>> VILLAGE OF MINSTER, OHIO, UNITED STATES
The energy storage system commissioned in early 2016 in Minster, Ohio, in the United States, has been cited as a leading case study for effectively deploying this technology. The project offers an example of providing value to multiple stakeholders, including the local municipal government, while also improving the stability of the grid and facilitating the integration of renewable energy. Minster is a small town with only about 2,800 residents. However there are several large C&I facilities which require reliable and high quality power for their operations. As a part of the PJM Interconnection regional market, the town must purchase electricity in a competitive market with costs impacted by the total peak capacity required. Minster’s local government has been exploring possibilities to reduce electricity expenses.
The town worked with developer Half Moon Ventures to construct a 4.2 MW solar PV plant that will reduce the total amount of energy purchased from the market while also reducing the town’s carbon footprint. However solar PV alone cannot guarantee a reduction in the town’s peak demand, which drives much of the overall cost for electricity. With this and other factors in mind, Minster and Half Moon Ventures developed a large-scale energy storage system with systems integrator S&C Electric and battery provider LG Chem. The 7 MW / 3 MWh li-ion system will provide numerous benefits for the town’s residents and businesses. This project was financed and is owned by the developer Half Moon Ventures, but details on the financing structure have not been made public.
The stacking of revenue streams will be important for energy storage to be a solid investment, particularly in emerging markets where project development may be more expensive and where there are fewer opportunities to generate revenue in competitive markets. The town’s primary stated goal for this project is to reduce its cost for imported electricity by reducing the total peak demand which determines its peak load contribution to the regional grid. However peak demand is rarely reached in the town and the ESS may only be required to actually reduce peak demand for about 10 days per year, enabling the system to be available for other services most of the year. In practice, the primary application for this system is providing frequency regulation services in PJM’s competitive ancillary services market. When peak demand is unlikely to be met, the system bids its capacity into the market to respond to signals to absorb or discharge power, earning revenue based on the amount of energy dispatched. Additionally, this system is used to improve power quality in the village, a key consideration for its C&I customers. The addition of a large solar PV system on the town’s grid presents the possibility of rapid fluctuations in output which can cause damage to grid infrastructure. By smoothing solar PV output, the ESS allowed the town to avoid purchasing power factor correction capacitors that would cost an estimated $350,000. According to a July 2016 article on Utility Dive, the power purchase agreement tariff is 7 US cents / kWh generated plus a premium of 2.5 US cents / kWh to reflect the “smoothing” of the PV power and deferred investment in reactive power compensation. The resulting all-in power cost of 9.5 US cents / kWh is at parity with Minster’s average retail tariff. The economics are further improved by a payment from the PJM frequency regulation market, determined through a bidding process.
A key aspect of any energy storage project is trust that the system will deliver expected value and savings, thus unlocking affordable financing. In the Minster project, the performance of the battery was guaranteed through a warranty from LG Chem, a well-established and reputable vendor. Furthermore, performance in the PJM frequency regulation market was guaranteed by Viridity, an S&C Electric and market analysis software provider. The involvement of these trusted vendors limited the risk to the customers and kept project costs low because they enabled affordable financing. Another key to the success of this project was the use of advanced software platforms provided by S&C and Viridity to manage the operation of the system and to analyze opportunities to earn revenue in the PJM market. These platforms can greatly improve a project’s economics by identifying the most lucrative operation of the storage system at all times.
Software is key to improving the value proposition of energy storage, particularly in emerging markets, by determining the ideal system size and analyzing the optimal services a system should provide. This project provided a model that should be, and already is, being replicated around the world. A challenge for this replication, however, is whether a project can be financed with complex revenue streams that financiers are unfamiliar with. Working with reputable and established vendors can greatly reduce the risk to customers and lenders for such projects.
>> AES ANGAMOS ENERGY STORAGE ARRAY, CHILE
Commissioned in 2012, AES Energy Storage’s Angamos li-ion storage facility was the second large-scale advanced energy storage project undertaken in Chile. (See Picture 4.1). The project is integrated with a 544 MW coal power plant near the town of Mejillones. The plant is owned by AES Gener, an AES Corporation subsidiary which also owns the Angamos storage system. Building on the success of AES’s first energy storage project in the region, which was commissioned in 2009, the company developed the 2012 Angamos project to allow the thermal plant to operate at optimal efficiency levels while still meeting its required obligations to provide spinning reserve capacity. This legally required capacity is required to be available to maintain grid stability in the event of an unexpected transmission loss or the failure of a large generator. Furthermore the plant is required to adjust its output periodically in response to changes in the grid’s frequency because coal-fired plants are inherently inefficient and slow to respond to rapid changes in system frequency. The ESS with a 20 MW peak capacity can provide the plant’s required spinning reserves while also injecting and absorbing power, allowing the coal generators to run at optimal efficiency.
This project was privately financed by its owner Empresa Eléctrica Angamos S.A., which is a subsidiary of AES Gener and also owns the associated Angamos power plant.The ability of the corporation to privately finance this project greatly simplified the development process, and the owner’s close relationship with regulators and knowledge of the Chilean energy market resulted in streamlined interconnection and integration. It is estimated that the total investment required to develop and commission the Angamos ESS plant was roughly $30 million. By covering the thermal plant’s reserve capacity and frequency regulation requirements, the plant will be able to increase its generation output by an estimated 4 percent, about 130 GWh annually. Wholesale electricity prices vary considerably throughout Chile, and many generators are contracted directly through power purchase agreements.
Nevertheless, in 2014, the average spot market prices in the country were $104.4/MWh. By increasing the annual output of the plant by 130 GWh, the ESS could result in maximum additional annual revenue of $13.5 million for the plant. This would result in a payback period of only 2.2 years for the 20 MW storage facility. The main beneficiary of the additional revenue generated by the Angamos ESS will be AES which both developed and owns the system as well as the associated power plant. However there are numerous benefits to the entire region from the development of this project. In addition to the investment in the region and the creation of construction and engineering jobs, this system will improve the overall reliability of the power grid and can decrease both wholesale prices and retail electricity rates. By allowing the coal power plant to run at greater levels of efficiency, less fuel is required to generate a given amount of electricity, reducing the marginal costs of generation. These savings can allow the plant to bid lower prices into wholesale markets, driving down average prices in the region. Additionally the fast responding and more accurate frequency regulation provided by the ESS can allow for a greater amount of renewable energy to be added in the region without compromising grid stability.
The main beneficiary of the additional revenue generated by the Angamos ESS will be AES which both developed and owns the system as well as the associated power plant. However there are numerous benefits to the entire region from the development of this project. In addition to the investment in the region and the creation of construction and engineering jobs, this system will improve the overall reliability of the power grid and can decrease both wholesale prices and retail electricity rates. By allowing the coal power plant to run at greater levels of efficiency, less fuel is required to generate a given amount of electricity, reducing the marginal costs of generation. These savings can allow the plant to bid lower prices into wholesale markets, driving down average prices in the region. Additionally the fast responding and more accurate frequency regulation provided by the ESS can allow for a greater amount of renewable energy to be added in the region without compromising grid stability.
This project takes advantage of Chile’s energy market deregulation, which separates entities for the generation, transmission, and retail sales of electricity in wholesale markets. This market structure allows AES to deploy private capital to improve the efficiency of its plants and its competitiveness in the wholesale markets while at the same time providing new infrastructure to support the regional grid’s growth and to integrate renewables. With some of the highest levels of solar irradiance in the world, the Chilean government is looking to deploy large amounts of solar PV in the country’s north. This project will help facilitate the integration of these new resources and help the country meet a goal of generating 20 percent of its energy from renewables by 2025. The Angamos project is considered a major success and is leading to additional projects. AES Energy Storage is building another 20 MW project in Northern Chile, and developer NEC Energy Solutions announced a 12 MW ESS in 2015. Chile’s experience provides a good framework for how emerging markets can capitalize on local renewable resources and the capital of foreign investors. Allowing for more open competition among energy generation and ancillary service providers has been key for these developments in Chile, and should be considered by market regulators in other countries.