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20th June 2016

Frequency Control Market -
Fewer low hanging fruits than you think

“Which business cases do you have for grid connected energy storage?” I asked exhibitors at the Energy Storage Fair in Düsseldorf.   “Control Reserve”, “Operating Reserve”, “Frequency Control” or “Balancing Capacity” were some of the answers. Those are synonyms for fast responding supply or offtake of electrical power to support grid stabilisation.

Clearly, in the current phase the Frequency Control market allows very lucrative business for energy storage or power-to-X installations. Weekly prices around 3000 EUR per MW for primary control reserve are common in 2016 in Germany. Such prices allow payback periods which are significantly shorter than 10 years for Lithium-Ion Battery systems.

So, Frequency Control appears like the low hanging fruits of the energy storage market.

However, the sustainability of the business opportunities of the Frequency Control markets for new projects must be questioned:

1.       The Frequency Control market is a small and limited market without a potential to grow. Continental Europe has a total demand of 3000 MW of primary control reserve, Germany ca. 600 MW. The six storage projects Steag will install in 2016/17 sum up to 90 MW[1]. Those will cover already ca. 15% of the German market.

2.       Existing suppliers cover all the demand of Frequency Control. New energy storage projects as additional suppliers for same demand will lead to cannibalisation and will reduce the prices. It will be interesting to see how the 90 MW of Li-Ion Storage from Steag will affect the tender prices.

3.       Even the early movers do not have the advantage to secure higher prices due to regular tenders for contracts over limited periods. This means that even early movers such as the WEMAG with the 5MW/5MWh Lithium Ion storage for primary control reserve need to tender every week for a new price. Therefore the future revenues of this project is on risk due to new competitors in the Frequency Control market.

© E.R. Schramek

With each low hanging fruit picked all the others will be hanging a bit higher.

As a consequence grid connected energy storage, power-to-x or distributed virtual storage projects should not relay on the Frequency Control market as the only business case. Otherwise required income may become too low before the projects are paid off.

[1] http://www.steag.com/s-pressemeldungen-detailansicht+M563bdbd2755.html