Energy Storage

Report examines battery storage, renewable premiums

Pairing wind and solar power with battery storage can result in cost savings and fetch premiums in wholesale power markets, but those premiums could potentially be higher for generation and storage facilities that are not co-located, according to a recent report from Lawrence Berkeley National Laboratory.

The paper, “Motivations and options for deploying hybrid generator-plus-battery projects within the bulk power system,” examined utility scale hybrid generator-plus-battery applications that use variable renewable energy resources such as solar and wind power sited in wholesale power markets.

The background for undertaking the study was the rising penetration and the concomitant need for greater flexibility in the grid to balance the intermittent output of renewable generation, the authors said. In addition, they noted the growing number of hybrid generation-plus-battery installations.

There are already 4.6 gigawatts (GW) of installed hybrid capacity with another 14.7 GW in the immediate development pipeline and 69 GW in various interconnection queues, the report said.

While the growth of energy storage has been driven by the need for greater grid flexibility and falling battery costs, the growth of hybrid installations is also fueled by the cost savings achieved by pairing and by policy support.

Although they acknowledge it is difficult to quantify without more real-world data, the authors say that studies suggest that initial solar-plus-battery hybrid system capital costs can be 8% lower than the capital costs of independently sited systems.

They also note that the policy support available through the Investment Tax Credit (ITC) can reduce capital costs. The ITC currently provides a 30% credit for batteries that are co-located with and charged by renewable resources. If a battery is only 75% charged by renewables, however, the credit is cut to 22.5%. The authors report that this credit will be phased down to 10% by 2022, and could be eliminated if the ITC is granted for standalone battery projects.

Using price information from Power Purchase Agreements (PPAs) for 23 of 109 online and in development solar-battery hybrid projects in Arizona, California, Hawaii, and Nevada, the report found that purchased power prices declined between 2015 and 2019. In Hawaii, prices dropped from around $120/MWh in 2015 to around $70/MWh by the end of 2018. For projects in the continental U.S., prices dropped from $40$70/MWh in 2017 to $20$30/MWh in 2018 and 2019.

Digging deeper, the authors looked at six of the 23 projects and found that the incremental increase in the PPA price of adding a four-hour duration battery to a solar power project was a function of the ratio of battery-to-solar capacity. Within that small sample, the authors found that a four-hour battery sized at roughly 25% of solar capacity adds about $4/MWh to the delivered price. At a 50% battery-to-solar capacity ratio, the price adder is $10/MWh, and at a 75% ratio the  adder is $14/MWh.

To determine the wholesale market value of hybrid projects, the report estimates net wholesale market revenues of standalone and hybrid projects in the California and Texas wholesale power markets using prices from 2016 to 2018.

The analysis used a high value scenario that assumed perfect foresight of real-time electricity prices when determining optimal dispatch and a low value scenario that used the optimal schedule from the previous day to set a target charge and discharge schedule for the battery.

In the high-value scenario, the analysis found estimated a $29/MWh premium for solar hybrid projects compared with solar only projects in California. In Texas, the premium was only $5/MWh. In the low-value case, the premium is reduced to $16/MWh in California and $1/MWh in Texas. The report found similar results using data from wind-hybrid projects, with premiums of $26/MWh in California and $7/MWh in Texas in the high-value case.

Although hybridization increases market value compared with standalone solar and wind generation projects, the report found that restricting a battery system to charge only from the co-located generator and limiting output by the renewable generators interconnection limit decreases value compared with a standalone generator and battery systems that are not so constrained.

Specifically, hybridizing storage with solar reduces value by 7% in California and 11% in Texas relative to the value of standalone storage and solar. For a wind project, hybridization reduces value 5% in California and less than 2% in Texas, the report found.

The report also considered the variety of wholesale power market participation models in which hybrid projects can operate and found that hybrid projects both increase the opportunities and the complexity of engaging in wholesale markets. The key issues to be addressed for hybrid participation in wholesale markets include forecasting, market power mitigation, scheduling, capacity accreditation, , interconnection procedures and costs, offer parameters, resource planning and metering and telemetry.

While acknowledging that more research is needed, the authors said, “commercial interest in the generator-battery hybrid model is growing rapidly, with signed PPAs and interconnection queues demonstrating major expansion of hybrid projects over the next several years.” Only time will tell, the authors said, whether “this trend is a short-lived product of current policy drivers or a more lasting phenomenon.”

Co-locating batteries with variable renewable resources “offers a significant potential value premium in wholesale markets,” the authors concluded, but, they added, “independently sited batteries without limitations on grid charging or renewable generator interconnection limits can capture more value, suggesting that cost-reduction synergies due to co-location will need to exceed the potential revenue loss due to hybridization.”

In a related development, the Federal Energy Regulatory Commission is planning to convene a staff-led technical conference on July 23 “to discuss technical and market issues prompted by growing interest in projects that are comprised of more than one resource type at the same plant location (hybrid resources),” with a focus on hybrids of generation paired with electric storage.