Energy storage industry report: Grid-side energy storage in energy storage business model (Part 1)

When it comes to the business model of the energy storage industry, China exportsemi net will describe it based on different application scenarios in the downstream of the energy storage industry. In the last issue, we interpreted the "Business Model Development of the Current Market for Power Generation Side Energy Storage." In this issue, Let’s look at the main application areas of grid-side energy storage and their business models.

Main applications and business models of grid-side energy storage

In a narrow sense, grid-side energy storage is an energy storage system that is built in an existing substation, an abandoned substation or a dedicated site, and is directly connected to the public grid. This definition is mainly based on the location of the energy storage connected to the power system. define. Broadly speaking, grid-side energy storage refers to energy storage resources in the power system that can accept unified dispatching by power dispatching agencies, respond to the flexibility needs of the grid, and play an overall and systemic role. Under this definition, the construction location of energy storage projects does not matter. Due to restrictions, investment and construction entities are diverse. In this part of the analysis, unless otherwise specified, grid-side energy storage is mainly understood from a broad perspective.

Investment and operation model: The investment willingness of power grid companies still needs to be stimulated, and existing non-independent energy storage projects face the problem of "difficult settlement"

Grid-side energy storage applications mainly include power auxiliary services such as peak regulation, frequency regulation, and backup power supply, and innovative services such as independent energy storage (Table 8). Service providers mainly include power generation companies, power grid companies, power users participating in market transactions, and storage Energy enterprises, etc., with the purpose of maintaining the safety and stability of the power system and ensuring power quality.

Table 8 : Grid-side energy storage application services

Two major energy storage investment and operation models on the grid side

There are two main investment and operation models for grid-side energy storage: one is the leasing model . Under the leasing model, energy storage can be invested by social capital and is divided into two types: financing lease and operating lease. Financial leasing, such as in Jiangsu Zhenjiang Energy Storage Demonstration Project, Xu Ji Electric and Shandong Electric Company signed an 8-year project lease recovery period. After the 8-year lease expires, the asset ownership of the energy storage station becomes owned by the latter. For operating leases, such as the Hunan Changsha Energy Storage Demonstration Project (three energy storage power stations in Langli, Yannong and Furong), the battery energy storage system is built by the battery manufacturer and provides leasing services. Hunan Integrated Energy Services Co., Ltd. is responsible for the investment and construction. Energy storage station. The second is the contract energy management model . The power grid company signs a contract with the energy storage service provider, and the power grid company performs operation and maintenance management of the energy storage facilities, and the revenue obtained is shared according to the proportion agreed in the contract between the two parties. Also in the Jiangsu Zhenjiang Energy Storage Demonstration Project, Jiangsu Integrated Energy Services Co., Ltd. signed a contract with Jiangsu Provincial Electric Power Company for profit sharing. The sources of profit include electricity cost savings and peak load regulation income.

The construction of grid-side energy storage in China broke out in 2018. Subsequently, the National Development and Reform Commission proposed in May 2019 that the cost of energy storage facilities should not be included in the cost of power transmission and distribution pricing, which to a certain extent inhibited the motivation of grid companies to build new energy storage. Some people believe that most of the new energy storage that has been put into operation is non-independent energy storage, which is generally located in new energy stations or within the metering threshold of traditional thermal power plants, such as new energy + energy storage, thermal storage combined frequency modulation, heating + Scenarios such as heat storage33 ^. It can be concluded that if power supply side energy storage and grid side energy storage are strictly divided according to the access location, fewer existing new energy storage projects in operation are connected to the grid side.

However, some energy storage projects on the power supply side can actually accept unified dispatching by power dispatching agencies to respond to grid peak regulation, frequency regulation and other needs. Among them, energy storage projects that meet the conditions for direct regulation of the grid, or choose to settle with the grid, generally adopt contracts. Energy management model. However, under this model, non-independent energy storage power stations often face delays or arrears of income from their owners. The fundamental reason is that such projects do not have the status of independent market entities such as independent measurement, dispatching, and settlement, and can only indirectly participate in power through power grid companies. market. With the establishment of the independent market player status of energy storage, the charging power of independent energy storage power stations does not bear the transmission and distribution price and the release of government funds and additional policies. Grid-side energy storage is expected to be more implemented in the form of independent energy storage power stations. The specific business model is detailed below.

Revenue-based pricing model: The bottleneck is that the cost cannot be transmitted to the user side, and it is urgent to develop a capacity cost recovery mechanism and a spot electricity market

From the perspective of revenue pricing model, the revenue from energy storage installations such as peak shaving and frequency regulation mainly comes from auxiliary service compensation. The reason is that in China, most wind and solar power generation and residential electricity are still guaranteed to operate by grid dispatching. Most of the power grid side Demand for energy storage still stems from the ancillary services market. The compensation methods and apportionment mechanisms for auxiliary services shall be formulated by each region in accordance with the principle of “whoever provides it shall benefit; whoever shall benefit shall bear the responsibility” ³⁴ . Generally speaking, ancillary service compensation is divided into fixed compensation and market-based compensation. Fixed compensation is carried out in accordance with the implementation details of power auxiliary service management in each province. According to incomplete statistics, at least 19 regions at or above the provincial level have clarified peak load regulation and frequency modulation compensation standards (Table 9). Market-based compensation is based on the local ancillary service market operation mechanism and forms transaction prices through market-based competition. Specific methods include centralized bidding, public bidding/listing/auction, and bilateral negotiation. Taking the grid frequency regulation in Guangdong Province as an example, the frequency regulation service provider can declare the frequency regulation price and electricity quantity in advance. The power grid dispatching agency will sort based on the principle of minimum service cost to form a clearing price (i.e., the lowest bid). The service provider will bid according to the lowest price. The bids will be won in sequence and will be settled at the clearing price on the day the FM order is executed.

Table 9 : Latest frequency and peak regulation ancillary service compensation pricing in various regions in 2021

According to the National Energy Administration’s answer to a reporter’s question, “At this stage, the cost of ancillary services, including peak shaving, accounts for about 1.5% of the total electricity bill of the whole society. According to international experience, the cost of ancillary services of electricity is generally more than 3% of the total electricity bill of the whole society. This proportion will continue to increase with the large-scale access to new energy sources” ³⁶ . It is worth noting that according to the principle of "whoever provides, benefits; who benefits, bears", auxiliary service compensation should be borne jointly by the power generation side and the user side. However, the cost of auxiliary services on the domestic power grid side is currently difficult to transmit to the user side. To a certain extent, it may restrict the development of the ancillary services market.

How to reasonably transfer the cost of auxiliary services to the user side can introduce a capacity cost recovery mechanism. The capacity cost recovery mechanism includes three categories: capacity cost compensation mechanism, scarcity pricing mechanism and capacity market (Table 10). Among them, the capacity cost compensation mechanism represented by Chile is more suitable for the current situation of China's energy storage industry. Shandong has taken the lead in trying it - Shandong Capacity Before the market operates, capacity compensation fees for generating units participating in the electricity spot market will be collected from the user side, and the electricity price standard is tentatively set at 0.0991 yuan per kilowatt hour (tax included) ³⁷ . By apportioning the energy storage compensation costs to the user side, energy storage construction projects can at least obtain "guaranteed income" from the capacity compensation electricity price. On the one hand, capacity electricity prices have become one of the deterministic sources of income for large-scale overseas energy storage projects. On the other hand, some domestic provinces are currently experiencing the problem of low capacity utilization of coal power units, resulting in declining income. This will drive local governments to actively introduce capacity policies. Cost recovery related policies.

Table 10 : Capacity cost recovery mechanism types

In addition, peak shaving is a unique type of power auxiliary service in my country. In mature foreign markets, power grid peak shaving is solved by guiding market members to adjust their output during peak and valley periods through time-of-use electricity prices in the spot market. The reason is that peak shaving essentially solves The problem is the real-time balance of electric energy. As long as the electricity market can reflect the changes in electricity prices in real time, market entities can be guided to actively participate in peak regulation. In 2021, the National Energy Administration clearly stated in the "Notice on Further Improving the Pilot Work on the Construction of the Electricity Spot Market" that the peaking market will be replaced by the spot electric energy market during the operation of the electric power spot market. Currently, a total of 21 regions in China have launched electricity spot market pilots38 ^. Judging from the results of the fifth electricity spot market settlement trial operation in Shandong Province, the highest price of the province's electricity spot market clearing in the day-ahead market was 1.34 yuan/kWh, and the lowest price was 0.02 yuan. /kWh, the average price is 0.48 yuan/kWh ³⁹ , which is significantly higher than the peak load regulation compensation standard of 0.15 yuan/kWh (0.40 yuan/kWh in special circumstances). It can be seen that peak shaving participation in the spot market is not only more in line with market supply and demand, but also conducive to opening up the profit space of energy storage. It is expected that as the construction of power spot markets continues to be promoted in various places, more newer market-based arbitrage models will emerge.

Table 11 : Analysis of business models of some grid-side energy storage projects

Through the analysis of energy storage power stations on the power generation side and the grid side, it is found that the cost of establishing energy storage power stations on one side is high and the revenue channels are single. The economics are not significant. The enthusiasm for building energy storage power stations in new energy stations and the grid side is not high. In addition to meeting the energy storage needs of the power generation side, independent energy storage power stations can also meet the peak and frequency regulation needs of the grid side, broadening revenue channels and improving economics, which is the future development direction of energy storage power stations.

Measures for the Administration of Auxiliary Electric Power Services, National Energy Administration, December 21, 2021
Policy Interpretation | Zheng Hua: Solving the key bottlenecks of the market mechanism, new energy storage is enjoying the spring breeze, CNESA, June 10, 2022
Measures for the Administration of Auxiliary Electric Power Services, National Energy Administration, December 21, 2021
AGC frequency modulation is automatic power generation control, which is a secondary frequency modulation. Frequency modulation compensation is divided into process compensation and capacity compensation. Standards vary greatly from place to place. From the perspective of price mechanism, the degree of marketization of frequency modulation is generally lower than that of peak regulation, and frequency modulation is not established in some areas. market
The responsible comrade of the Market Supervision Department of the National Energy Administration answered reporters' questions on the "Regulations on the Management of Electric Power Grid-connected Operations" and the "Measures on the Management of Auxiliary Electric Power Services", National Energy Administration website, December 24, 2021
Notice of the Shandong Provincial Development and Reform Commission on matters related to capacity compensation prices in the electricity spot market, Shandong Provincial People's Government website, April 22, 2022
The first batch in 2017 includes Guangdong, Western Inner Mongolia, Zhejiang, Shanxi, Shandong, Fujian, Sichuan, and Gansu, and the second batch in 2021 includes Shanghai, Jiangsu, Anhui, Liaoning, Henan, and Hubei
The trial operation of Shandong power spot market settlement was smooth and orderly, Shandong Provincial Energy Bureau, February 22, 2022
Construction, operation and benefit analysis of energy storage power stations, Sobi Energy Storage Network, June 21, 2022
Analysis of energy storage operating model: Is leasing more beneficial than buying? Polaris Energy Storage Network, January 4, 2019