Business, Economics, Planning and Policy for Energy Storage in Low-Carbon Futures

Lead Research Organisation: Imperial College London
Department Name: Imperial College Business School

Abstract

Decarbonising the energy system in many countries (including both China and the UK) is likely to involve the large-scale deployment of renewable electricity generators with intermittent output and the electrification of energy services such as heat and transport that have very low load factors. These changes in electricity supply and demand will lead to a great need for energy storage. Our work for the Carbon Trust has estimated that the effective deployment of energy storage in the UK could reduce the cost of a low-carbon electricity system by £15 billion in 2030.

The deployment and operation of storage is a complex task, since it can provide many different services, including energy arbitrage (buying off-peak and selling at higher peak prices), energy reserves, resolving transmission and distribution constraints and improving system reliability. The weight placed on each of these could affect the pattern of investment, and sophisticated planning tools are required to ensure that optimal decisions can be taken. We will improve these tools so that we can accurately represent a variety of storage systems. Much of the existing work on storage assumes that it might be used simply to postpone the "like for like" replacement of network assets that would otherwise be overloaded, but we will consider more radical options, using storage to actively manage the distribution network as part of the broader smart grid.

We can use our models to calculate the economic value of energy storage when it provides a range of services to network companies and system users. We will measure the option value of having a storage system that can be deployed in much less time than it takes to get consent to build a transmission line, adding flexibility in how we respond to uncertainty over the future evolution of the energy system. It is important that such decisions are made on the basis of appropriate models, capable of quantifying the wide range of services that storage can provid, taking account of the way that electricity generation and demand varies over the course of the day and the year, and measuring the impact of transmission and distribution network effects.

It is important to recognise that many countries (including the UK) have liberalised their electricity industries, and storage will only be pursued if companies believe that a viable business case exists. Work has started (via the Low Carbon Networks Fund) to test particular business models for demonstration projects, but this needs to be generalised. We will provide a quantified assessment of whether there is a business case for energy storage at present, and of what needs to be done to create one. This will involve a detailed study of the contracts that would be written around electricity storage, drawing lessons from existing arrangements for other kinds of storage, such as for gas or agricultural commodities. We will study how the rules of the electricity market could affect the choices of storage and generation technology.

We will ask what policies are needed to ensure that storage can be economically viable when sensibly deployed and operated. We will identify technology policies that can help move energy storage from prototypes to large scale deployment. International transmission may complement energy storage within a country, and we will assess the potentially conflicting incentives if neighbouring countries adopt different strategies for dealing with intermittency.

Too many debates around energy policy today are based on assertions without sufficient evidence. The models that we will develop, and the analysis that we will perform, will provide numerical estimates of the effectiveness of a range of policies, allowing regulators and other policy-makers to choose options that will lead to decarbonisation in the most effective way.

Planned Impact

This project aims to provide badly-needed quantitative evidence to the policy debate over how best to deliver energy storage as part of a low-carbon energy system. In doing so, it will be relevant to the entire decarbonisation process, for the barriers to storage may well affect other technologies, and our models will consider the entire energy system.

The project will deliver new techniques and insights for planning the electricity system with significant amounts of intermittent generation and energy storage. These will be most relevant to transmission and distribution network companies, which already have to plan for an uncertain future. We will show them how storage can be deployed instead of network assets, and how it can be used as part of a new paradigm for distribution network design, in which active management based on using energy from storage when there is a danger of overloading assets supersedes the "like for like replacement" philosophy commonly used.
We will create new methods for appraising the economic value of storage technologies. These will be valuable for all the companies wishing to invest in storage devices, or accommodate them on their networks, and also for the equipment manufacturers. They will be able to learn which features of a technology will be most valuable, and hence what they should place most weight on during the development process.

We will analyse a range of business models to check whether they are viable and would allow storage to be deployed on an appropriate scale. The results will be useful for the companies hoping to invest in storage devices, since we may steer them towards the most profitable business model. They will also be useful to policy-makers and regulators, who need to know whether existing market rules and regulations are compatible with a viable business model.

We will analyse the policies needed to ensure that storage developers, owners and the electricity industry face the right incentives to create an efficient low-carbon power sector. This work will be relevant for the companies involved, and particularly so for policy-makers who need to know how to respond to this new part of the electricity industry. They receive too much advice which is not grounded in firm evidence, and our modelling results should provide a reasoned basis for decision-making.

Our improved techniques for optimisation and planning will have commercial potential and we will take steps to protect and then exploit the Intellectual Property created. Our policy work is not suitable for this kind of protection; indeed, recommendations are most likely to be followed if they have been widely disseminated. We will take steps to ensure this dissemination, and hope that through the adoption of our policy suggestions, the ultimate beneficiaries of our research will be electricity consumers.
 
Description Energy storage is a promising technology for managing the challenges of intermittent renewable electricity generation, but too little was known about its economic benefits or the applicable business models for promoting it. This project, in collaboration with researchers funded by the National Science Foundation of China, aimed to identify the economic benefits from energy storage, assess a range of business models, and suggest regulatory changes, such as to auction design, which would promote its adoption.

We found that adopting electricity storage as part of the plan to decarbonise the electricity industry could allow a greater share of renewable generation and a reduction in the amount of other generating capacity and network investment needed. Since these other generators were likely to have higher costs than the renewables-storage combination, we estimated that this could save consumers up to £8 billion a year by 2030.

We analysed other more mature markets for storage (other than for electricity) in order to identify key lessons for electrical energy storage business models. We selected non-electric storage markets that are at different stages of their respective life cycles, including frozen food and data storage on "the cloud". This provided valuable insights on the way in which the different components of business models are interacting and capturing value for both customers and storage firms.

We found that good collaboration between different industry parties is needed, because electrical energy storage can collect several different revenue streams, effectively offering a range of "products" to the market. For example, an energy store may simply arbitrage between times of high and low prices, or may sit in reserve in case power is suddenly required, or may be discharged when loads on the network are high, allowing investment in more capacity to be deferred. These uses may not be mutually compatible. Good collaboration and interaction with the different parties (regulators, utilities, industry, end-customers) that are part of the electrical energy storage value proposition is required for its optimal deployment. We proposed and analysed a Vickrey-Clark-Groves auction design that would allow an energy store to offer a range of different storage services to the system operator, and for the buyer to choose the best combination to accept. We have discussed this auction design with the GB Electricity System Operator, which is considering trials of new designs for its regular procurement auctions for response services.

This was a cross-disciplinary project between economists and engineers, and we cross-tested our insights where possible. We developed a statistical method (a Markov Chain representation) to represent uncertainty within an economic model of the day-to-day operation of an energy store, which depends on changes to demand and renewable generator output. We showed that it is often best to keep the storage unit in reserve, a strategy confirmed in our more detailed engineering-based models.
Exploitation Route Our work on the value of energy storage has fed into the National Infrastructure Commission's work on Smart Power and a flexible power system, identified as one of its twelve current infrastructure priorities. This part of our work is therefore being taken forward by the Commission. We believe that our findings are also of interest to Ofgem and to network operators as they develop regulatory policies and investment plans, and have regular contacts with both. We have disseminated our work widely within the international academic community, and all our post-docs have funding to continue their work.
Sectors Energy

 
Description Our research on the value of storage, on business models and on planning standards for electricity networks and storage fed into a report for the National Infrastructure Commission, published in March 2016. That report fed into the Commission's "Smart Power" report, which had its recommendations accepted in full by the government at the time of the 2016 budget. The Commission called on the government to review the regulatory status of storage to remove outdated barriers; while Ofgem, the industry regulator, should encourage network owners to use storage. Ofgem consulted on two regulatory changes in October 2017, and the government has committed to introduce primary legislation when time allows. While some network owners are already investing in storage, the Commission has called on Ofgem to consider, as part of its current review of network regulation, how the incentives for storage investment could be strengthened. Our work on new auction designs for electricity storage has been discussed with National Grid, which is reponsible for the electricity System Operator auctions in Great Britain. They are considering the future of balancing services and hope to trial "auction designs which are well-suited to optimising across multiple tendered variables" in the frequency response market.
First Year Of Impact 2016
Sector Energy
Impact Types Economic,Policy & public services

 
Description "Delivering future-proof energy infrastructure": report for the National Infrastructure Commission
Geographic Reach National 
Policy Influence Type Participation in a national consultation
Impact The report to the National Infrastructure Commission provided quantitative evidence based on advanced modelling, on the value of flexibility for the infrastructure in the future decarbonised energy system. Smart power - principally built around three innovations, interconnection, storage, and demand flexibility - could save consumers up to £8 billion a year by 2030, help the UK meet its 2050 carbon targets, and secure the UK's energy supply for generations.
URL https://www.gov.uk/government/publications/smart-power-a-national-infrastructure-commission-report
 
Description An analysis of electricity system flexibility for Great Britain (joint report with Carbon Trust prepared for BEIS)
Geographic Reach National 
Policy Influence Type Participation in a national consultation
URL https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/568982/An_analysis_of_elec...
 
Description ETIP SNET - ENERGY SECTOR INTERFACES
Geographic Reach Europe 
Policy Influence Type Membership of a guideline committee
 
Description ETIP SNET - GRID PLANNING COORDINATION ACROSS SYSTEM OPERATORS
Geographic Reach Europe 
Policy Influence Type Membership of a guideline committee
 
Description Energy Storage Report: Can storage help reduce the cost of a future UK electricity system?
Geographic Reach National 
Policy Influence Type Participation in a national consultation
URL http://www.carbontrust.com/resources/reports/technology/energy-storage-report
 
Description Member of the Steering Committee of the Smart Grids EU Technology Platform
Geographic Reach Europe 
Policy Influence Type Membership of a guideline committee
 
Description Smart Systems Forum
Geographic Reach National 
Policy Influence Type Membership of a guideline committee
 
Description Whole-system cost of variable renewables in future GB electricity system (joint project with an industrial consortium)
Geographic Reach National 
Policy Influence Type Participation in a national consultation
URL http://energysuperstore.org/esrn/wp-content/uploads/2016/11/Whole-system-cost-of-variable-renewables...
 
Description E-Flex
Amount £280,000 (GBP)
Organisation Innovate UK 
Sector Public
Country United Kingdom
Start 05/2018 
End 04/2021
 
Description 'Business Models for Energy Storage', Energy Institute event on Energy Storage 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Talk delivered by M.Pollitt, at the Energy Institute event on Energy Storage, London, 30 November 2015.
Year(s) Of Engagement Activity 2015
 
Description 'Business Models for Future Energy', New Energy Forum Roundtable 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Talk delivered by M.Pollitt at the New Energy Forum Roundtable, Distributed Generation: new business models, financing trends and commercial drivers, London, 13 January 2016.
Year(s) Of Engagement Activity 2016
 
Description 2017 IEEE PowerTech 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Presentation on the new methodology for quantifying the security contribution of energy storage and demand side response
Year(s) Of Engagement Activity 2017
 
Description A VCG mechanism for Electrical Storage 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Greve, T. and Pollitt, M.G. 'A VCG mechanism for Electrical Storage', Conference paper at 2016 8th International Power Electronics and Motion Control Conference (IPEMC-ECCE Asia), May 22-25 2016, Hefei
Year(s) Of Engagement Activity 2016
 
Description A VCG mechanism for Energy Storage (Imperial College London) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact T. Greve, "A VCG mechanism for Energy Storage", Imperial College London, December 2015
Year(s) Of Engagement Activity 2015
 
Description A VCG mechanism for Energy Storage (Tianjin) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact T. Greve, "A VCG mechanism for Energy Storage", Tianjin University, May 2015.
Year(s) Of Engagement Activity 2015
 
Description A VCG mechanism for Energy Storage (University of Cambridge) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Professional Practitioners
Results and Impact T. Greve, "A VCG mechanism for Energy Storage", University of Cambridge, May 2015
Year(s) Of Engagement Activity 2015
 
Description A VCG mechanism with Application to Energy Storage 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact T. Greve, A VCG mechanism with Application to Energy Storage, Caltech, April 2015.
Year(s) Of Engagement Activity 2015
 
Description A VCG mechanism with Application to Energy Storage (MIT) 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact T. Greve, A VCG mechanism with Application to Energy Storage, MIT, April 2015.
Year(s) Of Engagement Activity 2015
 
Description All-Party Parliamentary Group event on Energy Storage 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact This event focused on issues and opportunities particularly around behind-the-meter battery storage. Dr Marko Aunedi gave a presentation on Imperial's modelling work on business case for energy storage and the wider implications for the UK's energy sector.
Year(s) Of Engagement Activity 2016
 
Description Beesley Lecture in Regulation, Institute of Directors, London: "Decentralisation, Storage and the Electricity Market" 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact A lecture in the Beesley lectures series at the Institute of Directors, considering the future impact of electricity storage on the electricity market and the challenges of decarbonisation.
Year(s) Of Engagement Activity 2017
 
Description British Institute for Energy Economists, Keynote lecture, 22nd September 2016 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Pollitt, M. 'Business Models for Future Energy Services, British Institute for Energy Economists, Keynote lecture, Annual Conference, Oxford, 22nd September.
Year(s) Of Engagement Activity 2016
 
Description Business Models for Electrical Energy Storage', BEPP-Store Meeting 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Talk delivered by M.Pollitt, at the BEPP-Store Meeting, Imperial College, London, 17 December, 2015.
Year(s) Of Engagement Activity 2015
 
Description Business Models for Energy Storage', Keynote address to UK Energy Storage Conference 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Keynote talk delivered by M.Pollitt at the University of Birmingham, 26 November 2015
Year(s) Of Engagement Activity 2015
 
Description Business Models for Sustainability: Making Low-Carbon Technologies Attractive Investments 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Talk at the Westminster Energy Forum in London as part of a half-day conference
Year(s) Of Engagement Activity 2017
 
Description CIRED Conference - Flexibility from distributed energy resources: generation, storage and responsive demand 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Presenting modelling related to importance of flexibility and smart operation in future low carbon energy systems
Year(s) Of Engagement Activity 2017
 
Description EPRG Conference, Cambridge, 13th May 2016 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Professional Practitioners
Results and Impact Pollitt, M. 'Network charging for a flexible and reliable electricity system', EPRG Conference, Cambridge, 13th May.
Year(s) Of Engagement Activity 2016
 
Description Emerging Business Models for Energy Storage: Applications to the power, transport and heat sectors 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Anaya, Karim L., Pollitt, Michael G. (2016), "Emerging Business Models for Energy Storage: Applications to the power, transport and heat sectors," Conference paper at 2016 8th International Power Electronics and Motion Control Conference (IPEMC-ECCE Asia), May 22-25 2016, Hefei.
Year(s) Of Engagement Activity 2016
 
Description Give a speech 'Challenges for Future Development of Power Sector' at State Grid Energy Research Institute 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Give a speech at State Grid Energy Research Institute China and inform the potential market development and business case for state grid china.
Year(s) Of Engagement Activity 2016
 
Description Give speech 'Introduction of EU (UK) Reform of Electricity Market and their experiences to China' at International Workshop on Electricity Market 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Policymakers/politicians
Results and Impact More than 100 attendants showed in this event and exchanged the vision on the market development all over the world.
Year(s) Of Engagement Activity 2016
 
Description Give speech 'Role and value of energy storage in the future low carbon energy systems' at NDRC Energy Research Institute, China 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Policymakers/politicians
Results and Impact Give a speech at NDRC Energy Research Institute, China regarding the role and value of energy storage in the future low carbon energy systems and inform the development of electricity market to support the application of energy storage.
Year(s) Of Engagement Activity 2016
 
Description Give speech 'Role and value of flexibility in the future low carbon energy systems' at 7th China International Conference on Electricity Distribution 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Give a speech at 7th China International Conference on Electricity Distribution regarding 'Role and value of flexibility in the future low carbon energy systems' and inform the potential development of electricity market in China.
Year(s) Of Engagement Activity 2016
 
Description Give speech 'Transforming the energy system with energy storage' at International Workshop on Energy Storage Pricing 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Give speech at International Workshop on Energy Storage Pricing regarding Transforming the energy system with energy storage and inform the potential development of eletricity market to support the large scale application of energy storage.
Year(s) Of Engagement Activity 2016
 
Description Give speech 'Value of energy storage with multiple service provision' Panel Session in IET ACDC conference, Beijing, China 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Give a speech at a panel session in IET ACDC conference, Beijing, China regarding value of energy storage with multiple service provision and exchanged the vision on the development of energy storage.
Year(s) Of Engagement Activity 2016
 
Description Grantham Institute Seminar, LSE, London, 23 March 2016 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach Local
Primary Audience Professional Practitioners
Results and Impact Pollitt, M. 'Business Models for Future Electrical Energy Services', Grantham Institute Seminar, LSE, London - Michael Pollitt, 23 March
Year(s) Of Engagement Activity 2016
 
Description IEEE Power and Energy Society - General Meeting 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Study participants or study members
Results and Impact Setting out Market design requirements for Energy Storage and flexible demand
Year(s) Of Engagement Activity 2017
 
Description International Institute for Energy Systems Integration - annual workshop 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Presentation on the role and value of energy storage in supporting cost effective transition to low carbon energy systems
Year(s) Of Engagement Activity 2017
 
Description Long-duration storage workshop 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Industry/Business
Results and Impact My talk was focused on presenting evidence related to the importance of storage capacity, including the need for long-duration storage on the GB system and regulatory implications
Year(s) Of Engagement Activity 2017
 
Description Ofgem Away Day, London 16th May 2016 
Form Of Engagement Activity A formal working group, expert panel or dialogue
Part Of Official Scheme? No
Geographic Reach National
Primary Audience Policymakers/politicians
Results and Impact Pollitt, M. 'Future Energy System Challenges', Ofgem away day, London 16th May.
Year(s) Of Engagement Activity 2016
 
Description Participate in ENERGY STORAGE & CONNECTED SYSTEMS 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Gave keynote speech on "Energy storage: a game changer for the energy market"
Year(s) Of Engagement Activity 2017
 
Description Participate in Smarter Network Storage Conference 
Form Of Engagement Activity Participation in an activity, workshop or similar
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Industry/Business
Results and Impact Gave talk on "Energy storage - making it happen" and inform the debate.
Year(s) Of Engagement Activity 2016
 
Description Presentation at Research Seminar organised by Chaire European Electricity markets of Paris Dauphine university 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Postgraduate students
Results and Impact Dr Marko Aunedi gave a presentation in this research seminar on May 19, 2015, on Imperial's modelling of energy markets for valuing energy storage.
Year(s) Of Engagement Activity 2015
 
Description Statoil-NTNU conference, Trondheim, Norway, 20th October 2016 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Pollitt, M., Business Models for Future Energy Services, Statoil-NTNU conference, Trondheim, Norway, 20th October.
Year(s) Of Engagement Activity 2016
 
Description The 6th China International Energy Storage Conference, Shenzhen, China, 25th May 2016 
Form Of Engagement Activity A talk or presentation
Part Of Official Scheme? No
Geographic Reach International
Primary Audience Professional Practitioners
Results and Impact Pollitt, M. 'Are the prospects for electrical energy storage in Europe as good as they are in California?' The 6th China International Energy Storage Conference, Shenzhen, China, 25th May
Year(s) Of Engagement Activity 2016