Large-scale batteries associated with photovoltaic power plants will be the most viable method for developing this kind of power storage in Spain

A report by PwC and the Centre for Environmental, Technological and Energy Research (CIEMAT) concludes that the source of revenue from batteries will be determined by their arbitrage pricing capability in the market and ability to participate in adjustment services or capacity payments.

The widespread incorporation of renewable energies requires the development of technology systems that can help manage their large fluctuations and that can guarantee strength and flexibility in the electricity system. Power storage systems are one of these technologies and, in Spain, the most viable economic model for batteries on a large scale will be tied to renewable generation, especially photovoltaic power. This is the main conclusion reached by the report entitled ‘The Role of Storage in the Energy Transition’ drawn up by PwC and the Centre for Environmental, Technological and Energy Research (CIEMAT), published by the Naturgy Foundation and presented earlier today.

Spain predicts that 74% of electricity generation will be renewable by 2030, for which it plans to incorporate 57 GW of renewable power and 6 GW of storage (2.5 GW of batteries) in order to meet part of its strength and flexibility needs, according to the Integrated National Energy and Climate Plan (PNIEC). The Storage Strategy recently published by the Government of Spain contemplates up to 20 GW of planned storage capacity by 2030, “which underlines the growing trend for penetration by these technologies in Spain to support the strength and flexibility of the electricity system”, according to the report.

In this scenario, batteries will need to form part of a supporting technologies mix capable of effectively meeting all the needs of the system, helping to adjust supply/demand and flatten the price curve. In this regard, the economic analyses conducted by PwC and CIEMAT indicate that the most viable model for large-scale battery development in Spain will be hybridisation with photovoltaic technology.

Necessary combination of market prices, capacity payments and adjustment services

“The source of revenue from batteries will be determined by their arbitrage pricing capability in the market and ability to participate in adjustment services or capacity payments”, explains Oscar Barrero, Chief Energy Partner at PwC. “No country has a single source of revenue that makes batteries viable, but rather a combination of these three”, adds Oscar Barrero.

According to the authors of the report, “Spain is not far off having commercially viable batteries in 2025 associated with renewable power plants, especially when bearing in mind that the current context of European Funds will accelerate the necessary investments”. The document states that “the largest problem that still needs to be solved is the uncertainty surrounding revenue from support and adjustment services, which are key to ensuring that batteries can be expected to recover costs reasonably”.

Spain is undergoing a process of development and adaptation in its electricity system to enable the management of demand and storage in adjustment services, which would allow them to provide strength and flexibility. Their involvement in the system therefore needs to be properly regulated.

“In the future, when they are fully developed, we expect the adjustment and capacity markets to eventually cover 50% of the revenue from battery installations, meaning that revenue from arbitrage pricing will account for the other half”, according to the report.

Ion-lithium batteries have positioned themselves as the ideal medium for seasonal storage over short periods of time. Their cost has fallen 84% since 2010 and is expected to continue falling over the coming years.

“Furthermore, their rapid response and storage capacity would enable them to manage high power levels for hours, which could serve major industry or even very large population centres”, explains Mercedes Ballesteros, Energy Director at CIEMAT.

“We are moving towards an electricity sector in which the difficult balance between supply and demand will be increasingly more complex”, explains Oscar Barrero. “On the one hand, we have a more renewable, more intermittent mix, and on the other, we have a demand that used to be more predictable. However, with the new uses we are expecting to see, such as electric vehicles, this will introduce certain volatility on the demand side”.

In this new context, storage offers flexibility and strength but “we need different storage technologies to co-exist because they do not all have the same applications or characteristics”, says Mercedes Ballesteros.

“We will need to have seasonal storage options, such as pumps, compressed air or hydrogen, and other daily or hourly options, such as batteries or thermal storage; as well as rapid response storage options for the new forecast demand requirements”, adds the CIEMAT director.

After the report was presented, a roundtable took place with energy experts including Miriam Bueno, Deputy Director-General of Energy Futurology, Strategy and Regulations at the Ministry for the Ecological Transition and Demographic Challenge; Jesús Palma, Vice-President at BatteryPlat; Javier Revuelta, Senior Principal at AFRY; and María Pérez, Head of the Storage Project at Naturgy.

Miriam Bueno described storage as strategic for the energy transition and stressed that this is an opportunity to create new jobs and develop new business models. In terms of roll-out, she said it will offer “an opportunity for those regions that will no longer have installations that run on fossil fuels”.

In turn, Jesús Palma underlined the need for technological development. “For storage to meet all expectations and to support the energy transition, certain technological evolution is required that faces considerable challenges. Spain is prepared for those challenges in terms of capabilities, companies and R&D&I. “We will need to find technological developments to suit the new applications tied to the electricity system, because development has been taking place until now in other sectors, such as the automotive industry”, he explained.

From his consultancy firm perspective, Javier Revuelta said that the development of storage is seen with certain optimism provided that the right incentive conditions are created. “We believe that targets will be slightly lower in terms of pumps due to the high cost of investment and the long implementation time. As for batteries, incentives will be needed and a commitment must be made to batteries with four-hour technology”. In any case, he stressed that “the transition makes no sense without storage”.

María Pérez presented the opinion of a developer such as Naturgy and said that the major challenges being faced in terms of storage are “adaptability to new models and markets, and integration into our systems and our renewable generation with smart operations in a complex market”. She went on to add that “the funds are a great opportunity that would enable us to bring forward profitability for this type of projects”.

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