To attract investors, the payback of energy storage projects must be reduced at least twice - Michel Forget
We have been speaking to Michel Forget, Commercial Director at IKNET, about Ukrainian energy storage market, how the state should incentivise its growth, and how his company is preparing for this emerging market.
In recent years, energy storage systems have attracted a lot of attention in the world. Large-scale projects are being implemented and planned. Why so? Where does such a rapid appearance of interest come from, if we have not seen it before?
I believe that there are two main reasons: on the one hand, the large-scale development of renewable energy (more than 2.5 thousand GW of installed capacity in the world, according to IRENA at the end of 2019). Solar and wind energy, characterized by unstable and poorly predictable generation, occupy an increasing share in the energy balance of developed countries; hence the penalties imposed on electricity producers for the so-called "imbalances", as well as the need for equipment that can at any moment cover the difference between the country's electricity generation and demand - this is called "maneuvering capacity." On the other hand, the rapid development of energy storage technologies (lithium-ion, hydrogen, kinetic, etc.) over the past 10 years has allowed the market to offer flexible products to solve the “imbalances” problem mentioned above. In addition, the modernization and reform of electricity markets in different countries in recent years has led to the fact that storage systems have also turned into a commercial tool: with their help, you can not only offer maneuvering capacities to the grid, but also participate in spot and day-ahead electricity markets, as well as sell auxiliary services of frequency regulation in the regional grid.
In its Generation Adequacy Report, Ukrenergo recommends building 2 GW of storage systems over the next few years. How do you evaluate the realism of this scenario?
Honestly, today I don’t see it as very realistic. So far, the Ukrainian legislation does not specify the requirements for storage systems as market participants; it is not even clear whether they are perceived as objects of generation or consumption. The new electricity market has been launched only recently, therefore there is no clear price statistics. The role of TSO (NEC Ukrenergo) and DSO (Oblenergo) in this market segment is not fully understood. Finally, there is no price incentive for more “advanced” storage systems for the auxiliary services market (frequency regulation): more sophisticated frequency regulation (what is called primary regulation), available only with high-tech storage systems, is given the same tariff as a simple manual regulation, which is now carried out by obsolete equipment of thermal power plants and HPPs.
What should the state do to support such projects?
Earlier I tried to list the main obstacles to the quick development of storage systems in Ukraine. Actually, if the state removes these obstacles, a new and large market niche will be created. This is most likely a question of one-two years, but we need to start preparing now. Speaking from the investor’s point of view, today the payback period for storage systems in Ukraine is around 15 years; for investors to start coming in, the payback period should be reduced at least twice.
MHP Agroholding has already announced that it is starting work on the project of its accumulation system. If business already has an interest, and it is ready to invest in such projects, perhaps the state should simply not interfere?
Indeed, MHP, as well as other market participants are beginning to prepare for the large-scale implementation of storage systems in Ukraine. However, so far we are only talking about pilot projects, for which it is still necessary to calculate at least a feasibility study and think over a commercial strategy. If you use expensive batteries only to accumulate electricity at night at a cheap rate, and then sell it during morning peaks at a higher rate, then the payback will exceed 30 years. Therefore, given the flexibility of particularly sophisticated technologies, the main interest, in my opinion, may be to come up with a combined commercial strategy - for example, playing on the day-ahead and on the auxiliary services markets simultaneously. But then again, for this the regulatory framework should be improved.
In our opinion, there are two main uses of industrial storage systems: megawatt-class products to balance powerful RES facilities and play in the ancillary services market, and smaller systems that industrial consumers can use to optimize their consumption and save money. We have already found out what is needed to develop a large systems market. And what do you think should be the incentives for smaller industrial storage systems?
Actually, for this segment the main incentive already exists: it is the constant increase of the industrial consumers’ tariff and a parallel decrease of the green tariff. If a year ago we would recommend any small industrial consumer to install a rooftop solar power plant, sell electricity at the green tariff, while consuming at the consumption tariff, and make money on the difference, now the situation has changed dramatically. It has already become really profitable from an economic standpoint to switch to autonomous consumption - for example, a rooftop SPP coupled with a small storage system.
Do global manufacturers of storage systems show interest in the Ukrainian market?
Given all of the above, so far the interest is not very active; the market is just being analyzed. But we at IKNET have already begun to get ready and have begun close communication with the French company SAFT, the world leader in the production of lithium-ion megawatt-class batteries with over 100 years of history.
