Why and how to invest in storage: development of an economic and financial plan for a SDA in Italy.
Creation and development of an economic-financial plan of a SDA (stand alone or combined with a RES plant) in Italy, in light of the capacity market and fast reserve
Inveco and Ing. Andrea Girelli have carried out a study in collaboration with Tages Capital: that is, a practical simulation of coupling between an existing PV plant and a new SDA that intends to participate in the Capacity Market.
Given the necessary and continuous growth of installed power of non-programmable renewable sources (wind and photovoltaic) and their rapidly falling costs, electric storage systems (batteries) are acquiring an increasingly important role in the energy generation mix.
What is Storage: the ally of renewables
Storage systems are critical to the future of renewable energy.
Their role is to store electricity and make it available when it is needed most, acting as a balance between supply and demand and helping to stabilize the grid.
Batteries, connected in sequence, are currently among the most widespread storage systems and are going through a real technological revolution, guaranteeing greater efficiency, lower costs and a design-to-recycle approach, aimed at obtaining a product that is always more sustainable.
In this regard, on electrochemical storage systems, it should be remembered that the GSE published in February 2021 a new update of the technical rules aimed at integrating energy storage systems into the national electricity grid: this document provides sector operators and subjects responsible for all the indications on the provisions in force for the management of accumulation systems integrated with the electricity production plants, managed by the Gse.
As required by paragraph 1 of the art. 10 of resolution 574/2014/R/eel, explains the GSE, these technical rules integrate the operating regulations for access to the incentive schemes dedicated to plants powered by renewable sources and for their maintenance over time, in addition to the technical provisions for the release of guarantees of origin and for access to the guaranteed minimum prices as part of the dedicated withdrawal.
The contents of the current version implement the further regulatory provisions, as well as the updates of the CEI 0-16 and CEI 0-21 standards carried out by the Italian Electrotechnical Committee.
In Italy, "Terna's 2021-2025 Business Plan" should also be mentioned, which has the objective of increasing the transport capacity of the grid, investing in storage systems (including pumping) and renewable sources, all to improve the security of the electricity system.
Why and how to invest in Storage.
In the study, mentioned in the introduction of the in-depth analysis, the existing PV plant was examined, which is that of Giugliano di Campania, located in the central-southern zonal market, with a power of 20.4 Mw.
The historical production (referring to the years 19/20/21) was graphed for each hour of each day of the year.
It was then hypothesized to couple this PV system with a Huawei 10MWh/2.5Mw accumulation system, Luna model with modular technology with compartments of 2mwh each.
With Huawei technical support, it was decided to select a 4-hour system with rates equal to 0.25 in order to guarantee, during the download phase, the maximum hourly coverage of the peak hours as defined by the capacity regulations.
This SDA would therefore obtain a derating of 30% and a CDP equal to 1.75Mw.
The parallel plant configuration is therefore regulated by Arera resolution 344 which provides for the creation of a dedicated section M3 for the SDA, while leaving the M2 accounting of the energy subsidized in the energy account unchanged.
The same Arera resolution also specifies that no transmission or system charges are applied for the energy withdrawn from the grid in order to comply with the charge cycles of the SDA, nor the PUN, but that the withdrawals are valued and accounted for as prices negative zones.
In the case in question, it was assumed that the selected 4-hour SDA will offer its nominal power (2.5 MW) for all 6 peak hours per day as defined by the triad for the Capacity, thus completing 1.5 daily charge/discharge cycles. Obviously, during the remaining daytime hours, the SDA charge cycles benefit from the parallel with the PV system.
In the case in question, it was decided to size the SDA with a ratio of 1:2 with respect to the nominal power of the PV system.
Based on the simulations, doing this allows, on an annual basis, to carry out 90% of the total charge cycles using the green energy of the photovoltaic in parallel. In fact, the graph shows that even in a month with low photovoltaic production like January, even on the worst days, 1/2 charge cycle from PV is guaranteed.
This slide shows the simulations of the charge-discharge cycles on some days in January and April and, as can be seen, photovoltaics prevails over recharging from the network (grid).
Coming now to the economic aspects, this slide highlights the costs relating to the SDA in question.
The capex of storage, power electronics and connection charges. The opex for managing and contrasting performance degradation and finally the default charges which are assumed to be zero thanks to the sturdiness of both the product and the selected 4-hour configuration.
As regards the revenues generated by the participation of such a system in the Capacity Market, we have a plurality of positive contributions.
First of all, there is the annual premium which, by virtue of recent assignments, has been assumed to be equal to 70k/ME for 15 years.
Then there is the contribution deriving from the arbitrage that the SDA allows by exploiting the price differential between the charge and discharge cycles which has been hypothesized for the next few years equal to 46 euros/mWh. Finally, there is the zeroing of imbalance charges (now absorbed by the trader for dispatching).
These graphs taken from the GME website highlight the increasing trend of the Peak/Off-Peak differential relating to the PUN.
These further graphs highlight a recent daily differential for the central-southern area with peaks of the differential equal to 400 euro/mwh between 2 and 8 pm, where evidently the SDA assisted by a BSP algorithm linked to the markets can generate significant extra profits.
In conclusion: energy storage is the key to giving value to green energy.
The economics of the case examined show how, to date, the ANNUAL PREMIUM (Fixed Fee) is essential for the economic sustainability of a NEW INVESTMENT in SDA (both in the case of coupling with an existing RES and, even more so, in the case of stand-alone applications).
Compared to a stand-alone SDA, the coupling with a PV system guarantees not negligible ECONOMIES OF PURPOSE: in the case in question, the differential in terms of IRR on the investment was estimated at 3%.
The case in question highlights how the Revenues deriving from Arbitrage on GME/MSD are decisive for the economic sustainability of an investment in SDA. However, the highly uncertain nature of the price differential does not allow for a reasonable predictability of expected cash flows.
By its very nature, an investment fund like Tages should favor operations with stable profitability rather than "relying" on energy trading activities.
The reduction in the production costs of a SDA by just 17% by 2025 (as per the literature) would lead to a clear improvement in the profitability of the investment. While, the SDA+FER coupling could be evaluated (ex ante) as a single investment (weighted average of the respective IRRs).
For future PV plants in "market parity", the addition of an SDA can allow for a mitigation of the "pricing" risk due to the flattening of the curve in the central hours of the day (robustness of the investment).
