In our first article in this series, we mentioned that there are multiple different roles that storage assets could play to support the energy markets as part of the transition to a lower carbon energy system. The inherent flexibility of storage assets means that there are multiple different routes Contact online >>
In our first article in this series, we mentioned that there are multiple different roles that storage assets could play to support the energy markets as part of the transition to a lower carbon energy system. The inherent flexibility of storage assets means that there are multiple different routes to markets that they can access. It is therefore important to understand the different revenue markets that exist and which are most applicable to different types of storage.
The wholesale markets are those in which parties often enter into bilateral transactions for the sale or purchase of electricity. The three wholesale markets that operate within the Netherlands are as follows:
In line with their time horizon, longer-duration storage assets are better suited to the forward and futures market whilst shorter-duration assets can play a role in the day ahead and intraday markets.
TenneT, in its role as the transmission system operator ("TSO"), is required to ensure the grid frequency and supply/demand balance is maintained at appropriate levels at all times, to avoid blackouts on the grid. To achieve this, the TSO uses a number of different markets to procure the relevant demand/supply of electricity to enable the electricity grid to operate at the required levels.
The FCR and aFRR are activated within a shorter time period, and therefore are well suited to the supply characteristics of Li-ion BESS, whereas the mFRR has a longer duration, and therefore is likely to be a better fit for the longer-term technologies.
The increasing level of congestion that is occurring on the electricity network has led to new contracts and platforms being introduced to the Dutch market. These help to support the TSO and the distribution network operators (i.e. Alliander, Enexis, and Stedin) in procuring services from producers and consumers to enable them to manage the congestion on their networks. These include:
Li-ion batteries are well placed to provide these congestion services due to their fast response time, which aligns with the requirements of the congestion services procured by the system operators.
The individual revenue streams for storage assets are unable to provide sufficient returns to make the assets economically viable on their own. It is therefore a necessity for assets to ''stack'' their revenues to generate the highest returns. This involves the storage asset participating in multiple revenue markets throughout each day (see below).
There are restrictions on how flexible a storage asset can be placed within a stacked revenue strategy. For example, if a storage asset is entered into a contract to provide a particular service during a set period of time (i.e., FCR or FRR), then contractually it is not able to operate in the potentially more lucrative immediate revenue markets. This is one of many factors to consider when determining the optimal trading strategy for each storage asset.
Each of these business models comes with a different risk/return profile, and the asset owner will have to take this into consideration – particularly when assessing the capital structure for a project, and the risk appetite of the funders.
Through our global Financial Advisory and Consulting practices, we are involved with many clients already active in the energy storage market or looking to enter the market in the near future. Much of our work at this stage is to help potential investors get more comfortable with the features of the sector, and we see our role in part as enabling energy storage to reach its full potential – including by connecting interested parties through our network.
Some projects involve exploring the business cases for longer-term energy storage technology alternatives mentioned in our previous article, but we have also been extensively involved in supporting investments in the development and operations of BESS facilities. For example, we recently provided tax structuring and vendor financial due diligence support to Powerfield ahead of its deal to raise €500m in structured equity and portfolio financing from EIG and Landesbank Baden-Württemberg (LBBW) to finance their portfolio of solar, storage and EV charging projects.
In our fourth and final article, we will look at the total supply chain considerations for energy storage. For now, if you would like to explore energy storage business models, and how Deloitte can help you develop a business case or raise financing, please contact one of the individuals below.
In The Netherlands the services are provided by independent subsidiaries or affiliates of Deloitte Holding B.V., an entity which is registered with the trade register in The Netherlands under number 40346342.
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