Energy storage systems: prospects for Ukraine
Since the end of 2019, there have been a number of meetings to discuss the need for rapid development of energy storage capacity in Ukraine. What is meant by energy storage and what business opportunities are offered by such projects?
Energy storage means , in the electricity system, deferring the final use of electricity to a moment later than when it was generated, or the conversion of electrical energy into a form of energy which can be stored, the storing of such energy, and the subsequent reconversion of such energy into electrical energy or use as another energy carrier (in accordance with Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU). Effectively, energy storage facility means a facility where energy storage occurs.
At the present time, various energy storage technologies are available, in particular:
1. solid-state batteries ̶ a number of electrochemical storage devices, including up-to-date chemical batteries and capacitors;
2. flow batteries – batteries, in which energy is accumulated directly in the electrolyte solution to increase a service life and instant response;
3. flywheels ̶ mechanical devices that use rotational energy to instantaneously deliver electric current;
4. compressed air energy storage systems;
5. thermal energy storage ̶ accumulation of heat and cold to generate energy on demand and its provision when it is convenient for consumers;
6. pumped hydroelectric power plant ̶ generation and storage of energy using two water tanks located at different heights;
7. gravity energy storage devices ̶ devices that generate electricity, releasing heavy loads from a certain height when necessary;
8. energy storage systems based on the transformation of energy into gas (hydrogen, biomethane, synthesis gas, etc.).
The most widespread energy storage systems in the world are pumped hydroelectric power plants, which have existed since the beginning of the 20th century. According to ScienceDirect, about 130 GW of such capacity is installed worldwide. In Ukraine, such stations are Dniester Pumped Storage Power Station, Kyiv Pumped Storage Power Station, and Kaniv Pumped Storage Power Station (under construction).
Considering other technologies, the most popular technology in electrical systems are lithium-ion batteries, which, according to the Environmental and Energy Study Institute, as at 2019 had 90% of the market for power grid energy storage. Industrial energy storage designs based on lithium-ion batteries already exceed 50 MW at the present time, and some countries (in particular, the USA) are planning to have an installed capacity of even 300 MW (according to GetMarket website). These technologies are used to regulate power systems, particularly in the sub-second mode, and to reduce the effects of electricity peaks produced by solar and wind power plants. Currently, there are no industrial energy storage designs based on lithium-ion batteries or similar technologies in Ukraine.
Why are businesses interested in energy storage and what is being done to attract investments into this field in Ukraine?
At the present time, any investor has the right to build an energy storage facility and carry out business activities in the electricity market using such energy storage, in particular to buy and sell electricity in a day-ahead market and domestic overnight market, and to participate in the market for balancing services and ancillary services. In addition, renewable energy producers can use energy storage to store electricity during peak production (in particular, from solar power plants, when the grid is unable to accept the energy they produce).
Consumers can use energy storage to ensure that their production processes are running smoothly and to save money by buying cheaper electricity, including at night. However, despite the fact that, according to BloombergNEF, the cost of energy storage (in the form of lithium batteries) fell from $1,100/kWh in 2010 to $156/kWh in 2019 (that is to say, by 87%), for really large-scale projects, the cost was estimated to be over $300 per kWh of capacity, according to an analysis by Lazard. Therefore, such projects are still very capital intensive. Thus, a strong mechanism is needed to help repay the investment into such battery-based energy storages. It is efficient to use energy storage in order to provide ancillary services for frequency control. However, prices for such services, in particular, those formed according to the methodology approved by the National Commission On State Regulation in the Sphere of Energy and Utilities, amount to UAH 498.55/MW for loading and UAH 281.52/MW for unloading. In the opinion of some potential investors, the payback period for such projects may be more than 10 years or even longer. The position of the representatives of National Power Company Ukrenergo Pr.JSC is somewhat more optimistic. Volodymyr Kudrytsky, acting Chairman of the Board of National Power Company Ukrenergo Pr.JSC, believes that these prices alone are a sufficient incentive to implement energy storage projects within a shorter payback period.
If auctions are held, prices for ancillary services may deviate from those established according to other available methods. However, due to marginal prices, there may be no prices higher than UAH 1127.94/MW and less than UAH 254.77 for loading (according to the National Power Company Ukrenergo Pr.JSC). These threshold figures are potentially more interesting for market players. However, in any case, auxiliary services may not be purchased for more than a year, which makes the projects not so attractive for investment/funding and implementation.
According to statements made by representatives of National Power Company Ukrenergo Pr.JSC, Ukraine's demand for battery-based energy storage during the period of 2021-2023 is estimated to be at the level of 1500 MW. In the opinion of Ukrenergo and RTE, the French operator of the transmission system, which is a party to the signed memorandum, the demand of the Ukrainian system for battery-based energy storages is already within the range of 220 MW/h - 264 MW/h. It should be pointed out that at the current stage, such a level of energy storage is not available in the Ukrainian energy system.
In order to solve the problem of proper funding of battery-based energy storage projects, as well as other forms of energy storage, two draft laws have been submitted to the Verkhovna Rada of Ukraine:
1. Draft Law On Ensuring Energy Security and Flexibility of the Power System, Real Competition, Decarbonisation of the Economy, and Reduction of the Prices of Electricity Consumption (regarding energy storage systems) No. 2496 of 26.11.2019, initiated by deputy Maksym Viktorovych Efimov (it was returned to the author for revision on 04.02.2019);
2. Draft Law on Amendments to the Law of Ukraine "On the Electricity Market" (regarding energy security, balancing of the energy system and energy storage system) No. 2582 of 12.12.2019 (hereinafter referred to as "the Draft Law"), which was initiated by deputy Yuriy Oleksandrovych Kamelchuk, and is currently being considered by the relevant parliamentary committee.
What are the fundamental changes planned in the law and what opportunities are created for the market under the Draft Law?
Firstly, the Draft Law introduce the concept of energy storage and energy storage operators and sets requirements for energy storage licensing (if the capacity exceeds 5 MW and provided there is no other license to operate in the electricity market).
Secondly, the competitive bidding procedures for construction of generating capacity and demand management measures foreseen by the Law of Ukraine "On the Electricity Market" will also apply to the energy storage systems. The Cabinet of Ministers of Ukraine will have the authority to announce a tender for construction of energy storages, and subject to the results of such a tender, its winner may receive the following forms of support:
1) establishment of a fee for the services related to the provision of energy storage;
2) facilitating the allotment of land/allocation of the site for construction of the energy storage system;
3) application of mechanisms for the state and private sectors’ partnership;
4) provision of financial assistance from the state.
Thirdly, the transmission system operator (hereinafter referred to as the “TSO”) is allowed to operate energy storage systems with a capacity of not more than 250 MW, provided that the services are not available in the market and are solely for the purpose of rendering dispatching services, in particular, for the safe operation of the transmission system. The distribution system operators (hereinafter referred to as “DSOs”) are allowed to operate energy storage systems of not more than 20 MW (the capacity may be increased by the National Commission for State Regulation of Energy and Public Utilities) for the provision of services for the purpose of rendering distribution services, in particular for the safe functioning of the distribution system.
Fourthly, electricity producers from renewable sources will have the right to accumulate electricity in energy storage systems with a subsequent sale of such electricity at a set “green” tariff.
Despite the fact that the changes proposed by the Draft Law are positive, they will require careful revision.
First of all, it should be emphasized that the concept of energy storage set out in the bill is much narrower than in the EU Directive; therefore it needs to be adjusted to prevent possible restrictions on the use of the energy storage technology.
Secondly, the most debatable issue is the conditions for TSO and DSOs to operate energy storage systems. The stakeholders’ positions differ significantly, as became clear during a meeting of a working group in charge of revision of the draft law on February 13, 2020. For example, the TSO’s representatives believe that the availability of a battery energy storage of up to 250 MW is critical for regulating the system and that such a system will not be used for provision of balancing services or system load management. Therefore such an energy storage system will be a fully integrated component of the network, which the TSO and DSOs are allowed to operate in accordance with Directive 2019/944 without holding tenders for its construction by private players. The TSO’s representatives are also not against the construction of private energy storage systems in compliance with competitive procedures set for their construction; they also anticipate implementation of the projects based on market mechanisms but believe that there is no time to wait for the implementation of these options. The TSO is supported by the EBRD, which is ready to fund the construction of energy storage systems by the TSOs even this year, subject to further privatization of energy storage systems at a later stage, when the market for provision of ancillary services for the energy storage systems is created. Representatives of the private sector, as well as some representatives of the Ministry of Energy and Environmental Protection, opposed the possibility for the TSOs to operate the energy storage systems without first holding a tender for private players ready to build them. In their view, the right of the TSO and DSOs to build and operate a battery energy storage system would simply destroy the potential market for private players and prevent it from developing.
Thirdly, the Draft Law does not allow renewable electricity producers to maintain the set level of “green” tariff for the reconstruction of a power plant with installation of a battery energy storage system. This would result in setting a lower level of “green” tariff for the producers on the date of reconstruction. This approach eliminates the benefits of installing an energy storage system for the accumulation of electricity during peak periods and off-intervals, because of the significant reduction in the “green” tariff.
These issues, in addition to some other problems, require further revisions and compromise among the stakeholders; thus, as members of the special committee agreed, approval of the final Draft Law would take some time.