Challenges for storage operation and
valuation
Christoph Weber
StoBeS Final Workshop, Essen, 03/17/2016
• Storage perceived as key enabling technology for integrating large amounts of renewables
• Storage offers possibility to balance demand and supply at different moments in time
Arbitrage over time
• Storage may also temporally save excess production which can not be transported due to grid
limitations
Relief to grid congestions
• Various studies to investigate the optimal use of storage in a system context based on
deterministic system models with rather high temporal and spatial resolution
Impact of stochasticity (partial impredictability) of renewable infeed
on optimal storage operation and valuation?
Methodological research at cross-roads of Energy Economics and Finance
03/17/2016StoBeS Final Workshop, Essen
Motivation
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Introduction 1 2 3 4 5
• Key perspectives for storage operation and valuation
– System perspective vs. investor perspective
• Key drivers for storage value and investment
– Markets, prices, costs, regulations
• Key methodological challenges
– Stochasticity, degradation of storages,
• Key assessment challenges
– Future scenarios
03/17/2016StoBeS Final Workshop, Essen
Key issues
3
Introduction 1 2 3 4 5
03/17/2016StoBeS Final Workshop, Essen
Agenda
4
1. Introduction
2. Valuation perspective
3. Drivers for storage operation and value
4. Methodological and assessment challenges
5. Conclusions
Challenges for storage operation and valuation 1 2 3 4 5
Pros:
• Reflects societal need for storage
• Reflects equilibrium solution in competition with other flexibility options
• Describes optimal use of storage in a system perspective
Cons:
• True stochastic modelling difficult to implement
• Disequilibria in real world hardly reflected in models
• Impact of distorting regulations frequently not modeled in detail
• Limited validity of resulting prices & investment decisions
03/17/2016StoBeS Final Workshop, Essen
Valuation perspective 1: System perspective
5
Valuation Perspectives 1 2 3 4 5
Pros:
• Reflects investor willingness to invest
• Capable of describing in detail the impact of regulations on storage
• Modelling of stochasticity more easily done
Cons:
• Feedback of investments on price not included
Results only valid for small investments (price takers, first-of-a-kind)
• Challenge to model valid price scenarios
03/17/2016StoBeS Final Workshop, Essen
Valuation perspective 2: Investor perspective
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Valuation Perspectives 1 2 3 4 5
03/17/2016StoBeS Final Workshop, Essen
Agenda
7
Challenges for storage operation and valuation 1 2 3 4 5
1. Introduction
2. Valuation perspective
3. Drivers for storage operation and value
4. Methodological and assessment challenges
5. Conclusions
Operation for time arbitrage
Key drivers:
Accessible Markets
Price variability
Price Predictability
Regulation
03/17/2016StoBeS Final Workshop, Essen
Basic principle of storage operation and value creation
8
Storage
Sell highBuy low
Value of storage = Expected future cash flows from storage operation
Drivers for storage operation and valuation 1 2 3 4 5
• Volume (Electricity Consumption)
≈ 550 TWh ≈ 63 GW * 8760 h
• Average Price currently
≈ 22 EUR/MWh
Increasing Importance: Intraday spot market
Volume at EPEXSpot ≈ 38 TWh ≈ 4 GW * 8760 h
03/17/2016StoBeS Final Workshop, Essen
Accessible Market I: Spot market day-ahead
9
Drivers for storage operation and valuation 1 2 3 4 5
traded
03/17/2016StoBeS Final Workshop, Essen
Accessible Market II: Primary Reserve
10
Drivers for storage operation and valuation 1 2 3 4 5
• Volume (including NL, CH, AT)
≈ 0.8 GW * 8760 h
• Average Price
≈ 20 EUR/MW/h
• Minimum lot size +/- 1 MW
• Activation time < 30 s
Market segment for large batteries attractive
• Minimum lot size +/- 5 MW
• Activation time < 5 min
03/17/2016StoBeS Final Workshop, Essen
Accessible Markets III: Secondary Reserve
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Drivers for storage operation and valuation 1 2 3 4 5
Negative Positive
blue: primary time,
orange: secondary time
• Volume ≈ 2 GW * 8760 h positive & negative
• Average Capacity Price ≈ 5.9 / 2.4 EUR/MW/h
03/17/2016StoBeS Final Workshop, Essen
Accessible Markets IV: Tertiary Reserve
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Drivers for storage operation and valuation 1 2 3 4 5
colors: different products
• Minimum lot size +/- 5 MW
• Activation time < 15 min
• Volume ≈ 2 GW * 8760 h positive & negative
• Average Capacity Price ≈ 0.29 / 0.09 EUR/MW/h
Negative Positive
• Currently no markets for local congestion management & local system services
• System services also procured at national level
– Valid approach for reserve power
– For reactive power local provision necessary, but so far provided mostly by conventional units
without explicit remuneration
With new electricity market law no longer obligation to build a congestion-free grid
Potential benefits of use of storage in joint grid / market applications
Cf. talk of Stefan Kippelt later
03/17/2016StoBeS Final Workshop, Essen
(In-)Accessible Markets V: Local congestion management
/ system services
13
Drivers for storage operation and valuation 1 2 3 4 5
Price variability:
• mainly dependent on the slope of
the merit order curve at the current demand level
Price predictability:
• strongly dependent on renewables, load and outage forecast errors
• Considerable improvements in short-term forecast accuracy over last years (up to 3 days)
• Uncertainty month-ahead and beyond remain
Impact on storage operation dependent on size of storage & existence of natural inflows
03/17/2016StoBeS Final Workshop, Essen
Price variabilty and Price predictability
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Drivers for storage operation and valuation 1 2 3 4 5
Impacts of regulation on storage operation and value through different channels, inter alia
• Regulation influencing wholesale market
price levels and variability
– Renewable support mechanisms,
– Carbon pricing
• Regulations on market entry barriers
– Lot size
– Prequalification for reserve power markets
• Regulations on retail markets
– Self-consumption incentives for prosumers
– Incentives for real-time-pricing
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Regulation
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Drivers for storage operation and valuation 1 2 3 4 5
• Regulations on grid-market interface
– Unbundling
– Grid usage fees
– Congestion management mechanisms
(e.g. zonal or nodal prices)
• Regulation on direct support for storage
– Investment subsidies
– …
03/17/2016StoBeS Final Workshop, Essen
Agenda
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Challenges for storage operation and valuation 1 2 3 4 5
1. Introduction
2. Valuation perspective
3. Drivers for storage operation and value
4. Methodological and assessment challenges
5. Conclusions
Deterministic operation and valuation approach:
Solution of a deterministic optimization model
No particular methodological challenge except:
Large storage systems (e.g. system of interconnected hydroreservoirs)
System modelling with multiple technologies, multiple countries and high temporal resolution
Stochastic modelling:
Multiple uncertain factors
Short-term uncertainties with known distributions
Long-term uncertainties without known distributions
Modelling of sequential decision making without anticipation
03/17/2016StoBeS Final Workshop, Essen
Key methodological challenge: Coping with uncertainty
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Methodological and assessment challenges 1 2 3 4 5
• Given a deterministic problem with problem size k · T (= 400)
k: number of decision variables per time step (e.g. 4), T: number of time steps (100)
• Now: Consideration of f stochastic factors (1) with s possible values (8)
problem size N · k · T
problem size k · N T = k · sf·T ≈ 8 · 1090
Curse of dimensionality of stochastic programming
Solution as full stochastic problem only possible if N and/or T are chosen as small
Solution through backward induction – stochastic dynamic programming if limited number of
state variables z (2, e.g. storage filling and aging status of battery) with discretized levels l (10)
problem size (k-l) · T · sf · lz = 1.6 · 105
03/17/2016StoBeS Final Workshop, Essen
Stochastic modelling
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Methodological and assessment challenges 1 2 3 4 5
N = sf stochastic cases per time step
• Scenario: possible future
• Describes a setting that is consistent in itsself – plausible but not necessarily probable
• Probability not readily assigned
Use of a hybrid fundamental-stochastic model to develop consistent scenarios based on
Renewable expansion scenario
Conventional generation fleet
Fuel & CO2 prices
Demand
….
Cf. further presentations
03/17/2016StoBeS Final Workshop, Essen
Future scenarios
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Methodological and assessment challenges 1 2 3 4 5
03/17/2016StoBeS Final Workshop, Essen
Agenda
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Challenges for storage operation and valuation 1 2 3 4 5
1. Introduction
2. Valuation perspective
3. Drivers for storage operation and value
4. Methodological and assessment challenges
5. Conclusions
Project has developed
• Novel methodologies
– For stochastic assessment of storage operation and value
– For modelling stochastic input factors
• Considered key application cases
– Market oriented storage operation
– Optimization of self-consumption
– Combined use of storage for grid and market purposes
03/17/2016StoBeS Final Workshop, Essen
Final remarks
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Conclusions 1 2 3 4 5