Large-scale battery systems: potential use cases in Albania
In this post, some potential use cases for the integration of large-scale batteries in Albania are discussed. Large-scale batteries are referred to as batteries with an energy content higher than one MWh. They are generally installed in containers, such as depicted in the picture below.
1. Large-scale storage: current status
From a recent study on Energy Storage by EnTEC: The annual European energy storage market for stationary batteries in the electricity system has seen an increase in installed capacity from 0.6 GWh in 2015 to about 9.4 GWh in 2022. Between 2021 and 2022 the market has doubled. About 30% of the 2022 market was residential storage, roughly 2% was Commercial and Industrial (C&I) storage, and about 70% were front-of-meter installations. It should be noted that 9.4 GWh is the equivalent of fewer than 2 minutes of total electricity consumption in the EU. In addition, pumped hydro storage (PHS) is still dominant with a stored energy of around 200 GWh.
2. Power market arbitrage
Power market arbitrage is the use of an asset to buy electricity at a low cost and sell it at a higher price. The absence of a functioning power exchange makes power market arbitrage impractical for the moment. Nevertheless, this should be alleviated in the coming months as ALPEX (day-ahead market in Albania) would be operational.
Concerning the expected revenues, the EnTEC study notes that before the energy crisis of 2021, batteries were not financially profitable if only power market arbitrage was considered. In addition, the study notes for future development of batteries concerning this specific application: Calculations with expected electricity price levels in 2030 still show cost gaps for storage technologies participating only in arbitrage, if today's technology costs are considered. High uncertainties are connected to future price level expectations, as expected price spreads most probably are falling to a lower level compared to 2021. Cost reduction due to further storage technology development would substantially improve profitability even with lower market prices and price spreads.
3. Provision of FCR - primary reserves
In the EU, a large chunk of the batteries has been installed for the provision of Frequency Containment Reserves (FCR), previously called primary reserves. According to a market review, around 75% of all currently installed large-scale batteries in Germany are there to provide FCR, covering all the FCR needs of Germany. Batteries are particularly well-fitted for this application because the power-to-energy requirement is high. In general, batteries are rated for one hour of power (1 MW/1 MWh). The batteries are remunerated for the capacity only and they offer this service to the Transmission System Operator. The total market size for this reserve is 3000 MW over the whole European Continental grid, with the effort shared amongst all countries.
Concerning the provision of FCR, not all European countries have a market for FCR and Albania is one of them. Of the 3000 MW, Albania must ensure around 6 MW continuously, which makes the provision of FCR a tiny market for batteries in Albania, but could maybe allow the first project to materialize.
4. Provision of aFRR - secondary reserves
Secondary reserves are a much larger market than FCR. In Albania, a balancing market for automatic Frequency Restoration Reserves (aFRR), also called secondary reserves, has been created in April 2021. There are two separate products, one for increasing generation (aFRR+) and one for decreasing generation (aFRR-). Batteries are starting to be installed across Europe for the provision of aFRR, especially since the launch in 2022 of the European platform PICASSO, the pan-European Platform for the International Coordination of Automatic Frequency Restoration Reserves and Stable System Operation. In Belgium, some batteries have already been installed for aFRR provision.
The market for aFRR in Albania is organized as follows: the first step is for the provision of capacity and the second step, is for the price of activation. An auction is held weekly for the provision of the capacity for the 168 hours of the next week. The required capacity is between 50 to 70 MW for aFRR+ and 45 to 65 MW for aFRR-. The recent results have yielded prices of slightly above 30 and 20 EUR/MWh for respectively aFRR+ and aFRR-.
In order to be able to provide aFRR, batteries must be able to maintain the maximal power for at least one hour consecutively, meaning that batteries must at least have two hours of storage for each MW of aFRR+ and aFRR- provided. By assuming the availability of 90%, a one-MW battery would get 197,100 EUR per year with the prices mentioned above. This revenue could theoretically be sufficient to be financially viable considering the current prices for energy storage. In addition, the price of activation could also provide some additional revenue.
5. Co-location with renewables
Another potential application is the co-location of storage with large renewable production sites. This application could be done for different reasons such as:
Reducing the cost of imbalances. This might be relevant in the case of Albania where positive imbalance prices and negative imbalance prices are diverging significantely, and the imbalance costs can be significant. The battery could serve as a buffer to reduce the forecast errors of renewables.
Quality of supply, such as voltage quality and voltage support.
Counterbalancing the cannibalization effect. In countries where renewables penetration is high, market prices are depreciated when renewables are producing (cannibalization effect). This is already the case for solar in Spain. Batteries could be installed in order to shift the production to hours when market prices are higher.
6. Other applications
Hereunder is a list of potential other applications:
Support transmission/distribution grid. In case the grid is congested, the distribution and the transmission system operators might be interested to install batteries to alleviate congestion in their grids in order to reduce or defer investments in grid investments.
Behind-the-meter batteries for prosumers. For large prosumers, when the net billing scheme will be introduced, with potentially a difference in price between consumption and injection, there would be an incentive to have batteries in order to increase self-consumption.
Capacity market. In some European countries, there exists a capacity market ensuring that peak load is met in any load and meteorigical conditions. Storage technology can participate in such markets. In Albania, as the installed capacity is relatively large and controllable compared to the yearly peak load, there is no immediate need for a capacity market.
7. In a nutshell
Large-scale battery systems can provide some benefits in Europe in general and in Albania in particular. Similarly to other European countries, the most promising use cases are the provision of reserves such as FCR (the most straightforward for batteries, but with a limited potential) and FRR. With the development of large renewable projects in Albania and in the region, it is likely that market prices would be extremely fluctuating from 0 EUR/MWh when the renewables are in oversupply to very high prices when fossil fuel plants are running. At that point, price arbitrage as well as co-location of batteries with renewables would be more interesting.