Energy storage |
Germany’s energy transition: why big batteries must be included
A study by Frontier Economics – commissioned by Fluence, BayWa r.e., ECO STOR, enspired, and Kyon Energy – provides valuable insights for advancing the energy transition in Germany. The new analysis underlines the pressing need for the electricity storage strategy recently put forward by the Federal Ministry of Economics and urges its prompt completion and implementation.
Storage is crucial
The recognition of energy storage’s role in power systems will increase significantly in the coming years. The analyses conducted by Frontier Economics show that the capacity of storage deployed in Germany will rise to 15 GW/57 GWh by 2030 if a supportive policy framework is in place. This means a forty-fold increase compared to today. By 2050, the capacity of large-scale battery- based storage systems in Germany can reach 60 GW/271 GWh. This increase is driven by the growing demand for flexibility services in the electricity system and falling costs of storage. Dr Christoph Gatzen, director at Frontier Economics, sees the study results as providing clear indicators as to the future role of storage in Germany: “Large-scale battery storage is critical for the energy transition in Germany. Without the flexibility provided by storage, the country will face higher economic costs caused by increasing gas imports and expensive curtailment of renewable generation.”
The deployment of storage is expected to follow a growth trajectory similar to the one photovoltaic technology has experienced in recent years, both in terms of cost degression and the expansion rate. However, the deployment of storage is purely market-driven, as new facilities can be built and operated economically without government funding.
€12 billion in added value Frontier Economics estimates that using storage to shift the availability of electricity from times of surplus generation to times of electricity shortages can generate a (macro)economic value of around €12 billion by 2050 for Germany. This value is estimated based on the savings from the wholesale markets alone and will increase further when additional benefits of storage, such as system services, decreased CO2
emissions, and
participation in intraday markets, are taken into consideration.
According to the study, the deployment of large-scale storage systems in Germany has the potential to limit CO2
emissions by 6.2 million
tonnes by 2030 and by approx. 7.9 million tonnes in 2040 compared to an electricity system which uses gas-fired power plants instead of storage. Furthermore, storage participation in the wholesale market will lower the wholesale electricity price by €1/MWh on average between 2030 and 2050 compared to a scenario where no energy storage is built. If no energy storage is built and the missing capacity is not replaced by additional new gas plants, the wholesale prices would rise by 4€/ MWh.
Reducing need for gas-fired power The forecast deployment of energy storage systems will further ease pressure to invest in new gas fired power plants. According to the study, Germany needs to develop about 26 GW of new gas-fired power plants by 2030. However, without the deployment of storage as forecast in the model, an additional 9 GW of new gas power plants will be needed.
The modelling by Frontier Economics concluded that although storage cannot replace the construction of gas power plants entirely, it
will reduce significantly the investment required. Considering the current budget crisis and the shortage of the financing required for hydrogen- ready gas power plants, Dr Gatzen stated: “Grid-scale storage systems can be built without government funding and can reduce the need for construction of new hydrogen-ready gas power plants as well as their fuel usage. “Ensuring investment security for storage and green generation assets through the introduction of a clear and reliable regulatory framework should be a priority for policymakers. “We expect the demand for electricity and peak load requirements in Germany to increase significantly in the coming years. There is an urgent need for new large-scale storage systems and other generation assets in addition to the expansion of renewable energies for ensuring security of supply.”
Investment security needed The initiators of Frontier Economics’ study call on policymakers to ensure investment security for the development of new large-scale battery- based energy storage systems. Bureaucratic and regulatory barriers in Germany, such as complex approval processes for new storage projects, should be reduced. All markets for energy trading, capacity, and ancillary services should be market-based and open to all technologies, including storage. The federal government should meet the requirements set out by the European Commission in the current reform of the electricity market and establish indicative storage targets for Germany as quickly as possible. With the recent publication of the electricity storage strategy, the federal government has taken the first step. This must now be translated into concrete legislative proposals without delay.
EU market redesign: pivotal for storage
On 14 December 2023, the Council and Parliament reached a provisional agreement to reform the EU’s Electricity Market Design (EMD), with the goal of reducing dependence on volatile fossil fuel prices. The text emphasises energy storage as a key solution in achieving energy security and decarbonisation, says EASE (European Association for Storage of Energy). EASE Head of Policy, Jacopo Tosoni, commented as follows:
Electricity Market Design reform “Following the energy crisis, it was essential to present new legislation able to address the concerns of citizens and industry. EASE believes the European Union was able to strike the right balance between public involvement and market-based mechanisms. This new legislation focuses extensively on flexibility, and rightfully so: ensuring sufficient energy storage is deployed
is crucial to prevent energy price spikes and gas import dependency. This reform will have a big impact on the energy storage sector”. Role and design of capacity mechanisms “Capacity mechanisms should promote green flexibility. The decision to keep subsidising fossil fuels power plants through capacity mechanisms, albeit under strict conditions, is a step in the wrong direction. EASE believes that this approach hinders grid decarbonisation and furthers dependency on gas imports. In the event Member States choose to implement new capacity mechanisms, EASE is confident that they will formulate these mechanisms in line with decarbonisation objectives”. On the significance of PPAs “The reform promotes PPAs as a key instrument in enhancing market access to long-term contracts. They provide a long-
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term revenue stream for energy storage: the reform will incentivise the PPA market and consequently facilitate investments in new energy storage projects.” Pivotal moment
“All in all, the new reform marks a pivotal moment for energy storage, as it becomes a key focus among European policymakers. The introduced provisions are poised to significantly accelerate energy storage deployment.”
Next steps: The provisional agreement reached by the co- legislators currently awaits approval and formal adoption by both institutions. EASE says it will support member states in setting up new capacity mechanisms and will spearhead efforts to foster the 24/7 PPA market, “which will play a key role in decarbonising and strengthening the grid.”
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