A new report published by Wood Mackenzie Power & Renewables has highlighted the recent trend among major European utilities which has seen them begin investing in the region’s relatively new energy storage market over the past two years.
Wood Mackenzie Power & Renewable Senior Research Analyst Rory McCarthy authored the new report, Europe Energy Storage Landscape 2018, which was published earlier this month and which investigates the European energy storage market. The key message from the report is that, while there is a building shift towards investing in and developing energy storage across Europe, it has nevertheless been a slow build.
Specifically, while there has been a policy shift by the European Commission towards building intelligent, real-time commercial energy markets while at the same time enabling new technologies — such as energy storage — to play in all markets, this shift has been slow. Unsurprisingly, given the sprawling nature of the European Union, the report finds that each EU Member State is at various stages in its development of energy policies, making it complicated for players to participate in multiple markets due to the varying nature of restrictions and freedom.
“By investing in energy storage, these companies are able to diversify their portfolio and improve their customer offering by including a clever piece of technology alongside a necessary service,” said Rory McCarthy. “Although there are obvious gaps across Europe as policy makers struggle to keep pace with new technology, energy storage deployments continue to ramp up. Europe is now a very real contender for that global top spot in terms of total deployments.”
Currently, the United Kingdom and Germany lead the way for utility-scale policy and storage development, but frequency markets are “the only real game in town,” according to McCarthy. Specifically, the frequency markets saturate these two countries — and, in crowding the market have driven prices down from around €23/MWh in Germany in 2016, down to only €8/MWh in July of 2018 — but in the coming years, WoodMac expects to see large-scale growth, from around 1,700 megawatts (MW) to 4,000 MW.
Germany and the UK are also leading with regards the commercial & industrial energy storage segment, however, as McCarthy writes in the report, “it’s not exactly a booming marketplace.”
“Given the UK and Europe are at a critical stage in the Brexit process, it’s important to remember the key role energy storage has to play in these power markets,” McCarthy explains. “For the UK power market, Brexit has put question marks around the pipeline of interconnectors to mainland Europe. This could be good news for the UK storage market, as interconnectors are direct competitors in the flexibility marketplace. However, we have seen the price of energy storage systems increase in the UK as the GBP currency weakens. Ultimately, there will be winners and losers in the energy storage space as details of Brexit negotiations are revealed.”
“We are witnessing a glut of developers enter the market across all segments,” continued McCarthy. “There are solar developers diving into a new complementary technology area, which has been driven by a European solar subsidy cull and tough market conditions. Additionally, major utilities who see the strategic value of this most flexible asset have the balance sheets to enter into ultra low bid auctions and accept the unattractive returns that will go alongside these in the near term.”
For Europe’s residential energy storage market, Germany remains well ahead of its regional neighbors, “and one of the most mature globally,” according to McCarthy. Nearby, Italy has introduced a subsidy program which is beginning to scale up the country’s market, while Ireland — though a small market — is nevertheless interesting as it begins a solar + storage grant program alongside the Transmission System Operator (TSO) storage frequency response tender in February of next year.
“Technology costs are high, and the electricity costs and incentives to shift energy through time-of-use rates are not there yet,” says McCarthy, regarding Europe’s residential energy storage market. “Wood Mackenzie models an impressive 54% reduction in the levelised cost of residential solar-plus-storage in Germany since 2013, but it is still some way above electricity costs of €0.30 in the country. It’s essential these two points meet before the economics begin to look attractive. However, the economics are not the deciding factor for the early adopters who are willing to accept the high-cost premium for a piece of technology which can simultaneously de-risk future bill increases and include them in the energy transition.”
In the end, Wood Mackenzie and Rory McCarthy believe that the future of energy storage comes down to one particular question: “When gaps open up, what is going to be built? Large combined-cycle gas turbines or small gas peakers? If prices continue to decline for energy storage, what portion of the market will they be able to take over?”
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