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EU energy storage association official calls for longer-term revenue streams

➤ Batteries used in isolated systems but deployment will spread, says chief storage lobbyist in Brussels.

➤ Key policy issues being addressed, but investors need longer-term revenue streams.

➤ Europe better positioned to invest in next-gen production rather than compete with Asia.

Patrick Clerens is the secretary general of the European Association for Storage of Energy, or EASE, and represents the interests of companies across the energy storage value chain to European legislators in Brussels. With ambitious renewable energy targets in the EU and costs for batteries coming down, developers, utilities and grid operators are all increasingly looking into the viability of storage applications. Meanwhile, EU institutions are currently negotiating new measures for electricity market design that will include frameworks for batteries' role in power markets. The European Commission, the bloc's executive, is separately trying to jump-start a domestic battery manufacturing industry to rival the dominance of Chinese and South Korean producers. Clerens discussed the current market environment for batteries in the EU, key policy issues facing the storage sector and his expectations for grid-scale battery deployment with S&P Global Market Intelligence during the European Utility Week event in Vienna on Nov. 7. What follows is an edited transcript of that conversation.

S&P Global Market Intelligence: Where in Europe is the market environment currently most favorable for battery storage? Do you see new revenue streams opening up?

Patrick Clerens: There is no one technology or application that fits all needs, so we see different storage needs and therefore different parts of Europe where things happen. There is a lot of existing pumped hydro storage that is used, but we also see newer storage technologies coming in, mainly battery storage. In there, we have two main applications one is to have system services and, on the continent, this is mostly frequency containment reserves, or FCR. And there, storage is bringing the cost down for the consumer of this FCR service. In the past, FCR was delivered by thermal plants coal, gas, biomass. And by using batteries, the cost for FCR services is going down, [meaning] storage is replacing thermal plants for FCR.

Then there is a need in less integrated systems like the U.K., where you have a specific product that has emerged, which is enhanced frequency response, or EFR, where you have to react and deploy fully in less than a second. Batteries have bid into this tender. [In the future], you will see more and more hybridization of these technologies. Some system services which are now done by batteries if there's a lot of fluctuation, you will see that something faster than batteries will be linked to it, like capacitors, or pumped hydro storage together with batteries. So it's not always one technology, but there are different ones coming together.

We miss the same service as in the U.K., enhanced frequency response, on the continent. For the moment, if you look at frequency curtailment reserve, it is a service which needs to deploy in 30 seconds. The energy storage devices who bid into an FCR today on the continent are a small number, but they do all the heavy lifting because a steam turbine, which is bidding into the same service, gets the same revenue. But the batteries have already limited or redressed the disturbance before the steam turbine is able to react. The one who is doing the heavy lifting should get a better revenue stream. So we need from the market design new services, which are based on system needs faster reacting, more accurate and remunerate devices that can provide those system needs in an adequate manner.

The last application that we see is systems where electricity prices are very high, isolated systems far away from the grids, where the megawatt-hour could reach prices of more than €150, while on the mainland it is around €40. In those cases, it makes economic sense to use renewables and batteries to replace existing diesel or oil engines.

The environment is most favorable where there's the biggest need. We see that in Ireland, in the U.K. and in isolated systems like islands. That's a very positive environment. For the rest, there's a lot of adaptation out of goodwill, but it's not always easy.

What are the key policy issues that can be addressed at an EU level to remove any barriers to wider deployment and integration of batteries?

There are a lot of barriers addressed at an EU level in the Clean Energy for all Europeans package today. The big question was about defining what is energy storage, and for the first time, it has been defined now which helps to define taxes, costs and so on. The biggest question was, is it storage if you take electricity and convert it into heat, even if the heat is not coming back into the electricity system. It's not voted upon [yet] but all parties have agreed that [this counts as] energy storage.

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Another question is, are we able to give longer-term contracts for the building of these devices for investors? Because the prices for batteries are going down by 10%, 20% a year, faster than anticipated. So in order to make sure that I have a revenue stream I need a minimum contracting time. If you want to have a technology rolled out, you need to give investors security that's the main driver. But longer-term contracts are not addressed [in the legislation], on the contrary, it's more saying that for system capacity it should be tendered very short term.

From a physical point of view, a megawatt-hour can only be consumed once, but from a taxation point of view, it can be taxed twice as consumption. We need to adapt this. And then grid fees are not the same everywhere in Europe. We're talking about a level playing field, where we have the ability to sell electricity around the continent and play in different markets around the continent. That storage may not be discriminated against is also in; it's mentioned everywhere in the package that you can use different sources, including storage. The commission, when the package was proposed, said that regulated entities should not be allowed at all to own energy storage. [But] it seems to go in the direction now where it's allowed for infrastructure services when storage is a fully integrated grid asset meaning it replaces building a [transmission or distribution] line. And then it comes down to whether it is more economical to build a line or build a storage device. Otherwise, you're forcing the transmission system operators and distribution system operators to limit their arsenal to stabilize the system.

How important is it to get a battery production chain established in Europe, as the commission is trying to do?

The European Commission says that it makes no sense to have the reliance of oil replaced by the reliance on batteries. We import oil from Saudi Arabia today and we will import batteries from China tomorrow. This makes no sense from a security of supply perspective that's what the commission says. The biggest driver is electric vehicles for the moment. But these batteries in Europe I'm not sure they should be only looking at copying what's happening around the world, or if we cannot develop own batteries, say solid-state or metal-air batteries. Should we try to compete with the Asian markets? [But] there's a political will and there will be economic help from the commission.

Where do you see deployment accelerating in the next few years?

The era of storage has just begun. There are a lot of cases where storage is deployed and used on an economic basis frequency services, island situations, isolated systems and now we see that in the next five years a big, broader rollout will come to get even more variation out of the system. It will be more than only frequency curtailment, we will see more arbitrage coming, there will be more secondary reserves. All the system stabilization will be done more with renewable energy sources. We have our emissions targets under the Paris agreement and you cannot balance with gas, with coal, with fossil fuels anymore it's just not possible.

And we're seeing member states going further already [than the EU]. Ireland is making very specific services where they ask for fast reacting [devices]. The islands see the need faster than the [more] interconnected continent. So Ireland and the U.K. are the ones that come with specific projects which their systems needs. The rest of the EU should look to systems like theirs, which have a big penetration of renewables, and the rest of the EU will come there a few years later. We can learn a lot from what's happening there.