The failure of European policymakers to recognise, at least up to now, the importance of flexibility in power generation is showing in global energy storage deployment statistics and forecasts.
Wood Mackenzie calculates that Europe, the Middle East and Africa (EMEA) accounted for 30% of the global market in 2019, down from 44% in 2014. The forecast is for a further drop in this share to 20% by 2025 and 13% by 2030.
Meanwhile, the US has built an energy storage pipeline which has the potential to bring the country’s share of the global cumulative GWh capacity to 49% in 2030.
Rory McCarthy, Wood Mackenzie Principal Analyst, explains that the US market is driven by utility procurement programmes, the investment tax credit (ITC) and one less obvious factor -- a regulatory structure under which vertically integrated utilities hold a large share of the market.
“These utilities can assess their whole system portfolio, operational and delivery requirements and run a tender on that basis. Ultimately, they can contract with the lowest cost combination of technologies to deliver a whole system solution, therefore giving the best investor return while ensuring high quality power is delivered,” the analyst said. “As a result, we are seeing renewables and energy storage outcompete alternative flexibility service providers, such as gas peakers, in an increasing number of procurements.”
Europe’s standalone or hybrid project pipeline is small compared to the rest of the world, by Wood Mackenzie’s calculations. Market liberalisation on the continent has brought about decoupling within the power sector and the situation is much different from that in the US.
“So, the case for storage in Europe is defined by the wider market players. Not – as in the US comparison – a top down utility assessing the best whole system solution. The proposition is on a merchant basis with higher risks and financing barriers,” McCarthy adds.
Europe appears to have begun to recognise the need for flexibility and storage, but this is happening slowly. Wood Mackenzie is warning that the market “will likely be underprepared” unless policymakers realise that there is a growing flexibility gap and develop frameworks to address it.
McCarthy says separate auction pots are needed, incentivising optimal hybrid system configurations. “There will be a proportion that take a fully merchant route to market but it’s likely that the primary route to net zero will be auction, so these should be increasingly exposed to market forces to help the market sustain itself.”
The analyst also believes that corporations would also start seeking solutions to cover their real-time consumption with renewable power, instead of just signing deals for renewable power and renewable credits. This will boost hybrid power purchase agreements (PPAs).
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Author: Portland General Electric. License: Creative Commons, Attribution-NoDerivs 2.0 Generic.
