appropriate project size, low land costs, and, above all, a strong grid connection. Ideally, there should be firm import and export capacity and grid connection costs should be as low as possible. The latter can vary significantly from region to region, for example in terms of grid connection contributions. Another factor is that grid connection technology has become significantly more expensive in recent years.
That is precisely why existing power plant sites are so attractive. They already have available land, grid connections, and industrial infrastructure. We are currently planning and developing three large battery storage projects at our power plant sites in Landesbergen, Emden, and Knapsack, for example. These projects are designed as merchant storage systems outside the EEG support framework, with some reaching several hundred megawatts in capacity. The grid connection is already secured at these sites. However, even existing infrastructure may require additional investment. At Knapsack, for example, the availability of suitable land is a limiting factor.
Grid charges will also play a role going forward. With dynamic grid tariffs, the key question will be which grid region a storage system is connected to and whether the project can benefit from the tariff structure or ultimately incur additional costs.
Klaas Bauermann: I would emphasize one point in particular: for co-location projects, the grid connection is probably the single most important factor.
The economic viability of these projects depends heavily on whether grid connection capacity is available.
It is equally important from an economic perspective that a battery can not only feed electricity into the grid but also draw electricity from it. This allows the battery to charge from the grid when electricity prices are low and then sell that electricity at a later time when prices are higher. However, even a storage system that cannot do this can be operated profitably in combination with a PV system. These projects are now also being deployed at scale. The storage system's sizing and, above all, its power marketing strategy are also important. With battery storage in particular, these factors need to be considered together from the very beginning of the project.
Klaas Bauermann: Adding battery storage changes the entire power marketing concept. A PV system generates electricity when the sun is shining. When prices are negative, generation can be curtailed. If I add a battery and optimize the overall system, however, I can market that electricity at a different time. This optimization requires a power marketer with expertise in both markets: renewable power marketing and flexibility marketing.
Battery storage opens up new markets for electricity generated by the PV system that were previously inaccessible.
This applies in particular to the intraday market and, in many cases, balancing energy markets. PV alone does not offer the same degree of flexibility.
The sizing of the storage system also has a direct impact on profitability. You need to consider the appropriate ratio between the battery and the PV system. Take 10 MW of PV combined with a small battery with a capacity of 5 MWh, for example. Only a very small share of the solar generation can be stored and sold at a later time, so the economic benefit of the battery is correspondingly limited. The storage system therefore needs to be sized to match the intended power marketing strategy. Various models are possible, including hybrid PPAs and tolling agreements. Each project requires a detailed assessment.
Claus Urbanke: That is why the marketing and optimization of a storage system are significantly more complex than those of a conventional PV system. There are several revenue streams: optimization in the day-ahead market, continuous optimization in the intraday market, and participation in balancing energy markets. This needs to be factored into the investment decision from the outset. So the question is not simply: How large should the battery be? It is also: How will it ultimately be operated and marketed?
Klaas Bauermann: A very important one. We are currently seeing that conventional solar PPAs – that is, long-term power purchase agreements under which companies purchase solar electricity directly from a generator – are becoming more challenging. Many industrial off-takers have entered into PPAs for solar power over the past few years. They now face the problem that, for example, they may be taking electricity from their PPA during the midday hours even when wholesale market prices are negative at the same time. A battery can mitigate this problem. Solar electricity can be stored during low-price hours and made available later, when the sun is no longer shining and prices are higher. This changes the generation profile of the solar asset. For industrial off-takers, this can be attractive because they can continue to meet their sustainability targets while securing a long-term supply of electricity through a PPA.
In addition, we can offer storage as a standalone flexibility solution. An industrial company could, for example, replace the most expensive hours of the day with lower-cost hours and pay a fixed price for the service. In this case, the battery effectively acts as a hedge against price volatility. This makes the combination of PV and battery storage significantly more attractive for the PPA market again.
Klaas Bauermann: My short answer would be: I can deploy a battery storage system much faster than I can build major new grid infrastructure.
Claus Urbanke: But we clearly need both: grid expansion and storage deployment. In theory, storage systems are very well suited to supporting the power grid. However, they need the right incentives and price signals to do so. Under today's wholesale market design, most storage systems will not have a detrimental impact on the grid for most of the year. There are, however, situations in which their operation can exacerbate existing grid constraints, for example through certain charging and discharging patterns or very steep ramps. Regulation and market design therefore need to keep pace with the technology.
Claus Urbanke: The development of battery storage was not driven primarily by the power market. Instead, it has benefited enormously from advances in electric mobility. Batteries have become an industrially established technology within a very short period of time. Production has been scaled up significantly, particularly in Asia and especially in China, while costs have fallen at the same time. Utility-scale battery storage in the power market is now benefiting from these developments as well.
Klaas Bauermann: At Statkraft, we have very strong confidence in the market. Battery storage in particular is developing at a remarkable pace.
With battery storage, we have a technology that, for the first time in many years, is gaining traction without government subsidies.
This is a purely market-driven development, and it makes sense to integrate this technology into the power market.
Claus Urbanke: The storage market is exceptionally dynamic. Not long ago, solar energy was the major focus. Today, we almost have the impression that storage is at least equally prominent. We have added a great deal of renewable generation capacity in recent years. Now we need more flexibility in the power system. That is why we are currently seeing so many storage projects.
Regulatory conditions remain a key challenge, particularly with regard to grid charges. There is now greater planning certainty around capacity-based grid charges. Dynamic grid tariffs, by contrast, still involve considerable uncertainty. This is difficult for investment decisions because future costs are hard to assess.