Analysis Report (2): Cost and Value of Hybrid Energy Storage Projects in the United States

　　5. Capacity Value

　　(1) The capacity contribution of a hybrid deployment project is less than the sum of its parts

　　The capacity contribution of hybrid projects varies by region and depends on configuration and operational constraints. Sharing hybrid project base projects can reduce costs, but may reduce capacity value.

　　(2) Capacity certification is critical for hybrid deployment projects

　　Electricity systems require sufficient generation capacity to meet peak electricity demand, often well above average. Variable renewable energy can help meet this need. However, their contribution gradually decreases with increasing penetration due to changing demand patterns, which poses a barrier to decarbonization of electricity. Pairing renewable energy generation facilities with energy storage systems can alleviate this challenge and provide a path to more reliable and clean energy.

　　(3) New methods are needed to easily assess the relative capacity contribution of hybrid deployment projects

　　Methods for determining individual resource capacity credits, such as effective carrying capacity, rely on data-intensive and complex probabilistic models. Using these models, it is difficult to explore changes in capacity contribution across various configurations, operational constraints, regions, and scenarios.

　　(4) The capacity contribution of a hybrid deployment project is not the sum of the parts

　　Hybrid deployment recommendations typically share underlying projects or introduce new operational constraints among various energy components. Shared infrastructure projects (including inverters or interconnection to the grid) may lead to competition for limited capacity, reducing the contribution of individual element capacity in mixed deployment projects. This is most evident when renewable energy facilities generate electricity at times that coincide with periods of high reliability risk.

　　6. Ancillary Services

　　(1) Ancillary services market is a valuable but short-lived option for hybrid deployment projects

　　Analysis shows that, in at least some parts of the US, hybrid projects can unlock significant value from the ancillary services (AS) market. But the ancillary services market is likely to become saturated with most battery storage projects currently in the interconnection queue.

　　(2) Ancillary service terms can provide additional market opportunities for hybrid deployment projects

　　As wind and solar power make up a larger share of the power generation system, there is growing interest in enabling these resources to provide additional reliability services to the grid by participating in the ancillary services (AS) market. This opportunity can provide hybrid deployment project owners with an additional revenue stream to offset the decline in energy and capacity value due to increased penetration of solar and wind power.

　　(3) Ancillary Services Market Significantly Increased Revenues for Hybrid Deployment Projects

　　According to the study, owners of hybrid deployment projects participating in the ancillary services market and the energy market will receive additional income relative to the energy market alone. Whereas the study focused on the regulatory reserve markets, which typically have the highest prices among ancillary service products. The study found that participating in the regulated market can generate additional revenue from 1/MWh to $33/MWh (increase of 1% to 69%) for hybrid deployment projects (as shown in the figure below).

　　(4) ISO/RTO can differentiate ancillary service offerings to prioritize hybrid deployments

　　The distinction between separate up- and down-regulation products could allow wind, solar and energy storage projects to more efficiently provide regulation reserve services. Independent system operators (ISOs) and regional transmission organizations (RTOs) should first prioritize the participation of hybrid projects in the ancillary services market, and then consider how independently deployed wind and solar facilities can participate.

　　(5) The ancillary service market is relatively weak

　　Supply growth can lead to market saturation and lower prices for ancillary services, even in regions with higher incremental value for standalone and hybrid projects. In 2017, Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs) procured an average of about 60-800MW of conditioning reserve services. By contrast, independent system operators (ISOs) and regional transmission organizations (RTOs) have more than 289GW of standalone and hybrid energy storage systems in their interconnection queues by the end of 2021, while regulating reserve requirements are only 4.8GW.

　　7. Market participation

　　(1) Hybrid deployment projects can participate in the electricity market more flexibly

　　The multiple configurations of hybrid projects increase the opportunity and complexity of tendering and dispatching in the electricity market. Renewable energy developers will be able to assess the risks and rewards of running a hybrid deployment project as a single unit or as multiple parts with different functions. Grid operators may find new ways to leverage hybrid deployment projects to maintain reliability.

　　(2) Consider two advanced market participation models

　　Hybrid deployments can interact with wholesale electricity markets as a single, fully integrated resource or as separate but co-located resources. As an integrated resource, hybrid project operators must forecast wind or solar power generation and manage their accompanying battery storage systems when developing market bids. Managed as separate resources, wholesale market operators will implement methods to manage the dispatch of battery storage systems and the variability of wind or solar generation, taking into account any coupling constraints.

　　(3) Developer preferences vary

　　Developers and market operators will evaluate the cost and revenue impact of each model. Currently, separate but co-located models are the most popular choice in California. However, if the hybrid deployment project is designed to follow scheduling signals other than wholesale market prices (such as peak load reduction, incentive plan payments, or elastic benefits), hybrid deployment project owners may favor the high degree of autonomy offered by the fully integrated model. Regulators should strive to maintain flexibility in participation in order to stimulate innovation.

　　8. Operation

　　(1) The power system value of hybrid deployment project systems depends on how they operate

　　Apart from technical features and location, the operational strategy of solar + energy storage projects is a key driver of their market value.

　　(2) Not all large-scale solar+storage projects pay attention to wholesale price signals

　　Behavioral models for solar-plus-storage projects typically assume that project operators optimize battery storage usage and ultimately generate more revenue in the wholesale market. But after examining empirical dispatch data from hybrid plants across the U.S., it was found that only a handful of solar-plus-storage projects operating in 2020 focused primarily on price signals in the wholesale market. In contrast, participants in special energy storage incentive programs (such as SMART) focus on the timing of incentive payments (see Figure a), load-serving entities attempt to reduce their exposure to capacity and transmission demand charges (Figure b), and energy consumers prioritise Consider resiliency and minimization of utility bills. These alternative business models can generate higher revenues for solar-plus-storage project operators, but do not optimize energy storage scheduling from a grid perspective and can sometimes hinder grid revenue.

　　(3) Contracts limit the flexibility of solar+storage projects, thereby hindering optimal scheduling

　　A sampling of power purchase agreements (PPAs) for solar-plus-storage projects found that a number of constraints are often imposed on the operation of battery storage systems, such as limits on the number of charges per year (or per day), state-of-charge requirements, and depth-of-discharge limits, even who controls the scheduling (buyer vs seller or in some cases shared). While most of these limitations stem from battery warranty and management degradation, they can still cause energy storage system scheduling to deviate from optimal conditions based on wholesale electricity price signals.

　　(4) The use of user-side energy storage systems to maximize self-consumption of solar power generation facilities has little market value

　　Net billing has become the primary successor to net metering, providing reduced compensation for solar power output to the grid. This arrangement encourages solar power facility customers to deploy battery energy storage systems in order to shift solar power generation to a time when they can use it for their own use. For recent historical market prices, research has shown that operating energy storage in this way does not actually add any value to bulk power systems. In contrast, the potential annual value of an energy storage system, if operated to optimize its market value, is $16/kWh to $33/kWh.

　　9. Distributed hybrid deployment project

　　(1) The growth of solar + energy storage projects on customer sites provides new opportunities

　　Among all battery energy storage systems cumulatively deployed in the United States by 2020, 30% are user-side energy storage systems (calculated by installed capacity), most of which are deployed in conjunction with solar power generation facilities.

　　(2) The proportion of residential solar power generation facilities supporting the deployment of energy storage systems has steadily increased, but the growth rate of the non-residential market is not large

　　The proportion of residential solar installations with energy storage has been growing steadily, but still represents a small portion of the market, accounting for 6% of US residential solar installations installed in 2020. In the non-residential market, only 2% of solar power generation systems installed in 2020 will be equipped with energy storage systems, as these customers are more likely to deploy battery energy storage systems independently.

　　(3) The scale of residential solar + energy storage projects is getting bigger and bigger

　　Most residential solar-plus-storage projects typically deploy a 5kWh battery storage system with a duration of about 2 hours. However, residential solar-plus-storage projects are getting bigger as customers seek greater backup power. System configurations in the non-residential market are more diverse, with an average size of about 100kW/200kWh for residential solar+storage installed in 2020.

　　(4) Residential solar installers are more widely accepting energy storage systems than non-residential solar installers

　　About half of residential solar installers deploy solar + battery systems, compared to only 17% of non-residential solar installers.

　　(5) Prices of residential solar + energy storage projects are on the rise

　　Deploying an energy storage system to complement the user-side solar system will increase the total deployment price by about $1,000/kWh, which ranges from $700 to $1,300/kWh. For a typical residential solar-plus-storage project, this adds about 30% to the cost of a stand-alone residential solar facility.

　　10. future development research

　　(1) How will it develop in the future?

　　While hybrid deployment projects offer an opportunity to alleviate the intermittent challenges of renewable energy generation facilities, their relative novelty means that research is needed to facilitate integration and foster innovation.

　　(2) More research is needed to understand the potential of hybrid deployment projects

　　Evaluating the strengths and limitations of hybrid deployment projects is challenging due to the complexity of combining energy storage or conversion technologies and multiple renewable energy sources. Project developers, system operators, planners and regulators will benefit from better data, methodologies and tools to estimate the cost, value and system impact of hybrid deployment projects.

　　(3) The U.S. Department of Energy (DOE) has identified three high-priority research topics for hybrid deployment projects

　　A recent DOE report titled "Hybrid Energy Systems: Opportunities for Coordinated Research" identified areas of near-term opportunity for research and development of hybrid deployment projects (below): Technology developers can develop and demonstrate new hardware and software, to achieve co-optimized resources for hybrid deployment projects. Market, policy and regulatory research can develop frameworks to ensure efficient investment and operation of hybrid projects. Both areas of research support refined valuation methods for quantifying the costs and benefits of hybrid projects in the power system.

　　(Overview of priority areas for research on hybrid deployments and their interdependencies)

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