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UTILITY Week 21st April 2017

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Operations & Assets 24 | 21ST - 27TH APRIL 2017 | UTILITY WEEK Market view R enewable energy deployment over the past decades has posed unprec- edented challenges for the planning and operation of power systems. In the context of increasingly decentralised and intermittent generation, power utilities and system operators need to rethink their port- folios, business models and positions in the market to be resilient to these changes and benefit from them. Battery storage has gained strong interest as an option to respond to these new challenges and provide flexibility to the system to cope with high levels of renewa- bles. Actors all along the energy value chain find themselves facing several key questions when considering how energy storage may affect their businesses: •  In what applications will battery storage  play a key role in managing the future grid? •  What will be the most attractive business  models? For which (combination of) actors along the value chain? •  What factors influence the choice of bat- tery technologies? •  Which battery technologies will likely be  the most important in each application? •  What are the drivers, enablers and alterna- tives to battery storage deployment? How battery storage is deployed today Deployment of standalone batteries to provide grid services such as frequency response and frequency regulation has mainly been achieved under pilot projects. Widespread deployment has been hindered by high costs and regulatory uncertainty, but grid-scale storage for frequency regulation is still seen as one of the most promising appli- cations to date. Large-scale hybrid battery configura- tions to stabilise renewables output are also considered one of the biggest successes of batteries so far, especially on islands. In addition, hybrid residential battery configu- rations have seen a significant boost in some markets, such as Germany, where incentives have been put in place. Distribution system operators and trans- mission system operators can use batteries for grid-support applications such as con- gestion avoidance, frequency regulation, frequency response and voltage stability, and tend to see co-ownership as the most likely option for making a positive business case. Indeed, all market play- ers generally see the com- bination of several applications as essential to making battery solutions economically viable. How- ever, system operators are only likely to make major moves when the regulatory framework for ownership and operation of storage tech- nologies has been further clarified. Compared with system operators, power utilities can leverage batteries for a wider range of applications and are less con- strained by regulation. They can potentially use batteries to generate revenues from arbi- trage in the market, decrease exposure to imbalance costs and provide grid services to system operators. Vertically integrated utili- ties can also deploy batteries as part of their offerings to end customers, as is already seen in Germany. Aggregators are other major enablers of battery deployment. Partnerships between vertically integrated utilities and aggrega- tors, as well as battery manufacturers and system integrators and aggregators, have been developed over the past few years to generate revenues, primarily from ancil- lary services and the wholesale market, with a potential new source of flexibility from batteries at residential, commercial and industrial levels. The roles of aggrega- tors continues to evolve, and the emergence of aggregators acting as soware providers rather than technology operators is reshap- ing the position of vertically integrated utili- ties in the market. Overcoming barriers to implementation Battery storage is expected to play an important role in responding to the cur- rent challenges posed by the deployment of renewables. However, today there are sev- eral barriers to its implementation, such as regulatory uncertainty, commercial arrange- ments, maturity of technology and associ- ated costs. In the short term, the deployment of battery storage in specific markets will depend not only on market characteristics (such as renewables penetration, intercon- nectedness, generation mix, the network's topology and system size), but also on the regulatory framework, incentives and com- mercial signals in place to enhance the bat- tery storage business model. However, the future seems encouraging. Driven by increased usage in the automo- tive industry, the costs of batteries have sig- nificantly dropped since 2010 (a 65 per cent decrease for lithium-ion batteries), although further cost reductions are necessary for widespread use in the power sector. In conclusion, while battery storage remains a market for early adopters, with more mature business models for some players (such as power utilities) than oth- ers (such as system operators), the time for inaction is long over. When technology is inexpensive, it belongs to those who invested in its development. And when regulation is facilitating, opportunities are captured by those who have business models ready. Battery storage is a "fast move" today for some actors in the value chain and a "wait" for others, but for all it is a market to shape and a strategy to develop. This is the time for actors along the energy value chain to shape markets, lobby, engage regulators and perform early strategic actions to make sure they will be part of the future framework and at the forefront of market trends. Kurt Baes, Adnan Merhaba and Florence Carlot, Arthur D Little The rise of battery storage While still early days, the rise of a battery storage market is inevitable because it answers renewable energy deployment challenges, say Kurt Baes, Adnan Merhaba and Florence Carlot. "In the short term, the deployment of battery storage in specific markets will depend not only on market characteristics, but also on the regulatory framework, incentives and commercial signals in place." Storage is a Top 10 technology at Utility Week Live. For full conference agenda: www.utilityweeklive.co.uk

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