On 10 April 2021, The Clean Energy Council published a report describing the benefits of using large-scale battery energy storage systems as a dispatchable resource, highlighting their cost, flexibility and CO2 emission benefits compared to gas peakers. The report considers examples of the Australian electricity market but the applicability of these conclusions to Ukrainian realities should be analyzed individually; however, we believe that these conclusions represent a general global trend.
The background of this report is that the Australian Energy Market Operator’s (AEMO’s) 2020 Integrated System Plan (ISP) anticipates an additional 26 to 50 GW of new large-scale renewable energy generation (depending on the scenario) will be needed in the National Electricity Market (NEM) by 2040, supported by between 6 and 19 GW of new dispatchable resources. NEM is Australia's main electricity market, serving more than 80% of the population.
In addition, NEM moves to 5-minute settlement from October 2021. From the start of the NEM (13 December 1998) until 30 June 2021, it operated with 5-minute dispatching and 30-minute settlement. This reform will reduce the maximum gas peaking revenue opportunities. Historically, gas peakers have relied mostly on cap contracts (a financial agreement within a fixed volume of energy is traded during a fixed period for a fixed price but only when the spot price exceeds a specified price), but cap prices have declined and are not expected to increase in the future. Thus, a lower price forecast removes a large part of the potential income of existing and new-build plants. Combined with increased uncertainty and volatility in incoming fuel prices, unclear supply volumes and cross-border conditions, carbon risk premiums and political sentiment, the case for new gas investments, both for Australia and the world as a whole, is becoming increasingly difficult. Additionally, the report notes that the battery system has a number of benefits, including network services (demand response, system integrity protection scheme, voltage regulation) and the potential benefits of a 5-minute settlement.
The report compared the LCOE - levelised cost of energy (AUD $/MWh) and LCOC - levelised cost of capacity (AUD $/kW/yr). The LCOC value represents the annual revenue needed per kW of capacity for the technology to be economically viable or, alternatively, LCOC shows the price (per capacity) needed for the project to have a net present value of zero. The calculation was performed for a new-build 250 MW gas peaker and the new-build 250 MW 2-hour and 4-hour storage systems located in New South Wales. As a result, the LCOC of the gas peakers is higher than for the 2- and 4-hour battery systems under the same conditions. The battery system also provides over 30% LCOE savings given the capital and operational cost benefits (before considering fuel and carbon risks).
This analysis did not take into account additional revenues capable of being generated by batteries compared to gas peakers, which would further increase the feasibility of battery storages. These include:
To calculate the financial model, the report assumed a discount rate of 7% and annual gas price inflation is assumed to be zero. In addition to the standard capital costs, battery systems are burdened with the cost to maintain full capacity given battery cell degradation over time. It is assumed that the cost of charging is AUD$0.03/kWh, thereby conventionally assuming no deflation. Although, there is a projected reduction in the charging price due to an increase in renewable energy capacity and increasing potential for frequent negative price events. The gas price used in the study is 6.5 AUD $/GJ without inflation and the sensitivities are 7 AUD $/GJ, 11 AUD $/GJ and 14 AUD $/GJ. Note that additional risk premiums are not included, such as carbon risk, impact of international and domestic production, storage, transportation and increasing supply-side constraints. All these factors together underpin analysts' forecasts of future higher gas costs.
Furthermore, an analysis has been done with an artificial gas price of 4 AUD $/GJ. It is set to be lower than the likely forecasted gas prices and is highly unrealistic. However, the analysis still shows that even under these unrealistic assumptions gas peakers are only slightly capable to compete with a battery storage from an LCOC basis and will not be able to compete from an LCOE basis.
This report prepared by the Clean Energy Council, using Australia as an example, clearly shows the prospects for industrial energy storage systems around the world and their advantages over gas peakers. We believe that the competitiveness of battery storage will only increase over time as the technology becomes cheaper, average electricity costs around the world will mainly decline with the increase of renewable energy sources and natural gas prices remain volatile and dependent on the global market economy.
