Electricity Storage
time pricing. Whether the impact of both storage and DSM would be symmetric or asymmetric is an interesting question: if there is an element of demand destruction rather than demand shifting from DSM, then the impact would be asymmetric. The general impact would be to narrow the differential between peak and baseload prices, but an asymmetric effect would be to lower average prices overall. Storage shifts supply from low demand periods to high demand periods. DSM shifts demand from high demand periods to low ones. The combined effect is to smooth price fluctuations by enhancing the load following capability of the generating fleet. There would be clear gains in overall system efficiency; a reduction of spinning reserve and less investment in total generation capacity (assuming storage is less expensive than power plant). But, perversely, there would be less incentive to shift demand from high to low peak use times because the price benefit of doing so declines. Energy storage undermines not just its own profitability but DSM as well.
can be delivered to different parts of the market. Transmission costs have to be taken into account. Price differentials between regional markets with different levels of storage capacity would still depend on the existence or not of congestion between those regional markets.
... electricity storage will be most
profitable when electricity is stored and released as often as possible to take advantage of daily price swings
Long-Term Storage The concept of long-term
storage for electricity may seem bizarre considering the difficulty in storing electricity at all. But if the loss of efficiency occurs
primarily in the storage and retrieval of the electricity, then the costs of keeping it in storage for an additional day might in fact be quite low. Electricity could then be stored, like oil, not to meet demand a few hours later, but to be delivered next month, next season or even next year. The real cost would be one of opportunity; electricity storage
Storage Access The impact of electricity storage on the market will also depend on how it is organized within a power system. Currently, electricity storage is generally envisaged as an adjunct to a power generator, who will generate, store and then sell the electricity. Storage capacity would be owned by the generator and dedicated to one supply source. This implies that the ownership of the electricity cannot change while it is in storage. In the oil market, storage is often provided by a third-party,
who receives space rental fees and does not benefit or lose from the differential in price between when the oil is stored and when it is sold. Ownership of commodities in storage can change without leaving storage. It is worth considering the different possibilities for electricity: independent warehousers renting capacity; third-party traders which have their own storage capacity; or dedicated storage for individual power generators. The use of Alpine and Norwegian hydro resources as huge
batteries for the rest of Europe, storing predominantly excess wind power, has been proposed by some academics. How this would work would depend on all kinds of infrastructural questions, but also on the model employed regarding ownership, use and access to storage. As with gas, the capacity of storage to moderate daily and seasonal changes in demand, depends on the absolute amount of storage capacity, but also the speed with which the commodity
worldPower 2010
will be most profitable when electricity is stored and released as often as possible to take advantage of daily price swings. But because of its self-defeating properties, and the addition of DSM, as the differential between peak and baseload prices shrinks, the attractiveness of longer-term storage may increase. Electricity would become and trade more like natural gas.
Pecking Order Reversed The shrinking of the differential between peak and baseload
prices would penalize two categories of power provision: storage itself, and those technologies most reliant on their ability to be flexible, i.e. natural gas, currently seen as the major fossil fuel beneficiary of future energy systems. This is because it has lower emissions than coal, because its flexibility makes it a perfect match for intermittent renewable energy resources and because it is a tried and tested technology with a relatively low capital cost. There is also a lot (and growing amount) of it. However, one of these major attractions is negated by storage.
Intermittent energy sources no longer require the flexibility of natural gas-fired plants. The concept of peaking plant would disappear. Gas needs a big differential between baseload and peak time prices in order to justify its higher fuel costs. An electricity market with storage would make most competitive technologies with the lowest marginal fuel cost. These are firstly wind and solar, where the fuel cost is zero, then coal and nuclear, and lastly gas. ■
Ross McCracken is Editor
Platts’ Energy Economist
www.platts.com
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