IEEE Power & Energy Magazine - September/October 2017 - 37

of electric power and heat sectors may provide further
sources of cost-effective flexibility to the electric power system and thus significantly reduce the need for electricitybased ES solutions.

Market Arrangements
and the Business Case for ES
Deploying ES can result in significant system cost savings as
well as carbon benefits. However, this societal benefit may
not be realized if prospective investors in ES are not presented with a viable business case that adequately rewards
them for creating these multiple sources of value. The following list describes the key services in which ES can be a
primary contributor.
✔✔ Energy arbitrage. Participating in day-ahead energy
markets, ES can take advantage of electricity price
differentials by charging during lower-price periods
and discharging during higher-price periods.
✔✔ Balancing services. Participating in real-time balancing markets, ES can provide short-term operating reserves to the system operator.
✔✔ FR services. Providing primary, secondary, and tertiary
FR services to the system operator requires rapid response
times and would be particularly well suited for battery
storage technologies (the National Grid has recently introduced a new FR product, enhanced frequency response,
that requires a response time of up to 1 s and is particularly well suited for lithium-ion battery applications).
✔✔ Network support. Placing ES at strategic locations in
the distribution or transmission network may reduce
the need to reinforce the network to cope with peak
loading conditions.
✔✔ Capacity market. The participation of ES in contributing to firm supply capacity during critical peak hours
of high system demand may reduce the need to keep
low-utilization peaking plants on the system.
✔✔ Carbon savings. Improved operational efficiency of
conventional plants and higher use of low-carbon generation capacity can contribute to carbon reduction. This contribution should be rewarded in the same
way that low-carbon generation is rewarded.
✔✔ Option value. Option value refers to the ability of ES
to defer and/or avoid premature commitment to capital investments.
Current market arrangements do not universally support the provision of many of these services and so may
undermine the business case for ES. In several jurisdictions, ES is currently excluded from the capacity mechanism and cannot compete with conventional generation on
a level playing field. Some markets that do consider ES as a
resource may regard it as similar to gas turbines and other
quick-start resources that may have limited run times but can
defer traditional transmission improvements when the market
design triggers the appropriate response. In these cases, ES is
usually not considered part of transmission and distribution
september/october 2017	

tariffs. To achieve system-efficient levels of ES deployment, it
is imperative that a level playing field be established that facilitates competition between traditional network reinforcement
and ES, as discussed in the section "Assessing the Security of
ES Supply Contribution."
In the following, we demonstrate how an ES asset can
maximize its revenues and achieve a positive business case
by layering multiple services and securing multiple revenue
streams (assuming a fully cost-reflective market design). If
some of these revenue streams are not available to ES, the
revenue may be insufficient to justify investment in ES, thus
undermining its commercial viability. We further demonstrate
how storage can be effectively used as one of the options for
network planning alongside traditional assets, although this is
currently not common in transmission and distribution planning. We also highlight the option value of storage, i.e., the
additional benefit network planners could realize when faced
with uncertain evolution of demand.

Commercial Value Derived
from ES Providing Multiple Services
Here, we assess the revenues ES could potentially earn by providing a portfolio of services to various sectors. In this example, it is assumed that ES is connected to local PV generation,
allowing management of its imbalances as well as any local
network c- onstraints. It is also assumed that markets for different services are fully cost-reflective; clearly, any inefficiencies
in actual market arrangements may restrict the revenue opportunities for ES assets.
Conflicts and synergies among services may exist that
need to be taken into account as part of the strategy for maximizing ES revenues. For instance, considering energy arbitrage and distribution network support services, if periods of
high market prices coincide with periods of high demand at
the distribution network level, it is obvious that both services
will drive storage to discharge during the same time period,
presenting a clear synergy between the two services. However, if peak demand conditions in the local distribution grid
do not coincide with high system demand, these two services
would be conflicting. The assessment of market revenues of
ES carried out here ensures that any contracted services can
be delivered when requested.
Figure 7 summarizes the results for the commercial value
of ES from layered service provision. The capitalized value
of annual revenues varies between £460/kW and £5,540/kW,
depending on the range of services ES provides simultaneously. The ES value is capitalized assuming a 20-year life of
the asset and the cost of capital of 7%.
The analysis assumes that the market design (including
network charging) is fully cost-reflective and that the storage resource is then allocated to provide different services,
maximizing the total revenue for ES while also delivering
all commitments. In other words, this approach optimally
balances synergies and conflicts among the provision of different services while maximizing income for the ES owner.
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Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - September/October 2017

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IEEE Power & Energy Magazine - September/October 2017 - Cover3
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