In most Western European countries, the Transmission System Operators (TSOs whose role holds some similarities with that of US ISOs) compensate two terms in ancillary services provision: net energy provided to the grid (in MWh) and available capacity (in MW). Ancillary services payments have originally been put in place to compensate generators obliged to devote a fraction of their generation capacity to support the grid: in this context, this payment scheme does make logical sense. Indeed, the capacity payment compensates the fact that the reserved capacity cannot be bid by the generator into wholesale markets, and the net energy payments are linked to fuel costs necessary to deliver the energy to the grid. Thus, from the generator’s standpoint, the scheme applied in most Western European countries and, until now in the USA, does make logical sense.

But does it also make optimal sense from the grid’s perspective? One can try to show with a simple graphical reasoning that it is likely not the case: Figures 1 and 2 represent two imaginary providers of ancillary services to the grid. With the same capacity made available to the grid and the same net energy effectively provided, these two providers receive the same total payment from their ISOs for the ancillary services. But what kind of service does the grid actually need? A faster response as illustrated in figure 1, or a slower, more stable response as represented in figure 2?

Figure 1: fast response for a frequency regulation resource

Figure 2: slow response for a frequency regulation resource

A quick look at the frequency page on ENTSO-E’s website helps answer this question. This page indeed shows the frequency on the European grid in real time. By staying more than a few seconds on the web page, one can see that the frequency varies continuously and must remain in a narrow band around 50Hz. But, what are the physical mechanisms which impact the frequency and can facilitate its control? Precisely the real time provision and consumption of active power (in MW). Therefore, a resource able to respond faster, akin to the asset presented on figure 1, will have a much greater impact on frequency regulation and, hence, on the grid stability.

This is why as of April 28th 2012 and following Order 755 by the US federal regulator (FERC) issued in October 2011, all the US ISOs2 submitted to FERC their proposed tariff for the so-called “Pay for Performance” compensation scheme. According to this scheme, which had been debated for numerous years (following a February 2011 NOPR or “Notice Of Proposed Rulemaking” by FERC and intense debates, originated initially by Beacon Power, the flywheel company), a new term will be added to ancillary services compensation in the United States. The performance term will compensate the line integral of the power effectively procured by the asset to support the frequency. Without resorting to mathematical jargon, this means that the performance term will be measured in ∆MW and will compensate the “number of MWs up and down provided by the asset” or, to put it even more pragmatically, the “MW mileage” that the asset delivers in order to support the grid frequency.

Figure 3: summary of compensated terms for ancillary services in the USA

Figure 3 above summarizes graphically all the terms which will be compensated by US ISOs for the provision of ancillary services. The logic behind the additional compensation is that a virtuous cycle can be created: the additional payment will make it easier for providers of fast response – in other words, electricity storage systems – to make their investments profitable. At the same time, it is hoped that the increased performance of these assets compared to traditional generating resources will allow the stabilization of the grid with many less MWs being allocated to frequency regulation, therefore generating a net economic surplus.

In Western Europe, compensation schemes similar to Pay for Performance as soon to be applied in the USA have yet to be seen. The courageous decisions that the US regulator and ISOs took stand a chance to make grid support more efficient, rationalize the compensation of ancillary services and, last but not least, to effectively jumpstart the electricity storage industry.

In the face of such a potentially virtuous measure, one is entitled to ask oneself: will European regulators, TSOs and storage stakeholders investigate the case for a European “Pay for Performance” scheme?

1 In the USA, the 6 ISOs oversee markets which ensure the provision of electricity to 150M people, the rest of the population living in areas where the electricity system is still vertically integrated
2 Except ERCOT, the Texas ISO, which is not under FERC jurisdiction

Feed-in tariffs for renewable energy sources, introduced in Germany during the 90ies, have been a successful policy instrument to deploy renewables. The general concept is the payment of a fixed tariff for each kWh fed into the grid. The compensation level, as well as the duration of the tariff, is technology-specific. The feed-in tariff rules are described in the Renewable Energy Sources Act (EEG), which was lastly amended in July 2011.

The German feed-in tariff has the particularity to include a “self-consumption” segment. The self-consumption rate of a PV installation is clearly defined as the ratio between the energy from PV which is used in the house and the total energy generated by the PV installation (0). On Figure 1, the self-consumption rate equals the ratio between area A and the sum of areas A and B. In Germany, the currently observed self-consumption rates are around 30% without storage, according to SMA technologies (1). For the German PV developer and installer IBC Solar (2), the self-consumption rate could reach 70% if storage were to be included in households along with PV.

Figure : Share of PV energy fed into the grid and “self consumed”

(The data used is not real data)

Increasing the self-consumption rate is a mean to reduce the burden created by PV on the distribution grid. In order to incentivize this measure, the EEG law has since 2009 foreseen a payment for self-consumption: if one consumes the electricity generated, one will be paid. So, not only does this user not purchase the electricity from the grid, but in addition, she get an extra “self-consumption” tariff.

These tariffs are differentiated (meaning, the more one self-consumes, the higher the tariffs…) and are applicable for facade, building roofs and soundproof walls, and for power ratings below 500 kW.In 2012, self-consumption tariffs can exceed 10c€/kWh.

Germany is the sole country in the world to incentivize self-consumption for solar PV. These tariffs are applicable for installations commissioned until 2013 (this scheme, which was to end in 2011, was indeed extended for two more years in July 2011) paving the road for potential numerous developments in the German behind-the-meter landscape.
But if this scheme could incentivize battery storage at the household level, other solutions in the “micro-generation” market could compete. Rising electricity bills for households in Germany indeed foster the emergence of new technologies and “self consumption” business models. Micro CHP and fuel cells are alternatives to PV for the micro generation. And heat storage could also be an alternative to the battery.
Even if, with today’s numbers, most of these solutions remain uneconomic, the situation is likely to change soon as technology costs are brought down and electricity prices rise. In this new landscape, incumbent utilities may loose some precious market shares, as some of their customers slowly “vanish” and become self-consumers of their own generation.
What game will incumbent utilities be able to play and which services will they design to keep a grasp on these households who, through the use of storage or micro-generation disappearing from their customer base?

(0) It is not the ratio of the energy from PV used in the house and the total energy used by the house
(1) SMA Technologies, presentation at the IRES Conference 2011
(2) Private communication with a representative of IBC Solar

Ancillary services are energy and power products managed by the grid operator in order to resolve the imbalances between real time load and generation. In this article, we mostly deal with “energy centric” ancillary services, meaning we do not consider compensations for available capacity in MW. Rather, our focus is on energy in MWh effectively activated (“generated” for upward balancing or “consumed”, for downward balancing); as we are in the field of real time and ancillary services, the decision for “activation” is taken after the gate closure of the intra-day market, usually 1 hour to 15 minutes before real time.

On the figure below, we reported the relative market depth of ancillary services, i.e. the ratio between the activated energy upward/downward and the total energy produced over the year 2010 in 5 Western European countries. The relative ancillary services market depth of each country can be qualitatively explained by the evolution of the national generation portfolio of each country.
In Italy, which has the highest proportion of energy activated both upwards and downwards, renewable energy sources, especially PV, have mushroomed in the past few years and months and are geographically concentrated. This strengthens the already existing congestions between North and South.
Spain and Great Britain rank respectively second and third according to the same metric. The share of wind and solar power, that already composed 18% of the energy generation mix in 2010, can explain the situation in Spain. Great Britain is an island, and thus can only be supported marginally by neighboring countries for grid balancing. This fact can be interpreted as one likely cause for the high level of energy activated for ancillary services.
In the case of Germany, it is likely that the growing penetration of renewables and the nuclear phase out will have a strong influence on the amount of energy effectively activated to provide ancillary services. Consequently, it is likely that the depth of the German ancillary services market will increase from its 2010 value.

This short development shows that Western European ancillary services market constitute a relatively large volume (in MWh) for the early developments of the storage industry to address. This first approach needs to be enhanced by financial regulatory, as well as competitive considerations, in order to build a business case for storage assets.

On the financial side, compensation levels need to be added to this analysis: compensations both for the energy activation mentioned above, and for capacity which is also paid for in most countries, need to be coupled with the volume accessible on the markets to assess their real attractiveness. Compensation levels and structure are different across European countries: the local compensation schemes of each country need to be assessed in order to build appropriate business model for storage assets providing ancillary services. But the markets could evolve with the emergence of cross-border markets: the Association for the Cooperation of European Regulators (ACER), created in March 2011, aims, among other ambitious goals, at creating a cross border balancing market. This long-term evolution will have a strong impact on the market rules for ancillary services in Europe.

Ancillary services could represent an interesting initial market for storage assets in Europe. Granted, the regulatory framework needs to be clarified first in order to investigate how storage assets could take part in such markets. Indeed, ancillary services are usually provided by conventional generation, and the potential participation of storage assets depends strongly on local regulations.
Positive regulatory advances have, nevertheless, been observed: for example, the reduction of the minimal bidding size requirements decided in some countries will have a direct impact on facilitating the participation of storage in these ancillary services markets.

For more information on Clean Horizon’s work applied to energy storage and business cases relying on ancillary services, please visit us at www.cleanhorizon.com/reports and login for more content.

With the growing penetration of intermittent renewables and the rise of electric vehicles, the electric grid will keep undergoing huge stresses.These uncertainties at the generation and load side of the electricity value chain call for innovative solutions to ensure long-term grid stability. Along with demand response, grid reinforcement and leveraging the flexibility of the gas grid, energy storage is one of the solutions that will change the face of the electric grid in the coming decade.
Clean Horizon is thus proud to apply its detailed, “field-based” methodology to deliver clear and exhaustive understanding directly through its Update from the Field report.

Our Update from the Field report serves three purposes:
1) Bring transparency and understanding on energy storage regulation: the Update from the Field report gives an accurate and detailed account of regulations affecting energy storage in Europe and in the USA

2) Show some hard numbers and unique analyzes on Western European ancillary services: Clean Horizon has been studying ancillary services markets in Western Europe in depth and delivers unique content on how they could be best leveraged for storage in the immediate future

3) Provide an update on key storage players: Part II of the report is designed to be a handbook of selected key players of the energy storage industry on both sides of the Atlantic. “Flashcards” are given on each company, giving a precise update of their corporate identity and of their projects.

Table of Contents

PART I

A. Energy storage regulatory environment in the USA

1. Political level
1.1 Federal level
1.1.1 Strategic orientation: Clean Energy Standard (CES)
1.1.2 Congress
1.1.3 Department of Energy (DOE)
1.2 State level
1.2.1 Measures supporting the development of renewable energy
1.2.1.1 Renewable Energy Standards (RPS)
1.2.1.2 California Self Generation Incentive Program (SGIP)
1.1.2.2 Measures supporting storage asset procurement

2. Regulatory level
2.1 Federal level
2.1.1 Federal Energy Regulatory Commission (FERC)
2.1.1.1 RFC regarding rates, accounting and financial reporting or new electric storage technologies
2.1.1.2 NOPR on “Variable Energy Resources
2.1.1.3 NOI on Promoting Transmission Investment Through Pricing Reform
2.1.1.4 NOI, Third-party provision of ancillary Services; Accounting and financial reporting for new electric storage technologies
2.1.1.5 Order 755: Frequency regulation compensation in the organized wholesale power markets
2.1.2 NERC
2.1.3 Environmental Public Agency (EPA)
2.2 State level
2.2.1 Presentation of the state regulation entities
2.2.2 Relevant regulations of PUCs on storage
2.2.2.1 In California
2.2.2.2 In Texas

3. System Operator level
3.1 Independent System Operator (ISO) and Regional Transmission Operator (RTO)
3.2 Presentation of the U.S. Independent System Operators (ISOs)
3.3 Examples of ISO-level regulations involving storage
3.3.1 New York Independent System Operator (NYISO)
3.3.2 CAISO
3.3.3 PJM
3.3.5 ISO-New England
3.3.6 ERCOT

4. List of commonly used acronyms

B. Energy storage regulatory environment in Europe

1. European Union level
1.1 Political level
1.1.1 Introduction to EU executive and legislative bodies
1.1.1.1 European Commission (EC)
1.1.1.2 European Parliament
1.1.1.3 Council
1.1.2 EU supply-push policies for energy storage
1.1.2.1 Framework Programs (FP)
1.1.2.3 European Energy Program for Recovery (EEPR)
1.1.2.4 SET-Plan and European Industrial Initiatives (EII)
1.1.2.5 From 2013 onwards: Horizon 2020
1.1.3 EU demand-pull policies for energy storage
1.1.3.1 Objectives related to clean energy45
1.1.3.1.1 Energy Climate Package
1.1.3.1.2 Renewable Energy Source (RES) Directive
1.1.3.1.3 European Union Emission Trading Scheme (EU-ETS)
1.1.3.2 Adapting the electricity market design
1.1.3.3 Storage as a component of the network infrastructure
1.2 Electricity regulation and System Operators
1.2.1 Agency for the Cooperation of Energy Regulators (ACER)
1.2.2 European Network of Transmission System Operator for Electricity (ENTSO-E)

2. Member state level
2.1 France
2.1.1.1 Supply-push policies
2.1.1.1.1 ADEME
2.1.1.1.2 Investments for the future
2.1.1.1.3 Overview of the past calls related to energy storage
2.1.1.1.3 ADEME call for tender (“AMI”) on energy storage
2.1.1.2 Research Institutes
2.2.2 Demand pull policies
2.2.2.1 Renewable objectives
2.2.1.2 Regulator level
3. Conclusion
2.2 Italy
2.2.1 Political level
2.2.1.1 Supply-push policies
2.2.1.1.1 Agencies supporting innovation
2.2.1.1.2 The POI Project
2.2.1.1.3 The 130 MW project
2.2.1.2 Demand-pull policies
2.2.2 Regulatory level
2.2.2.1 Presentation of the Italian regulator
2.2.2.2 AEEG to prepare a new regulation regarding energy storage
2.2 Germany
2.3.1 Political level
2.3.1.1 Supply-push policies
2.3.1.2 Demand-pull policies
2.3.1.2.1 The German energy turnaround
2.3.1.2.2 Strong penetration of renewables
2.3.1.2.3 Grid Expansion Acceleration Act (NABEG)
2.2.3.2 Regulator level

3. List of commonly used acronyms

C. Ancillary services in Europe

1. Ancillary services and balancing market definitions

2. Markets typology
2.1 Qualitative characteristics
2.2 Quantitative characteristics
2.2.1 Relative size of selected European ancillary services markets
2.2.2 Compensation of ancillary services in five Western European countries

3. Energy storage case studies
3.1 Scenario based on power support: frequency regulation
3.2 Scenario based on energy provision: load balancing
3.3 Conclusions of the case study

4. Conclusion

Conclusion

PART II

A. Equipment manufacturers

1 Compressed Air Energy Storage (CAES)
1.1 Dresser Rand
1.2 SustainX
1.3 General Compression

2 Batteries
2.1 Lithium-Ion
2.1.1 Saft
2.1.2 A123 Systems
2.1.3 CODA
2.2 Red Ox
2.2.1 Cellstrom GmbH
2.2.2 Enervault
2.2.3 Redflow Limited
2.2.4 ZBB
2.2.5 Primus Power
2.3 Zinc Air
2.3.1 Eos Energy Storage
2.4 Lead Acid
2.4.1 Xtreme Power

3 Flywheels
3.1 Beacon Power Corp
3.2 Velkess

4. Other players
4.1 Isentropic
4.2 Sunverge
4.3 Highview Power Storage
4.4 Ice Energy

B. Utilities

1 EDF

2 PG&E

3 Austin Energy

Concluding Interview: Emerald Technology Ventures

Clean Horizon has been helping Beacon Power Corporation with specific energy storage studies.

Les deux problématiques suivantes seront abordées :

• Où en sont les programmes lancés par les pouvoirs publics en 2010 ?
• Quelles suites et perspectives pour 2011 ?
• Quelles sont les technologies les plus prometteuses ?

Michaël Salomon, CEO de Clean Horizon, décrira les enjeux et les grandes tendances actuelles du stockage en Europe et aux Etats-Unis.
Le colloque, animé par Patrick Canal (ATEE), fera intervenir les acteurs suivants :

• Marc Hiegel (ATEE),
• Bruno Le Boullenger (DGCIS),
• François Perfezou (DGEC),
• Stéphane Biscaglia (ADEME),
• Bernard Delpech (EASE),
• Olivier Huet (ERDF),
• Laurent Schmitt (ALSTOM GRID),
• Nathalie Collignon (AREVA),
• Pierre Potier (ALSTOM POWER),
• Emmanuel Puchala (GDF-SUEZ),
• Adamo Screnci (McPhy),
• Sten Peeters (A123 SYSTEMS),
• Romain Vernier (BRGM),
• Pierre Poeuf (Climespace),
• Patrick de Metz (SAFT),

et un représentant de EDF R&D, François Moisan (ADEME)

IRES 2010 (November 2010) attracted attendance from 41 countries with 600 attendees. The Conference is organized by EUROSOLAR (European Association for Renewable Energy)

L’UE est en bonne marche pour atteindre son objectif de 20% d’énergies renouvelables en 2020. Comme c’est déjà le cas dans les DOM TOM ou de nombreuses autres îles, une telle proportion de renouvelables menace l’équilibre du réseau électrique : face à cette menace, le stockage d’énergie apparaît comme une contribution inévitable à l’équilibre du réseau de demain.

Jean Paul Reich (GDF Suez)

François Bouchon (Saft)

Rajshekar DasGupta (Electrovaya)

Karl Axel Dtrang (DGEC)

Daniel Clément (ADEME)

interviendront autour d’une table ronde sur ce sujet d’avenir.
Cette table ronde est organisée dans le cadre de l’Energy Storage Forum, événement international sur le stockage d’énergie, ayant lieu cette année à Paris.
L’événement sera suivi d’un cocktail afin de permettre de prolonger la discussion.

Merci de confirmer votre participation à l’adresse : conference@cleanhorizon.com.

Une participation de 50 €HT sera demandée. Merci d’adresser un chèque à l’ordre de Clean Horizon Consulting:

Clean Horizon Consulting, Centre Régus, 72 rue du Faubourg St Honoré, 75008 Paris