Thought Piece MAKING BATTERIES WORK

MAKING BATTERIES

WORK

Photo courtesy of Fluence

Thought Piece:

Thought Piece:MAKING BATTERIES WORK

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ContentsWhy Large Scale Battery Energy Storage Works 3

CAPEX and OPEX Considerations 5

Battery Layouts and Housing 6

The benefits of a Tender exercise 7

Battery Performance and Flexible Warranties 8

Battery Lifecycle and Augmentation Strategies 10

Revenue Stacking and Flexible Control Systems 11

Safety, Fire Risk and Insurance Costs 11

Value Additions 12

Conclusion 13


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Why Large-Scale Battery Energy Storage WorksWith increasing renewable energy penetration to electricity grids all over the world, a significant problem of unbalancing and uncertainty in generation supply, primarily due to the intermittent nature of renewable energy generation, has come to the forefront of concerns for grid operators and utilities alike.

Grid unbalancing refers to the phenomenon of frequency and voltage fluctuation in the electric network. The former feature, frequency, is what is called a global variable, and is effectively the same across any electricity network. This is the most important parameter that grid operators need to maintain in order to protect the overall supply of electricity and the equipment that delivers this supply.

Traditionally, flexible gas-fired plants or other flexible generation, have been used to overcome any unbalance in the grid. This is due to their flexible ramp up and ramp down times and operating range thus allowing the grid operator to balance the system accordingly. However, advancements in battery technology and the possibility of co locating batteries with renewable power plants have led to a new and possibly cheaper solution in providing these balancing services and thus a new market.

While the concept of energy storage is not new, nor is the use of Battery Energy Storage, the use of batteries in providing large scale grid storage and ancillary services (frequency support, voltage support, black start) has become increasingly popular in the past 5 years given the modularity, simplicity and decreasing costs of the battery systems. For example, in the UK, according to National Grid Monthly Balancing Services Summary , the cost of grid balancing services for August 2019 was £50.7m (45% of overall costs) with £32.49m (29% of the overall costs) spent on Ancillary services.

More and more countries are opening their doors to the idea of integrating electric storage into their networks to alleviate constraints, particularly with the distribution and sometimes transmission level infrastructure.


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In order to develop energy storage projects for optimal cost, while at the same time delivering efficient and effective services, one needs to look at the entire techno economical life cycle of the project.

This thought piece focuses on MWh scale Li Ion battery systems, as these are most suitable for grid scale projects in providing the services that many utilities and off takers require today. These services typically include (among others):

• Time shifting (storing excess generation during times of high production and discharging during times when there is high demand);

• Frequency response services (the battery can inject or absorb active power in order to assist with raising or lowering the system frequency when instructed by the grid operator).

• Capacity services (Availability, the battery is available to support the grid if required across a range of services, developers are paid a capacity payment monthly for maintaining the asset in an available state);

• Operating Reserve. Similar to availability, the battery effectively serves as a type of spinning reserve that the grid operator can call upon during times of system instability;

• Reactive Power Services (Voltage support, the battery can inject or absorb reactive power in order to raise or lower the voltage of a particular area of the network which it is connected to);

• Black start (Ability to restart parts of an electric network after a black-out).

Due to the current limitations in battery technologies, these systems are sized to completely charge/discharge between 30 minutes to 4 hours.

This thought piece explores WSP’s views on the different factors which need to be considered for cost optimisation in grid scale battery projects, focusing on Li Ion technologies, including the following aspects:

• Capex and Opex considerations;

• Battery layouts and housing;

• Tendering process;

• Battery Performance and Flexible Warranties;

• Battery lifecycle and Augmentation;

• Revenue Stacking and Flexibility of the control system;

• Safety, fire risk and insurance;

• Value Additions.

Figure 7 - Example PV+BESS - Despite a 15MW curtailment, with the help of BESS the plant is capable of producing 20MW+ with BESS storing the excess


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CAPEX and OPEX ConsiderationsThe graph below shows varying CAPEX and OPEX prices (average) with the scale of the system installed. As is apparent, the larger the system, the lower the per kWh price is. However, there is an economic optimum capacity limit to which Li-Ion should be installed, this is based on the length of storage duration required. Typically for longer duration storage, 4 hours and upwards, other technologies such as flow batteries are considered to be more efficient.

These prices reflect the average prices quoted by different suppliers across a range of project sizes. The typical CAPEX costs range between £300/kWh installed down to £200/kWh installed for large installations. Similarly, the OPEX ranges from £8/kWh/year to £2/kWh/year depending on size and specific warranty arrangements

Additionally, the pie chart below depicts the CAPEX breakdown for a typical BESS system once installed and commissioned.

The majority (typically 46%) of the cost is taken up by the BESS modules, racking, container, HVAC and Power Conversion System (PCS). Civil and Electrical Balance of plant makes up 30% of the cost with the grid connection and telecoms, security and site facilities comprising the remainder (24%).

As with other technologies, including solar PV plants and wind farms, the majority of the cost learning curve over the years with BESS systems has been with improving the underlying technology, namely the battery cells/modules. This technology has become more energy dense and cheaper. Common system such as HVAC and internal cabling have limited cost savings over time as they are established components. Civil and Electrical Balance of Plant costs vary substantially on a site-by-site basis depending on the complexity of the connection or installation.

Other 10%

Battery System 46%

Balance of Plant 30%

Grid Connection 14%

Figure 2 - Breakdown in BESS CAPEX price

Figure 1 - Average CAPEX and OPEX pricing for 2-hour Li Ion Battery Systems

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Battery Layouts and HousingCurrently, the most popular grid level battery systems are stored in containers, while some others are housed in large warehouses. The below figure is from an Enhanced Frequency Response project in the UK.

The BESS containers are usually 40ft x 8ft (12.2m x 2.43m) shipping style containers, however certain suppliers choose to provide containers of 20ft x 8ft (6.06m x 2.43m) and some even 52ft x8ft (15.85m x 2.43m). These ‘containerised solutions’ can house the battery cells, the battery management systems, HVAC and fire suppression systems and provide energy densities anywhere from 300kWh/container to 5MWh+/container for Li Ion batteries. Considering that every square foot of land is expensive, these energy densities and container layouts become a critical part of the design and cost of the system.

While the higher energy densities of some containers can be attributed to better energy density per battery cell, it should be noted that it is also based on the arrangement of the other hardware within the container and whether or not this is optimised for space saving.

For example, a reputable BESS supplier has now offered a 52ft x 8 ft container with an energy density of 6MWh. While this is very impressive and does suggest a better battery cell energy density, it should also be noted that this supplier chooses to keep its HVAC systems outside the container, thereby allowing more cells to be placed within the container. Thus, merely choosing the supplier providing the higher energy density does not mean one always gets the best optimisation on land usage and indeed

the overall solution may be less technically robust and durable.

Certain BESS integrators are adopting an additional safety element to their utilisation of a standard container. These suppliers are now choosing to place access doors along the longer sides of the container and access all the hardware from the outside of the container. This means no personnel will have to enter the container and removes significant risk (such as electrocution, fire hazard, working in a confined space) to the person while meaning that any additional space can be fully utilised for module racking. Additionally, this is said to make replacement of racking and modules quicker and easier and thereby save time for Operation and

Maintenance (O&M) activities.

While certain projects have comprised of indoor grid scale battery systems, this is highly dependent on location and availability of land or existing infrastructure. Space and accessibility constraints, possible requirements of structural support for buildings for large battery systems and a higher fire risk have all added to lesser number of indoor battery systems. These along with IP65 or higher rating of newer battery and Balance of Plant (BoP) equipment have seen outdoor battery systems gaining popularity. Unless, there is a very specific need for an indoor grid scale battery system, an outdoor containerised solution is typically considered a preferable solution.

Figure 3 Co-Located BESS in a PV + BESS Project, UK photo courtesy of Anesco


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The Benefits of a Tender exerciseEnergy storage and batteries

Not all large power projects, in particular battery projects may require a full procurement and tender exercise, however the benefits of running one often lead to greater clarity, improve cost savings and an overall smoother engagement with the final contractor and suppliers.

The main risk of not engaging in tender exercise is that Clients are limited to one supplier and would likely not derive the benefits of a diversified offering and market competitiveness. This said, there are further costs involved in running a first-class competitive tendering process, however the benefits of this are considered to outweigh the costs when refining offers with bidders following this process.

WSP have undertaken many grid scale battery projects in an Owners Engineer role and have assisted our clients in preparing detailed Minimum Functional Specifications (MFS), Invitation to Tender (ITT) documents and providing support through bidder clarifications, evaluation, preferred bidder selection and through to Financial Close (FC).

WSP firmly believe that running a competitive tendering process has enabled all of our clients to see a wide range of solutions and cost optimisations for their projects and realised considerable commercial and technical improvements.

CAPEX and OPEX optimisation

During our evaluation of battery projects over the years, it has been observed that projects that have undergone a competitive tender process are around 5% cheaper on overall CAPEX than similar projects where a supplier was approached without a tendering process. Additionally, bidders returned with further reductions of between 8% and 10% at BAFO (Best and Final Offer) stage. This is a significant reduction in the CAPEX and OPEX costs to the Client.

Value additions and other benefits

WSP have observed that bidders, during a competitive tender process and negotiation, almost always provide greater value additions, take up most of the site risk, provide improved commercial terms (such as bonds and securities) and provide greater flexible energy retention warranties.

Multi-faceted evaluation

A robust tender process ensures that the bids received for a project are evaluated not just on general design conformation and price but on all the many other facets that comprise a technical proposal.

For example, one of the most well-known grid level battery suppliers on the market today chooses to not supply fire suppression equipment with their battery system. This particular aspect may not be immediately apparent and whilst this risk is manageable, having the clear understanding of the nuances of various offers provides our clients with a more informed view upfront, resulting in fewer issues later on. These issues incur further unnecessary development costs prior to Financial Close. Whilst some clients have chosen this supplier based on their reputation, others may not be aware of the lack of fire suppression system until the negotiations had progressed significantly. However, the same project, if it underwent a detailed tender process, would have brought this point to the client’s attention at an earlier stage.



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Battery Performance and Flexible WarrantiesMost Li Ion suppliers currently prefer to provide 2-hour battery systems with a very specific battery operating temperature range (<30 °C). This is mainly because of the limitations of the Li Ion technology and the higher capacity degradation associated with faster operation and higher operating temperatures.

If a project requires faster operation, the module suppliers either provide a lesser guaranteed degradation profile or oversize the battery significantly to account for the increased degradation that the battery will incur. Furthermore, if the battery is to be operated at a location with a higher ambient temperature, the suppliers limit the performance during battery cycles or add additional HVAC systems to maintain the operating temperature within acceptable limits. These approaches either affect the actual operation of the system or add cost to the system.

WSP have observed that warranties are usually defined by the following operating parameters.

• Charge rate;

• Discharge rate;

• Depth of discharge;

• Operating temperature;

• Capacity (MWh);

The duration within which the battery guarantee is re calculated (daily, monthly, quarterly or annually). Based on these parameters, 3 different types of warranties are typically proposed by the suppliers.

1. Fixed warranties – The battery supplier guarantees a specific degradation profile based on the operation profile shared by the Client. There is no flexibility and the warranty is based on strict operating parameters. Any variation in this profile or parameters will void the warranty.

2. Adjustable warranties – The battery supplier guarantees an initial degradation profile based on the operation profile shared by the Client. However, the supplier allows for certain variation in some operating parameters, while other parameters remain fixed. The supplier then reviews these over fixed time periods and updates the degradation profile accordingly.

3. Flexible warranties – The battery supplier guarantees an initial degradation profile based on the operation profile shared by the Client. The supplier allows for variation in almost all parameters (within a specific range) and thus allows the client to operate the battery in a flexible manner and allows for variations in the operating parameters. The supplier agrees a formula with the Client and uses this formula over an agreed period to calculate the new degradation profile (this can sometimes occur on a real time basis). This allows the Client to take full advantage of the battery in optimising its operation to generate revenues or benefits.

Further to this the Client may, through the live SCADA monitoring system, reduce or increase the operation of the battery in coming operating periods with confidence.

Therefore, there is a need for flexible warranties for delivering battery projects that provide grid support services. The unpredictability of the operation of a battery providing grid support services means that a fixed guaranteed degradation profile is not a true reflection of the battery operation and thus does not give the advantages to the Operator of the battery system. WSP have worked with major battery suppliers who are currently developing flexible warranties for their customers, and there are many different approaches taken by suppliers for this purpose.

Flexible warranties will also assist clients in determining optimal, cost effective operating strategies without affecting the battery capacity. WSP consider these flexible warranties to be more common place in the large-scale grid storage market and would strongly recommend that these be negotiated and added into any contractual warranty documents for a grid scale battery project.

It is essential to create a mechanism to link the battery supplier’s warranty terms through to any PPA or off-taker agreements. If the operation of the BESS is not controlled by the client, then as a minimum the client would still be protected through this mechanism back to the battery supplier.

The figure opposite shows an example flexible


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warranty curve for a certain BESS operation. The black line shows a fixed warranty profile. This is effectively a fixed usage case at a fixed Crate (the C-rate is the measure of the rate at which a battery is discharged relative to its maximum capacity. A 1C rate means that the discharge current will discharge the entire battery in 1 hour) and a fixed number of cycles per day. This guarantees a fixed energy retention (capacity) at the end of the battery lifetime (in the example case shown below, after 10 years the battery will operate at 70% of its original capacity).

An alternative to this is an adjustable warranty which means if the usage deviates from the fixed warranty line (the black line) then the guaranteed capacity at the end of life is adjusted accordingly however the gradient (or rather, usage parameters) of the battery are not adjusted, meaning that the battery cannot be cycled more times per day or have a higher throughput for any given year. This leads to a purely flexible warranty which allows the user to vary all the parameters of the battery usage, and the warranted energy retention is adjusted in real time - this is shown by the blue curve in the graph opposite. Figure 4 - Flexible Warranty Example

In a flexible warranty, the OEM provides for maximum flexibility to the owner to vary C rate, depth of discharge and other battery parameters and will provide updated project specific degradation rate guarantees


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Battery Lifecycle and Augmentation StrategiesBattery life times for Li Ion grid scale projects vary mainly based on the services and the operation that the system is used for. However, it is clear that any such battery undergoing at least 1 cycle a day (full to empty and back to full) shall not be able to provide the same services at the original power levels after a number of years. Thus, considering the business model, augmentation or cell replacement strategies need to be determined. Most suppliers are comfortable with guaranteeing capacity degradation of up to 60%. Beyond this point, the suppliers usually recommend augmentation. The usage profile determines the rate of degradation which in turn determines the number of years it takes to reach this point. It also does not mean that the battery becomes unusable after this point as there is significant capacity remaining. However, it may not be able to sustain the original usage profile it was designed for.

It is often observed that developers recommend oversizing the battery, especially in co located projects, for over 20 years. This may not be the most efficient approach. With the current rate of improvements, it would be best to design for a life of 8 to 10 years even if the entire project is for a longer time period. This will ensure that the Operator/Owner can get maximum possible usage over this period and any augmentation or replacement required will be with more efficient, improved and a possibly cheaper battery technology.

Figure 5 shows actual degradation profiles provided by three of the top Tier 1 battery integrators for a MWh scale battery project in the UK. All these integrators have used Li Ion modules and have designed their system for the same usage profile, however, the degradation profiles are significantly

different. This is why it is essential to identify the correct supplier for the specific application and to prepare augmentation strategies that help improve or at the very least sustain revenue streams and revenue levels.

Figure 5 - Battery Degradation profiles of three Tier 1 Battery Suppliers


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While determining the best augmentation strategy, the following points, among others, should be considered:

1. Is Augmentation necessary to successfully achieve the revenues forecasted in the business model?

2. Will better battery technologies become available when this augmentation is possibly needed?

3. New Grid level services are being developed and required by Network Operators in the future, so will more lucrative options be available in the future?

4. Is land available for augmentation?

5. Is the current installed system “Future Proof” and ready to accept Augmentation?

Based on the above, an augmentation strategy should be defined during the project development phase. This will enable Developers to allow for additional space, funds and negotiate with suppliers and ensure optimal commercial outcomes. It should be noted that normally augmentation should only require a changing of the BESS modules and potentially the racking systems that house them. The remainder of the Balance of Plant (BoP) components can remain in place and typically do not need to be altered. However, a change in the type of module, racking system or HVACs would need additional containers and thus more land.

Revenue Stacking and Flexible Control SystemsMost grid scale batteries have enough capacity to carry out multiple services and not just a single service. With a flexible warranty, using the battery for different services becomes a viable option and thus aids in revenue stacking. Adding more services to the battery system does not mean adding new battery cells or Low Voltage (LV) or Medium Voltage (MV) switchgear equipment. Almost all controllers and battery management systems are currently limited by the supplier to perform only one specific task. WSP have been involved in projects where negotiations on adding flexibility to the control systems have taken place. Here either the battery supplier allows for a fixed number of additional services for an upfront fee or charges a fee for every additional service. An augmentation or dynamic approach to how the battery system is used and operated can be adopted. This adds benefits to both clients and off takers and is considered to be achievable.

Safety, Fire Risk & Insurance CostsLi Ion battery projects are always considered a fire hazard. While the specific Li Ion technology used changes this fire risk, it is also interesting to note how different battery suppliers approach this issue. There are currently two market leading chemistries in Li-Ion battery technology. The first is Lithium Iron Phosphate (LFP) and the second is Nickel Manganese Cobalt (NMC). The former option (LFP) is considered to be less of a fire risk given that the thermal runaway temperature which needs to be achieved in order

for the cell breakdown and for the installation to catch fire is very high (given the iron has a very high relative melting point). The latter option (NMC) can achieve combustion at a lower (although still high) temperature due to the chemical compounds.

One reputable major battery supplier chooses not to supply a fire suppression system with their battery projects. While this may seem like a concern, discussions with this supplier have revealed that they are confident that their HVAC system and other controls are optimised and thus have no risk of a fire occurring. In this supplier’s case, if a fire does occur, it is left to burn and the specific container is merely replaced for the Client. While this approach does bring in a small reduction in CAPEX due to the removal of the fire suppression system, WSP have observed that this does add to the insurance costs for the project. Additionally, based on the location and site-specific conditions, such an approach may not be feasible.

Other suppliers provide built in fire suppression sys-tems while some have an additional fire suppression system that can be operated from outside the con-tainer. This is growing in popularity and is currently used by a few of the major BESS suppliers.

In early 2019, the New York city fire department has released a document which details an increased level of fire and safety regulations from permitting to component selection to active monitoring and supervision of battery systems. During some of our recent projects, WSP observed that many of the main battery integrators have already started developing and implementing systems based on this stringent fire and safety standard.


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Value AdditionsAlmost all the major battery suppliers currently provide value additions to their battery system, including the following

1. Trading software – Battery suppliers have developed specific software for their battery solutions to be used in the trading market relative to the country in which the system is being installed. Here the software will ensure that the battery is charged and discharged at times that deliver the best returns and most effectively, as the battery supplier is operating the battery so the risk on warranty is almost removed from the Client.

2. Financing options – Battery suppliers are providing financing options or are providing equity financing to projects in the form of reduced costs for profit sharing. These options, other than providing financial support to the Client, ensure that the battery suppliers deliver a sound system quickly.

3. Additional fire safety systems- While the fire suppression systems are being implemented, currently some manufacturers offer this as a value addition.

4. Flexibility to the system. Flexible Warranty, Augmentation etc.



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ConclusionAs we conclude the previous highlights and discussion points, there is a clear benefit of battery energy storage to electrical networks. Through providing buffer storage and grid support services, BESS ensures grid stability while allowing for the integration of more intermittent generation combined with grids becoming more flexible to users’ demand.

The declining costs of battery systems has enabled the technology to be economically feasible to install and operate when competing with other more traditional storage technologies and peaking or grid balancing plant such as diesel or gas engines.

The risks associated with developing and implementing a large scale storage project are better understood and mitigated when engaging with a professional partner, who has experience in all parts of the project’s execution plan.

From a battery suppliers viewpoint, the evolution of battery system warranties has provided much needed certainty and flexibility to both system operators and battery system operators and owners by re-risking the warranty uncertainty.

The Client along with a technical consultant can optimise project specifications, performance requirements, system warranties and supplier negotiations to ensure the development of the most cost effective and most suitable system.

for further information contact

Paul GlendinningDirector, Networks and RenewablesWSP UK [email protected]

Ioannis AndronikidisSolar PV and Energy Storage Sector LeadWSP UK [email protected]

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Thought Piece MAKING BATTERIES WORK