Handbook on Battery Energy Storage System

This handbook serves as a guide to the applications, technologies, business models, and regulations that should be considered when evaluating the feasibility of a battery energy storage system project.

The integration of distributed energy resources into traditional unidirectional electric power systems is challenging because of the increased complexity of maintaining system reliability caused by the variable and intermittent nature of wind and solar power generation. In addition, keeping customer tariffs affordable while investing in network expansion, advanced metering infrastructure, and other smart grid technologies is challenging as well. The key to overcoming such challenges is to increase power system flexibility so that the occasional periods of excessive renewable power generation need not be curtailed or so that there is less need for large investments in network expansion that lead to high consumer prices. A battery energy storage system, also known as BESS, offers one possible source of flexibility.

Several applications and use cases of BESS, including frequency regulation, renewable integration, peak shaving, microgrids, and black start capability, are explored.

Battery, a game changer

Batteries have already proven to be a commercially viable energy storage technology. Battery energy storage systems (BESS) are modular systems that can be deployed in standard shipping containers. Until recently, high costs and low round-trip efficiencies prevented their mass deployment. However, increased use of lithium-ion batteries in consumer electronics and electric vehicles has led to an expansion in global manufacturing capacity, resulting in a significant cost decrease that is expected to continue over the next few years. The low cost and high efficiency of lithium-ion batteries has been instrumental in a wave of BESS deployments in recent years for both small-scale, behind-the-meter installations and large-scale, grid-level deployments.

Battery systems can be used to overcome several challenges related to large-scale grid integration of renewables. First, batteries are technically better suited to frequency regulation than the traditional spinning reserve from power plants. Second, batteries provide a cost-effective alternative to network expansion for reducing curtailment of wind and solar power generation. Similarly, batteries enable consumer peak charge avoidance by supplying off-grid energy during on-grid peak consumption hours. Third, as renewable power generation often does not coincide with electricity demand, surplus power should be either curtailed or exported. Surplus power can instead be stored in batteries for consumption later when renewable power generation is low and electricity demand increases. The financial viability of a battery energy storage project for renewable integration will depend on the cost–benefit analysis of the intended application.

Economic viability of using batteries

The business case for BESS differs by application and by use case. “Prosumers” (producers–consumers) can calculate the payback period of a home energy storage system from the spread between the cost of producing and storing rooftop solar power and the cost of purchasing electricity from the local utility. Industrial consumers and distribution network owners benefit from a reduction in peak capacity charges and network expansion deferral because of peak shaving and load leveling. The business case for using batteries for frequency regulation depends on revenue forecasts and competition for ancillary services.

Various business models are possible, depending on how ownership and operations responsibility is divided between utility customers or prosumers and the utility or network operator. For example, while the charge and discharge cycles of home energy storage systems are set by the home owners themselves, industrial battery systems could be operated by a demand-side management provider or flexibility aggregator. Similarly, while large-scale batteries used for frequency regulation may be owned by private investors, the operation of such systems is likely to be the responsibility of the transmission system operator as part of the pool of assets that provide spinning reserve.

Policy and project considerations

This handbook lists the major policy and regulatory changes that could help promote energy storage markets and projects. For example, in most countries that operate ancillary service markets, frequency regulation products have historically been designed with the technical limitations of large power stations in mind. However, in 2016, a new ancillary service known as “enhanced frequency response,” with a sub-second response time that could be met only with the help of batteries, was launched in Europe. Similarly, in some countries, the provision of frequency regulation is mandatory for developers of large wind farms, to reduce the need for increased spinning reserve from conventional power plants.

As with most projects, it is important to capture the risks and challenges in undertaking a typical battery energy storage project. This handbook outlines the most important risks and challenges from a project execution perspective. It also provides a guide for building a financial model for such projects, including popular investment metrics such as the levelized cost of storage.