Balancing act
Harnessing flexibility for a low-carbon grid
Gaia Stigliani
Ilya Gasparishvili
John Perkins
Power generation is at an inflection point – renewable costs have come down significantly and the goal to move towards a low-carbon grid now seems within our grasp. In many countries that used to rely on fossil-energy generation back in the 2000s, nowadays use renewables to cover over 40% of their total power demand, such as for example Germany and the United Kingdom. This growth in renewable power solutions is expected to become exponential for a long time to come. However, there is no way renewable-based power systems could function efficiently without some level of flexibility. All kinds of flexibility services, from energy ramping to intra-day balancing and inter-seasonal storage, need to be harnessed, in different parts
of the energy sector, to enable the transition to a renewable-based energy system.
In addition to the established reservoir and pumped hydro techniques, the most promising solutions for flexibility include battery energy storage systems (BESS), hydrogen, and demand side management (DSM). Compressed or liquid air energy
storage, carbon capture and storage (CCS) and novel chemical storage could also be named among them. Options that are ultimately successful will depend not only on the specific flexibility requirements but also on the ability to scale up at an attractive cost to the end-users.
Despite the growing interest that flexibility solutions have attracted in recent years, they still face some challenges. All flexibility technologies have to fight an uphill battle in order to be deployed, with each having its own specific hurdles to cross. There are however some commonalities across them:
There are certainly examples where these obstacles have been addressed, unlocking investment in different countries – they are explored below.
BESS
From a first 5MW utility-scale pilot commissioned in 2012, the total global capacity of BESS reached over 80GW in 2023.
The recent Batteries and Secure Energy Transition report by the International Energy Agency acknowledges that in the power sector, BESS was the fastest growing energy technology that was commercially available in 2023, with deployment more than doubling year-on-year. The primary driver for such rapid expansion was the increasing share of renewables, with batteries stabilising the variable output of wind and solar generation and preventing loss of excess energy.
BESS are considered to be an integral part of future renewable based energy systems, providing a range of services such as peak shaving, self-consumption optimisation, and backup power that will enable higher levels of reliability and flexibility to the grid. Their deployment can also support transport electrification as batteries are an essential element of charging infrastructure. Wherever the regulatory environment reduces barriers to entry and market reform supports their deployment, BESS will have the potential to scale up very rapidly.
The rapid scale-up entails challenges, with supply chain insecurity being a significant one. Managing a BESS supply chain is not an easy task, as the minerals extraction and battery manufacture are both dispersed and concentrated in just a few countries, with China being the frontrunner in the currently dominant Li-ion technology. As the market scales up, this is going to be an important risk that needs to be managed by investors and governments.
Examples of recent interventions include the U.S. Department of Energy awarding $2 billion to support the local extraction of lithium, graphite, and other battery commodities, and to develop recycling capacity for critical components, as announced by the White House. At private level, some companies, like Altris, a European sodium-battery technology developer, have selected another approach, investing in alternative chemistries less dependent on critical minerals.
Strategic partnerships, supply diversification, in-region sourcing and manufacturing as well as battery recycling are all levers to consider when defining a secure supply chain strategy in relation to this nascent industry.
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There is limited visibility regarding the future role that flexibility solutions can play in the system as whole, increasing risks to investors;
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There is lack of adequate remuneration for the real value that the technology delivers to the system as a whole;
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They are faced with supply-chain complexities and disruptions derived from potential material shortages and sudden changes to the regulations.
DSM
Flexibility does not necessarily mean storage; it can also mean dynamic changes in demand, aimed at reducing stress on the grid. Short term flexibility can be delivered by a range of DSM solutions installed in commercial and residential premises. The commercial market is definitely at a more advanced stage of development, with pricing incentives available in many markets with high penetration of renewables that need to be balanced each day.
On the other hand, the residential market is much less advanced, with very few markets offering the opportunity to residential customers to opt for a pricing mechanism that incentivises DSM. However, in Great Britain new markets have been developed for demand flexibility, including the Demand Flexibility Service (DFS) that remunerates domestic demand reduction at peak periods, in addition to a local constraint market (LCM) designed to incentivise large consumers to shift their load in order to reduce network congestion on a key transmission network bottleneck between Scotland and England.
Key to the future deployment of DSM will be the extent to which the market's design and regulation facilitates its growth. In many cases, markets exist that were not designed with this sort of flexibility in mind, and this can be a significant barrier to deployment, despite DSM offering a low-cost form of flexibility.
Hydrogen
Inter-seasonal storage requirements are likely to be even greater in a system dominated by renewables. Within this context, rather than a contendent to renewables, hydrogen should be seen as a flexibility tool and an enabler of such a system. It can be stored in large quantities for a long period of time, allowing for surplus electricity to be used, either in the form of molecules or reconverted to electricity, when it is most needed to meet demand.
Globally, the number of project announcements is on the rise, however most of them are currently dedicated hydrogen facilities, developed by industrial companies that require hydrogen to decarbonise gas consumption, such as refineries and chemical producers. With a few exceptions in Germany, not much investment has been directed towards hydrogen transport and storage so far.
In Germany, the introduction of a long-term hydrogen strategy which sets out a vision for producing, moving around, and storing hydrogen, appears to have been effective in attracting interest from public and private-sector players such as Uniper Energy Storage and SEFE. Both players recently demonstrated interest in investing in hydrogen storage facilities in the country.
A forward-looking and rapid development of a hydrogen infrastructure – coupled with the introduction of price signals for remunerating the services, when the markets become more mature – is imperative for realising the flexibility benefits that hydrogen can unlock.
The answer to the variability of a system largely based on renewables is none of these flexibility options in isolation but a system solution that includes BESS, DSM and long duration storage, integrated by means of an extensive grid. This needs to be based on a long term holistic view of the energy system, which considers the decarbonisation trajectory of the heat, transport and power sectors and the implications on market design, as well as on supply chain strategies of different regions.