Energy Storage Trends and Opportunities in Emerging Markets CONFERENCE EDITION PUBLISHED 2017 Alex Eller Research Analyst Dexter Gauntlett Principal Research Analyst COMMISSIONED BY IFC AND ESMAP Table of Contents Executive Summary 1 1.1 Executive Summary 1 Market Overview 3 2.1 Introduction 3 2.1.1 Physical Grid Infrastructure 3 2.1.2 Regulatory Framework and Market Structure 4 2.1.3 Population and Energy Usage Trends 4 2.1.4 Grid Architecture and Performance Conditions 4 2.2 Market Drivers and Trends 5 2.2.1 Utility-Scale 6 2.2.2 Behind-the-Meter 7 2.2.3 Remote Power Systems 8 2.3 Market Barriers 9 2.3.1 Utility-Scale 10 2.3.2 Behind-the-Meter 10 2.3.3 Remote Power Systems 12 Applications for Stationary Energy Storage 13 3.1 Introduction 13 3.1.1 The Energy Storage Value Chain 14 3.2 Grid-Tied Utility-Scale 15 i 3.3 Grid-Tied Behind-the-Meter 17 3.4 Remote Power Systems 19 Regional Market Analysis and Forecasts 23 3.5 Introduction 23 3.6 East Asia & Pacific 24 3.7 South Asia 26 3.8 Eastern Europe & Central Asia 28 3.9 Latin America & the Caribbean 29 3.10 Sub-Saharan Africa 32 3.11 Middle East & North Africa 33 Case Studies 36 4.1 Introduction 36 4.2 Village of Minster, Ohio, United States 36 4.3 AES Angamos Energy Storage Array, Chile 37 4.4 Sumba Island Microgrid, Indonesia 38 Conclusion 40 5.1 Conclusion 40 List of Abbreviations 42 List of Figures 42 List of Tables 43 List of Charts 43 List of Pictures 43 ACKNOWLEDGEMENTS 44 ABOUT IFC 45 ABOUT ESMAP 45 ABOUT NAVIGANT RESEARCH & METHODOLOGY 45 DISCLAIMER 46 NOTES 46 ii Executive Summary 1.1 EXECUTIVE SUMMARY worldwide goals for reduction of greenhouse-gas emissions, a substantial portion of this new generation capacity will likely Energy storage is a crucial tool for enabling the effective come from renewable sources. While the costs for renewable integration of renewable energy and unlocking the benefits generation continue to fall, integrating and effectively using of local generation and a clean, resilient energy supply. The these new resources, especially in regions with weak grid technology continues to prove its value to grid operators infrastructure, will require energy storage. Furthermore around the world who must manage the variable generation of emerging economies must bring reliable electricity service to solar and wind energy. However, the development of advanced about 1.2 billion people who currently lack access. Experience energy storage systems (ESS) has been highly concentrated over the past several decades has shown that the traditional, in select markets, primarily in regions with highly developed centralized grid cannot or will not cost-effectively provide economies. Despite rapidly falling costs, ESSs remain expensive even basic electrical service to underserved populations in a and the significant upfront investment required is difficult reasonable amount of time. Distributed and remote power to overcome without government support and/or low-cost systems have enormous potential to provide service around the financing. This type of advanced technology requires significant world, but are subject to a number of barriers. knowledge and expertise to be developed and operated cost-effectively. Furthermore, the services provided by ESS Energy storage deployments in emerging markets worldwide systems are often not properly valued or recognized within are expected to grow over 40 percent annually in the coming existing energy market regulations. Even with these barriers, decade, adding approximately 80 GW of new storage capacity installations of stationary ESSs are increasing dramatically to the estimated 2 GW existing today. This report will provide around the world as system costs are rapidly decreasing and as an overview of energy storage developments in emerging energy markets are being reformed to allow for the use of more markets along with details on the services ESSs can provide at distributed resources. the utility-scale, in buildings, and in remote power systems. Key trends and barriers for the technology in emerging markets will The International Energy Agency (IEA) estimates that by 2020, also be explored in depth. Finally, case studies are included to developing countries will need to double their electrical power highlight successful projects around the world that demonstrate output to meet rising demand. It is estimated that by 2035, both the challenges and potential for energy storage in these nations will represent 80 percent of the total growth in emerging markets. both energy production and consumption. In order to meet Energy Storage Trends and Opportunities in Emerging Markets 2 Market Overview 2.1 INTRODUCTION specific grid configurations designed to accommodate these circumstances. These differences play a particularly important There are several fundamental contributing factors that role in the structure of distribution circuits, and are important set the stage for energy storage in different regions. Each to understand in the context of energy storage market country’s energy storage potential is based on the combination development because of their importance in determining the of energy resources, historical physical infrastructure and specifications of customer-sited ESSs. There are two main electricity market structure, regulatory framework, population models of power distribution networks which have been demographics, energy-demand patterns and trends, and general replicated around the world: the North American model and grid architecture and condition. The efficiency and/or level of the European model. (See Figure 2.1). quality of performance of these fundamental factors creates demand for new products and services, and energy storage is In North America, the suburbs are overwhelmingly ubiquitous, increasingly being sought to meet these emerging requirements. which has led to low-density, single-family residences spread out radially from urban cores. This, in turn, dictates a power 2.1.1 PHYSICAL GRID INFRASTRUCTURE distribution grid of radial design, with relatively long feeder The physical structure of any electricity system will have an circuits, numerous step-down transformers (typically the pole- impact on the market for energy storage. There are significant top variety) per feeder, and relatively few customers served by differences among power systems around the world in both each transformer compared to more densely populated regions. physical architecture and operations due to historical patterns This model is seen in other regions of the world as well, most of customer living conditions and power usage as well as to notably in parts of Latin America, Australia, and New Zealand. Figure 2.1 Simplified European vs. North American Distribution Network Architecture European North American Substation Substation LV LV MV MV LV Distribution Transformer LV LV Transformer Station (Source: Navigant Research) Energy Storage Trends and Opportunities in Emerging Markets In contrast, in Europe, parts of Asia Pacific, and other more European model. However an important factor is the rate of densely populated regions, the extended suburb is not a growth of the urban population. For example, the Middle common phenomenon since the region is more densely East/Africa region currently has the lowest percentage of populated than North America. As a result, distribution circuits population living outside of urban areas, as well as a large are more concentrated and shorter in length, with fewer percentage of people living without access to electricity. step-down transformers (typically housed in better-protected This region, which has the highest global annual growth transformer substations rather than on pole-tops) per feeder in urban population at about 1.9 percent, is experiencing and many more customers per transformer. rapid urbanization which is driving the need for significant investments in electrical infrastructure for cities. Designs in other world regions, which in many cases are still being built out, tend to be hybridized between these two basic While growing urban populations increase the need for new models. This tends to be the case in many emerging markets electrical infrastructure, potentially driving the creation of where power systems generally are less developed. an energy storage market, rural and isolated communities are driving the market for a different set of energy storage 2.1.2 REGULATORY FRAMEWORK AND MARKET technologies. Isolated communities that rely on remote power STRUCTURE systems primarily fueled by diesel generators have been some of The regulatory framework and economic structure of an the first communities to adopt energy storage. This is because electricity market determines the level of competition that the potential for savings from a reduction in fuel consumption exists at different levels of the electric power industry and creates a strong business case for storage systems. The mix of is an important consideration when examining the potential urban and rural populations, as well as the growth rates for for energy storage deployments. There are two main models those groups, is an important factor in determining the size and for national power grids that are based on the amount of structure of a regional energy storage market. regulation and competition. In fully regulated markets, a single 2.1.4 GRID ARCHITECTURE AND PERFORMANCE entity controls the generation, distribution, and retail sales CONDITIONS of electricity. In contrast, in deregulated or more liberalized markets, such as those in Australia, Germany, and certain states The overall stability of the electrical grid in a particular country in the United States, there is competition between suppliers or region is an important consideration in determining the at the generation level as well as at the retail level, where potential market for stationary ESSs. Similar to other factors customers can chose their supplier. However, most countries explored in this report, the stability of the grid will influence employ some hybrid version of these two models at the the type of ESSs that will be deployed, and how they are national level, resulting in a difficult-to-navigate patchwork used. In areas with relatively unstable grids that experience of regulations within a given region. These structures will frequent outages, distributed energy storage systems (DESS) determine the final customer for an energy storage system in a and microgrids will become increasingly popular to protect market, as well as the services a system is allowed to perform, customers from outages. These systems will be the most and the ownership model, that is whether the system is owned popular for commercial and industrial facilities where even by a public entity, by the transmission owner or operator, or by short outages can result in significant economic losses. a third party or independent power producer (IPP). Additionally, operators of unstable grids are likely to deploy 2.1.3 POPULATION AND ENERGY USAGE TRENDS utility-scale ESSs to minimize the likelihood of outages affecting large numbers of customers. Many countries around the world Population demographics in countries around the world also are pursuing grid modernization and expansion initiatives to play a role in determining the structure of the power grid, improve service quality and availability. The stability of the and will be an important factor in the development of energy existing grid infrastructure plays an important role in these storage markets. Countries with more densely populated efforts, particularly for developing countries looking to attract urban areas will require more concentrated distribution foreign investment for manufacturing and industrial processes. circuits delivering higher voltage power, representative of the For multinational companies looking to expand manufacturing 4 into emerging markets, the reliability of local power supplies is a key consideration when evaluating potential locations. In addition to the factor of stability, the age and overloading of grid infrastructure in a given area can also have a major impact on the demand for energy storage. In many cases, energy storage is becoming a cost-effective alternative to replacing conventional infrastructure, particularly in helping substations, and transmission and distribution (T&D) lines be able to meet growing peak demand in select areas. As ESS prices continue to decline, storage will increasingly be an attractive alternative to replacing conventional infrastructure or deferring investments. This trend is discussed in greater detail in section 2.2 of this report. 2.2 MARKET DRIVERS AND TRENDS While the specific drivers to develop energy storage markets vary by region and market segment, the overarching goal of ESS deployments is to make the electricity grid more efficient, resilient, secure, cost-effective, and sustainable, as well as to expand the menu of available electricity market services. This report covers three of the primary stationary energy storage market segments. Utility-scale refers to systems installed on transmission or distribution networks providing services to grid operators. Behind-the-meter (BTM) systems are installed on the customer side of a utility meter and primarily help reduce costs and improve resiliency for commercial and industrial (C&I) or residential customers. Remote power systems refer to storage systems operating as part of isolated electricity networks. The specifics of each market segment are covered in the following sections. The varying drivers and barriers for energy storage around the world stem from numerous factors, including differences in the physical structure of the grid, needs and desires of end users, Distributed Energy Resources and the regulatory and market structure in a given country encompass a broad set of or region. Since the impacts of particular distributed energy resources (DER) on the grid vary considerably by technology solutions that include systems and region, it is necessary to understand the factors shaping and technologies designed to the ESS market in each area, as well as the differing views in operate closer to customers on the utilities around the world on the proliferation of new storage electricity grid. capabilities. The following sections explore some of the key issues in energy storage markets for developing countries around the world. Greater detail is also provided for the services that ESSs can offer as well as for the emerging business models and dynamics that are fueling the industry’s growth. 5 Energy Storage Trends and Opportunities in Emerging Markets 2.2.1 UTILITY-SCALE Perhaps the most important driver of utility-scale ESSs is the Software and control systems are substantial growth in the amount of renewable energy being becoming increasingly important to deployed around the world. We anticipate that more than utilities to capture multiple revenue 78.0 GW of new solar and wind generating capacity will be installed globally in 2016, and that 378.1 GW is projected to streams, improving project profitability. be installed over the next five years.1 These variable forms of power generation present challenges to local electrical grids, which typically are not designed to handle variable generation Another key driver is the need for new infrastructure to output and are often already stretched-out in delivering the modernize and expand the grid. The grid in developing existing electricity already online. Issues arise from the need economies needs to have aging infrastructure modernized and both to safely integrate variable resources and to align supply to be expanded to be able to serve rapidly growing populations and demand in order to avoid curtailing energy. ESSs are and to bring power to an estimated 30 percent of the global particularly well suited to smoothing the variable output of population without access to electricity. According to the renewables and controlling the rapid ramping up and down United Nations Sustainable Energy for All initiative (SE4All), of solar and wind generation. The waste or curtailment of $45 billion in investment through 2030 will be required to renewable energy production presents a key opportunity for provide universal access to modern electric power.2 Energy long-duration, utility-scale ESSs to enable greater utilization of storage is set to play a key role in these investments, enabling these resources by shifting energy supply in ways to be better better utilization of both new and existing resources as well as aligned with demand. strengthening the grid against diverse threats, including natural The next major driver is the effort by governments around disasters and physical attacks. the world to reduce carbon emissions. In late 2015, the Paris The fourth major driver is the need to improve the resilience Agreement was negotiated by 197 countries that agreed to of the electrical grid. Recent natural disasters have highlighted set emissions reduction targets with the aim of limiting global the fragility of a centralized grid architecture. This has resulted warming to less than 2°C compared to pre-industrial levels. The in many communities opting for more local generation and agreement was accompanied by a set of targets for emissions use of microgrids to ensure that they still have power during mitigation in individual countries. In the aggregate, the IEA a disaster. This dynamic will play a major role in emerging estimates that $13.5 trillion in additional investment will be economies where grid infrastructure may already be unreliable, required just to achieve these goals. These national mandates and can benefit from the resiliency provided by energy storage. and the reduced costs of renewable generation are resulting in falling competitiveness and retirement of many coal-fired As a result of these trends, grid operators and regulators are power plants. As new coal plant deployments are replaced by beginning to recognize the value of ESSs for multiple services. renewables and distributed resources, the grid will need new Utilities have begun including ESSs in their resource planning sources of inertia to maintain stability. Inertia on the grid has processes as falling systems costs have made storage an traditionally been provided by the rotating mass of thermal attractive alternative to certain infrastructure investments. As power generators, which allows the system to maintain stability deployed systems continue to meet expectations, standardized if a portion of generation or transmission assets go offline. contracts are likely to become the norm, which can result in Energy storage is emerging as an ideal solution for providing more predictable revenue streams. Due to this maturation of the real and synthetic inertia as ever-expanding clean power industry, the financial community is growing more comfortable sources come online and cannot replicate the inertia provided with investments in energy storage, which are further lowering by large-scale fossil-fueled generators. the cost to deploy systems and accelerating growth of the industry. 1 Other analysts project levels as high as 104 GW of new solar and wind power in 2016, and 644 GW over the next five years (Bloomberg New Energy Outlook 2016). 2 SE4All Global Tracking Framework Report, “Progress Toward Sustainable Energy 2015” 6 2.2.2 BEHIND-THE-METER To date, backup power has been one of the major selling points Virtual aggregation of distributed for energy storage. Both distributed customers and utilities systems allowing systems to provide are interested in utilizing battery systems in homes to improve grid services and compete in energy the resilience of their power supplies and to help mitigate the effects of power outages caused by natural disasters or grid markets, greatly increases the value equipment failures. To enable an adequate supply of backup proposition of ESSs. power, the sizing of an ESS is crucial. If there is too little power or energy capacity (measured in kW and kWh, respectively), the system will not be able to support critical loads during an outage. However, an oversized system will be prohibitively (OECD) countries, compensation programs (including net expensive compared to alternatives. metering and feed-in tariffs [FIT]) are being phased out or The ability to provide backup power is particularly key to the replaced with alternative rate structures in many areas. When value proposition of battery storage systems. While controllable these types of programs are eliminated, or when compensation water heaters and other forms of thermal energy management for exported energy falls below the retail price of electricity, can reduce electricity costs and can provide some services ESSs can allow end users to save money. By storing excess solar to grid operators, they will not be able to provide power for PV energy produced throughout the day, customers can avoid critical loads during an outage. purchasing energy from the grid during evening peak demand periods when electricity rates may be highest in markets with In large BTM energy storage markets, such as the United dynamic pricing. In places such as Hawaii, Germany, and States, the main driver for these systems has been the ability to Australia, the distributed storage industry is being fueled by reduce electricity expenses. This is primarily done by reducing the decrease in solar PV compensation and high retail rates of peak demand and time-of-use (TOU) rates. Demand charges electricity, encouraging a model of storage operation known as are charges levied by electric utilities based on the maximum self-consumption. electricity demand of a customer over a period ranging from 15–60 minutes, typically over an interval of 30, 60, or 90 BTM energy storage can also allow for much greater levels days. These charges may then stay in place for 30, 60, or 90 of renewable energy penetration. Distributed renewables, months, and such charges can account for a significant portion particularly solar PV, can cause significant issues for of a C&I customer’s bill. Since energy cost management is the distribution networks when too much power is fed back onto primary function of energy storage for C&I customers, utility the grid. Most distribution equipment was not designed to rate structures are expected to determine the economics in a handle significant back-feeding of electricity, and either requires given market. The higher and more volatile electricity prices adding upgrades to the equipment or setting limitations on and demand charges are for C&I customers, the better is the the amount of variable generation produced. BTM storage business case for energy storage. allows customers to keep onsite the excess energy generated, preventing many of these issues. These systems can also A key component of the energy storage value proposition in automatically respond to grid signals to correct frequency, developed and emerging markets is consuming the majority voltage, and reactive power, thereby greatly improving grid of energy generated by onsite solar photovoltaic (PV) and stability and reducing barriers and objections to increasing other distributed generation (DG) systems. In most developed deployments of distributed renewables. countries, the compensation structure for solar PV discourages the use of ESSs because PV system owners are guaranteed The impact of increasing DER deployments will vary in payment for any excess energy that their system generates at a different countries and regions around the world. Much of this rate that is equal to or higher than the retail cost of electricity. variation will be due to both existing and planned additions of However, due to the successful growth of the solar PV industry centralized generation in a given area. Given the vast landscape in Organisation for Economic Co-operation and Development of technologies that DER includes, most countries in the 7 Energy Storage Trends and Opportunities in Emerging Markets Table 2.1 Estimated Fuel Savings and System Costs of Energy Storage Technologies in Remote Microgrids by Battery Type, World Markets: 3Q 2016 Installed Cost Est. Annual O&M Avg. Round-Trip Est. Annual Fuel Est. Annual Fuel Battery Type ($/kW) Cost ($/kW) Efficiency Savings (L/kW) Savings ($/kW) Flow Battery: 2,300.2 31.1 70% 1,680 1,831.2 Utility-Scale Flow Battery: 2,874.4 34.5 70% 1,680 1,831.2 Distributed Advanced Lead-Acid: 2,903.5 66.2 80% 1,920 2,092.8 Utility-Scale Advanced Lead-Acid: 3,284.5 66.8 80% 1,920 2,092.8 Distributed Lithium Ion: Utility- 2,062.0 47.3 90% 2,040 2,223.6 Scale Lithium Ion: 2,150.3 50.8 90% 2,040 2,223.6 Distributed (Source: Navigant Research) coming decade are expected to utilize more new DER capacity who is the owner of the remote system: an electricity customer, additions than centralized generation additions, especially solar a utility, or another entity. In each ownership category, systems PV, generator sets (gensets), and energy storage. In regions may be grid-tied or remote. This report section focuses solely where DER capacity deployments will significantly outpace on remote systems, since the benefits of grid-connected storage centralized generation, pressure to restructure electricity systems were covered in the previous sections. networks both physically and economically to handle the changing technology landscape will be felt more acutely. Remote power systems typically rely on small diesel generators to support electricity needs. The cost of electricity provided by 2.2.3 REMOTE POWER SYSTEMS these systems can be very high in comparison to grid-connected systems. As a result, many new remote power systems are being It is important to identify how remote power systems can differ. designed to reduce costly diesel fuel consumption by integrating One major distinction is the size of the system. Where larger remote systems have been generally known as microgrids, the smaller denominations are known as nanogrids.The business case for nanogrids echoes many of the same arguments used on behalf of microgrids. These smaller, modular, and flexible A nanogrid, a smaller subset of a distribution networks are the antithesis of the bigger-is-better microgrid, is an electrical domain no economies of scale thinking that has guided energy resource greater than 100 kW and limited to a planning over much of the past century. Nanogrids embrace single building structure or primary a bottom-up energy paradigm. In some cases, the networks articulate a business case even more radical than that for a load representing distributed generation microgrid; in other cases, nanogrids peacefully coexist with the devices, energy storage, eVs, and smart status quo. loads capable of islanding and/or One distinction between types of remote power systems is the energy self-sufficiency through some physical proximity of a system to a centralized grid system. level of intelligent DER management or Systems that are co-located with a large, centralized grid system controls are known as grid-tied; others that are independent from a centralized grid are known as remote. A second distinction is 8 solar PV, distributed wind, or other renewable resources into type of ESS is used in a remote system, and to what degree. The the network. Perhaps the most attractive remote system markets technology composition of each system is unique, because it is in the world today are communities that burn diesel fuel as a a response to a set of preferences and requirements set by each primary source of electricity. The key driver for this market individual end user. is displacing high-cost diesel fuel with variable renewable resources. Once these substitutions take place, there is often a The services that energy storage systems deliver to remote need for both energy storage and more sophisticated controls to systems are not dissimilar to the services that they deliver make operations more robust. Microgrids were first developed to the traditional grid: resource optimization (fuel, solar for this segment, and remote, grid-independent power systems PV, wind), resource integration (solar PV, wind), stability represent the largest, long-term market opportunity in terms (frequency, voltage), and load management (leveling and of the number of systems deployed in the global remote system shifting). Understanding the relative importance of each market, including many emerging market countries. service to a remote system customer is critical to building a compelling business case for energy storage for remote power Table 2.1 provides a breakdown of the cost of ESSs within systems, particularly in the face of alternatives that have remote power systems and the expected reduction in diesel fuel lower upfront costs in developing countries, such as natural usage on a per-kilowatt basis. This analysis is built using diesel gas or diesel generators. Traditional centralized transmission offset assumptions, including diesel pricing of $1.09 per liter. and distribution (T&D) grid infrastructure is costly to build The table refers to utility-scale as an ESS centrally located in a out, and often costs much more than building new remote remote power system with a capacity of more than 250kWh, systems. Grid-independent distributed systems may be less risky and distributed as smaller systems physically dispersed in a financially, are incremental by nature, and synchronize with power system with less than 250 kWh of capacity. evolving trends and business models related to power systems in many emerging economies. An example of this type of remote system is the Kodiak Island Microgrid in Alaska. The project, active since 2014, generates 2.3 MARKET BARRIERS a vast majority of its 42 MW of power exclusively from wind Countries around the world will experience growth in the and pumped hydro resources. The island also includes two energy storage market at different rates, driven by differing flywheels and a lead-acid battery bank to provide power factors. Numerous factors are limiting the growth of the stability. This system supplies electricity to 15,000 residents stationary energy storage market worldwide. Several of these across seven independent communities. An additional example barriers include: is the Brookfield Energy Suburban Solar Microgrid Project in Australia. This project, rated at a total capacity of 80 MW, • Lack of familiarity with storage technology among utilities, includes solar PV, diesel, and energy storage to power a new regulators and financiers housing development without conventional grid support. • High upfront costs Brookfield and developers built the business case of this project around cost savings from network development, connection • The need for highly skilled and experienced technicians to fees, and the falling costs of solar PV and energy storage. This maintain and operate systems correctly project is scheduled to come online in 2017. • Regulations preventing third-party or customer ownership of certain DERs Overall, the business case for energy storage in a remote power system is built primarily around the ability of storage to • Regulations preventing storage from competing in energy, maximize renewable generation use and minimize peak load, ancillary service, or capacity markets with secondary benefits including ensuring the overall stability These and other barriers limiting the growth of energy storage of the system. Ultimately, the operational objective of the power in new markets are explored in the following sections. system and the technology composition will determine which 9 Energy Storage Trends and Opportunities in Emerging Markets Chart 2.1 Utility-Scale Energy Storage System Cost Trends by Technology, Global Averages: 2014–2024 1,400 Flow Battery Advanced Lead-Acid 1,200 Lithium Ion CAES Sodium Metal Halide Pumped Storage 1,000 800 $/kWh 600 400 200 — 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (Source: Navigant Research) 2.3.1 UTILITY-SCALE grid operator. While this is an important development for the overall ESS industry, it has the potential to reduce the demand A number of challenges remain for the growing utility-scale ESS for larger utility-scale systemsbecause the same services can be industry, especially in developing markets. As is the case with provided by a distributed ESS network. the entire energy storage industry, the high upfront cost for systems remain the most significant barrier to growth. However Despite the major reductions in system costs that have been there are additional issues that are specific to the utility-scale achieved over the past several years, utility-scale energy storage segment. Many ESS developers still see a significant need for remains an expensive technology. The upfront cost for systems more education because many industry stakeholders, including is one of the major barriers to the market’s growth. Chart 2.1 utilities, regulators, developers, and financiers, are often not provides a comparison of the cost trends and forecasts for familiar with energy storage, the technology’s benefits, and how various ESS technologies. This assumes a duration of 4 hours it should be properly managed. In addition, in most regions, for battery technologies (ex. 1 MW / 4 MWh), and a 10-hour ESSs are not sufficiently recognized in competitive markets duration for compressed air and pumped storage systems. for being able to offer both energy capacity and ancillary services. Many ESS developers and vendors believe that ESSs 2.3.2 BEHIND-THE-METER should have their own set of rules and be treated as a unique Despite its potential, the behind-the-meter energy storage technology in regulatory frameworks because of the diverse industry is still very much a developing market. The benefits they can provide. BTM energy storage market is made up of both C&I and Additionally, in many areas there has been a growth of residential customers. With the exception of a small number deployments of distributed ESSs paired with increasingly of early adopters’ markets, such as Japan and Germany, sophisticated aggregation software. This approach allows these commercial activity is largely limited to C&I customers and systems to provide value for both the host customer and the only a relatively small capacity of residential systems have been deployed. However despite the industry’s growth, the 10 Chart 2.2 Behind-the-Meter Energy Storage System Cost Trends by Technology, Global Averages: 2014–2024 2,500 Flow Battery Advanced Lead-Acid 2,000 Lithium Ion 1,500 $/kWh 1,000 500 — 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (Source: Navigant Research) economics simply do not justify the high upfront cost of accurately accounting for the underlying grid system cost to installing these systems for most customers around the world. support these new distributed systems. High upfront costs are the main barrier to BTM storage growth. While system costs have fallen rapidly and are expected Chart 2.2 provides an illustration of the pricing trends and to continue their downward trajectory, growth in this market forecasts for BTM energy storage. This represents an average is highly dependent on the rate structures utilized for BTM of costs across both residential and C&I markets, and customers and on the involvement of local utilities. assumes systems with a 2-hour duration (for example 50 kW / 100 kWh). As shown in the chart, system costs have come down Critical factors enabling this market are the programs dramatically in the past two years, these markets were nearly supporting solar PV that compensate system owners for non-existent in most regions in early 2014. excess generation. However, many utilities are opposed to these programs, including net metering and FITs, which can Other major barriers to BTM energy storage around the world be disruptive to the power industry as a whole and may not have been the issuance of restrictive regulations and resistance appropriately value the cost of maintaining enabling grid from existing utilities. Utilities in some areas have actively infrastructure owned by the utility. The elimination of these worked to prevent customers from using BTM storage to programs would greatly constrain the energy storage market, consume more of the electricity they generate on-site. These given how closely tied it is to the development of the solar efforts have included enactment of regulations prohibiting PV market. The distributed storage industry knows it cannot third-party system ownerships (which have driven market expect to follow the same path as solar PV by relying on growth in leading markets) as well as ones imposing special subsidies to prop up the industry. There must be a sustainable fixed charges or tariffs for self-consumption of power generated value proposition regardless of subsidies, and this may require onsite. Despite the fact that these systems, when properly changes in rate structures and regulations that effectively coordinated and incentivized, can improve the stability of the quantify the value created by distributed energy and ESSs while grid and allow for more renewables to be added effectively, they 11 Energy Storage Trends and Opportunities in Emerging Markets are viewed by some utilities as a direct threat to their business markets where the cost of diesel can be two to three times as since it could allow some clients to defect from the grid or expensive when compared to urban areas. By comparison, greatly reduce the amount of energy they purchase from the the average distributed ESS costs nearly $3,000/kW installed, grid. However, this is not always the case, and forward-looking with a finite amount of energy capacity. As a result, it is critical utilities in some leading BTM storage markets are supporting that ESS vendors design their systems to be able to provide and using BTM ESSs as a resource that can provide unique multiple services and capture several revenue streams in order benefits to the grid. to produce a more favorable return on investment (ROI). 2.3.3 REMOTE POWER SYSTEMS Development challenges in deploying these systems in remote areas also exist. Attractive remote markets like Diesel gensets and the high cost of diesel generation in isolated commodity extraction industries are in an economic down- areas figure prominently in remote power systems. Diesel costs cycle and therefore companies may hesitate to invest in new are influenced by a number of factors, including domestic infrastructure not directly related to production or with availability of fuel, transportation networks for fuels, weather longer payback times. Furthermore, because many commodity conditions, safety conditions, fuel theft, subsidies, and taxes. extraction operations are highly cost-driven and conservative, These factors may have different impacts in each region. For companies may view the integration of energy storage as instance, theft and weather conditions are not an issue in risky. The cost-driven nature of this market is also true for Denmark, but the Danish government taxes fuels and energy other applications like village electrification. While this is the heavily, whereas in India theft and weather conditions are a remote market segment that is attracting the most support major concern. from governments and international development finance Although an ESS paired with solar PV or another renewable institutions, it also faces some of the most difficult challenges resource has the potential to continue supplying power due to the financial viability of clients, historic patterns throughout a lengthy outage, there is little financial justification of energy theft and/or adulteration, and deeply embedded to do so given the relatively low cost of alternatives like diesel energy subsidies that challenge private sector business models. and natural gas generator sets. Conventional diesel generators Furthermore, in many areas, the ability to safely and cost- can be purchased for about $650/kW, with the energy capacity effectively access many remote communities, along with the only limited by the amount of fuel available. While diesel lack of local technical expertise to operate and maintain fuel is typically readily available in most countries, the cost the installed systems, is hindering remote power system of running diesel generators for significant periods of time development. is cost-prohibitive, particularly in rural regions in emerging 12 Applications for Stationary Energy Storage 3.1 INTRODUCTION increase in region-wide mandates or International Organization for Standardization (ISO)-wide changes in market structures. This section includes an overview of the stationary energy This means that the opportunities will be limited to specific storage value chain, lists components in energy storage systems, utilities, as opposed to all utilities, or to distributed customers and describes applications of energy storage in the context of in a geographic territory. emerging markets. Energy storage projects exist and thrive in several geographies, but a number of emerging market countries Energy storage systems are being implemented to meet a variety have the resource potential to be among the most active of different applications across the grid. Locations range from participants in energy storage today. We expect that select generation, transmission, or distribution sites with utility-scale emerging markets will be hotspots of storage activity over the systems to electricity end-users’ properties using BTM systems, next five to fifteen years. Activity in the energy storage market Figure 3.1 shows how utility services, customer services, and may be catalyzed by specific, progressive utilities that actively market services are related across sectors. seek to modernize their assets. This will be followed by an Figure 3.1 Battery Energy Storage Value Chain, Upstream Portion: Utility-Scale and BTM Batteries can provide up to 13 services to three Energy stakeholder groups Backup Power Arbitrage Spin/ Non-Spin ES Reserve IC Increased RV IS PV Self- O Consumption SE /R Frequency R TO ME Regulation SER TO CUS VICE Demand Charge Reduction Service not Voltage Centralized S possible Support Service not possible TRANSMISSION Time-of-Use DISTRIBUTION Bill Black Management Start BEHIND THE METER Distribution Deferral Resource Adequacy Distributed Transmission Transmission Deferral Congestion Relief UTILIT Y SERVICES (Source: Rocky Mountain Institute’s The Economics of Battery Energy Storage) Energy Storage Trends and Opportunities in Emerging Markets Figure 3.2 Battery Energy Storage Value Chain, Upstream Portion: Utility-Scale and BTM Power Thermal Storage Conversion Management Software & Technology Manufacturer Manufacturer Controls Manufacturer Vendor Balance of System Upstream • Cells • Power • HVAC systems • Software and conversion controls • Packs • Fire equipment algorithm suppression • Battery development • Other systems Management electronics • System Systems (BMS) required to management • Component complete • Controls and level modeling, balance of optimization design and system (BOS) testing • Communication • Warranties/ Guarantees (Source: Navigant Research) Utility-scale projects include large storage systems designed The upstream components of the ESS include the following: for power applications, which require high power over relatively short periods of time, as well as for energy-intensive • Storage Technology—Storage technologies include applications, such as shifting renewable generation to align mechanical (for example, flywheel, compressed air, pumped with times of high demand, that require large amounts of hydro), electrochemical (for example, lithium ion, flow energy over a long period of time. In contrast, BTM projects battery), and thermal (for example, ice, phase change tend to include residential- or commercial-scale systems materials). Individual technologies are tailored for different designed for energy applications, which must hold enough applications. Li-ion batteries currently dominate the market, energy to discharge for multiple hours. In unique cases, high but a diverse blend of battery technologies is beginning to power systems make sense in BTM applications for industrial be deployed. Thermal energy storage using molten salt is customers where large pieces of equipment used in industrial also being widely used in connection with concentrated solar processes cause spikes in demand. Generally, however, two to power (CSP) projects. four hours of duration is typical for BTM applications. • Power Conversion—Power conversion technologies primarily include bidirectional inverters (hardware) and 3.1.1 THE ENERGY STORAGE VALUE CHAIN some software within the inverter. Inverters are relatively ESSs are not all created equal; services, functionalities, and technology-agnostic, meaning the inverter market will grow pricing structures can vary from project to project. However, with the overall energy storage (ES) market. certain components remain consistent for utility-scale and • Thermal Management—Thermal management technologies distributed deployments. As an example, Figure 3.2 details the maintain the desired temperature range within a system upstream portion of the value chain for batteries. and are critical for optimizing storage capacity, lifespan, performance, and safety. High-temperature storage 14 Figure 3.3 Battery Energy Storage Value Chain, Downstream Portion: Utility-Scale System Project Integrator Operator & Developer and EPC Maintenance Provider Development & Integration Investment Downstream • Site control/ • Engineering and Operation Ownership acquisition procurement • Monitor • Equity investor • Secure permits • Installation performance of • Legally • Develop pro- • Civil system responsible for forma financials • Mechanical • Ensure software is the ESS • Structure, • Electrical working correctly negotiate • Integration • Reporting Financing financing (debt, • Hardware requirements • Provide debt to equity) Software the project • Negotiate • Grid Maintenance o take interconnection • Work to be in agreements/ • Testing and compliance with PPA commissioning warranties • Obtain • Wrap system • Spare parts incentives • Provide wrap inventory (performance Aggregation guarantee) • Develop and operate portfolio (Source: Navigant Research) technologies such as sodium-sulfur batteries use vendor- storage, and energy storage for remote power systems. Each one specific custom systems, while other technologies such as of these segments has their own respective value propositions, flow batteries tolerate a wider range of temperatures without drivers, and barriers. heating, ventilation, and air conditioning (HVAC). 3.2 GRID-TIED UTILITY-SCALE • Software & Controls—Software and controls technology is required for all aspects of system operation and Further down the ESS value stream, systems become performance. Three sub-components make up the software increasingly nuanced to fit certain applications. Utility-scale and controls component of an energy storage system. systems require special functionalities and controls to ensure reliability, safety, and profitability. As an example, Figure 3.3 —— Advanced sensors and system management devices illustrates the downstream portion of the of the battery energy monitor performance, manage health, and set dispatch/ storage value chain for these types of projects. cycle frequency limitations of systems. —— Controls manage charge and discharge rate, optimize The downstream components of utility-scale ESSs include the economic dispatch, balance competing applications and following: obligations, and control aggregated distributed systems. • Project Developer—The developer role is typically the —— Communications technologies send and receive data consolidator, connecting system development, integration, and control signals, and support software and firmware engineering, procurement, and construction (EPC), and upgrades. financing to reduce multiple levels of mark-up The following sections will differentiate between application • System Integrator and EPC—The competencies and services focuses of grid-tied utility-scale energy storage, BTM energy included in this portion of the energy storage value chain 15 Energy Storage Trends and Opportunities in Emerging Markets include a number of technical functions, system design, and long-term deployments and to significant regulatory and follow-on services that transform hardware and software market uncertainty. into an intelligent storage-based solution that delivers Although many ESSs being deployed today are often designed maximum return on investment. As a part of system to provide only one service to the grid (for example, frequency integration services, vendors execute some or all of the regulation), it is important to note that a single ESS is often following tasks: capable of serving multiple applications. This will add —— Select, procure, and integrate the core battery technology complexity to the industry, since over time it is expected that it will become common for an individual ESS to serve various —— Provide communications with different systems such as applications. Additionally, specific terminology for applications the utility or a market varies around the world. For example, the application known as —— Execute and/or facilitate installation through an EPC “frequency regulation” in North America is called “frequency firm response” in the United Kingdom and “primary control reserve” —— Ensure performance of the system to the stipulated in Germany and most of mainland Europe. Therefore, it is technical requirements important to understand the purpose of each application and its technical requirements to be able to know the regional • Operator & Maintenance (O&M) Provider—The O&M differences in terminology. Table 3.1 provides an overview of provider is responsible for hardware/software technical utility-scale energy storage applications that support the grid issues that may arise for a given project, often provided and ancillary services. by the hardware manufacturer or system integrator. Broad expertise is required to address a significant fraction of Several factors contribute to the bankability of a project. the market because maintenance requirements are highly Choosing the correct business model is perhaps one of the most dependent upon specific technologies. Because of the important considerations to ensure project value. Within new newness of energy storage technology, specialized expertise ESSs that are being deployed, there is a great deal of variability is not widely prevalent. in the specific arrangements between system owners, grid • Investment Entities—Financiers are responsible for operators, and customers. The three business model categories providing the upfront costs for funding new projects. Risk shown below, merchant, utility-owned, and capacity contracts, for these entities is currently high due to a lack of proven, represent the main models for ESS deployment. It is important Table 3.1 Utility-Scale Energy Storage Applications Capacity Discharge Cycles Application Requirement Classification per Year Applicable Technologies Advanced Batteries, Compressed Air Energy Peak Pricing Arbitrage 4–6 hours Bulk Storage 200–400 Storage (CAES), Pumped Storage Advanced Batteries, CAES, Generation Capacity 2–6 hours Bulk Storage 200–600 Pumped Storage Transmission and distribution 2–4 hours Bulk Storage 201–600 Advanced Batteries, CAES (T&D) Asset Capacity Ancillary/Power Advanced Batteries, Frequency Regulation 1–15 mins 1,000–20,000 Services Flywheels, Ultracapacitors Ancillary/Power Li-ion, Advanced Lead-Acid, Volt/VAR Support 1–15 mins 1,000–20,000 Services Flywheels, Ultracapacitors Renewables Ramping/ Ancillary/Power Advanced Batteries, 1–15 mins 500–10,000 Smoothing Services Flywheels, Ultracapacitors (Source: Navigant Research) 16 to note that within each category, different entities have • Capacity Contract—As utilities begin to consider energy employed a variety of specific ownership models. storage within their portfolio of solicited capacity products, local capacity requirements for energy storage deployments • Merchant Model—The merchant model enables energy become important. Capacity contracts involve utilities storage owners and operators to unlock revenue streams procuring energy storage-as-a-service from providers that through participation in competitive electricity markets, offer reliable load reduction, typically in a set geographic including ancillary services markets. The merchant storage location where there are capacity constraints. plant owner—often an IPP that owns multiple generation assets—can also establish a power purchase agreement 3.3 GRID-TIED BEHIND-THE-METER with a utility, or directly with other electricity end users, There are similar downstream components of the value chain to provide services at specific times. By participating in with BTM systems as there are with utility-scale systems, but competitive electricity markets, energy storage can provide the scope of the players varies slightly. Figure 3.4 details the plant operators with a wide range of revenue-generating BTM downstream value chain. options. • Utility Owned—Utilities are investing in energy storage to The downstream components of BTM ESSs include the defer the cost of electrical T&D upgrades needed to meet following: growing electricity demand. ESSs can help improve grid • Project Developer—The project developer in smaller reliability by managing T&D congestion and improving distributed systems models the incentives and paybacks T&D performance, allowing utilities to increase the lifespan for the customer, ensuring that the proper hardware of infrastructure assets and to avoid purchasing additional and software adequately suit the customer’s needs. In equipment. the BTM market many project developers also provide Figure 3.4 Battery Energy Storage Value Chain, Downstream Portion: BTM System Project Integrator Operator & Developer and EPC Maintenance Provider Development & Integration Investment Downstream • Customer • Optimize Operation Ownership acquisition software for • Monitor • ESS owned by customer needs performance of host customer, • Model benefits system vendor of ESS for • Design and • Ensure software is developer, or customer installation working correctly utility • Secure • Grid • Reporting requirements Financing interconnection interconnection • Financing based with utility Maintenance on ownership, • Testing and • Obtain commissioning • Less maintenance either 3rd party incentives for C&I (vendor/utility), • Provide wrap • Handled by vendor or purchased by • Select (performance • Optional O&M host customer appropriate guarantee/ services hardware warranty) • Software updates Aggregation • Develop and operate portfolio (Source: Navigant Research) 17 Energy Storage Trends and Opportunities in Emerging Markets system integration, O&M, and financing, and often own • Investment Entities—Innovative financing mechanisms are the systems as well. While some projects have separate fueling the growth of the energy storage market, as they did companies for several downstream components, leading for solar PV and CSP. BTM ESS providers usually handle all downstream functions The technology of choice for BTM systems is the li-ion battery, themselves. although various electrochemical and thermal energy storage • System Integrator and EPC—The primary technical systems have been deployed in this sector. Li-ion batteries, differentiation between BTM players is in software and along with other advanced batteries, have the ability to controls. It is important to note that broad and deep improve power quality and provide backup power for an expertise is required to compete in this area, and many extended period of time. ESSs for BTM customers often need players have first secured their reputations in another to be designed specifically for the host customer. Given the value stream component. Several BTM providers only significant variations in energy usage profiles, it can be difficult offer software platforms, system design, and integration, as for vendors to offer a single, standardized system that will meet opposed to other companies that provide all downstream a customer’s needs without being oversized. In addition, while aspects of a project. utility-scale storage systems often provide one specific service to the grid, many BTM systems will need to be more flexible. • O&M Provider—Operators in this segment also can play For example, a BTM ESS may be required to discharge at high the aggregator role; this will become more valuable as policy power for 15–30 minutes to shave peak demand, but also to changes enable greater DER market participation. The need provide several hours of backup power or to participate in for human operator intervention will decrease over time a 4-hour demand response (DR) event. Because of this need as the automation capabilities of software and controls for flexibility, some vendors offer hybrid systems, including increase. multiple technologies, to meet both power- and energy-centric building needs efficiently. Table 3.2 BTM Energy Storage Applications Market Drivers Customer Applications Description/Benefit Respond automatically to building load Rising electricity rates, Demand charge reduction spikes—reduced electricity expenses increasing electric vehicle (EV) use, increasing energy Manage charging and discharging based on Time-of-use (TOU) energy bill management system use retail electricity rates—reduced electricity management expenses Maximize consumption of onsite generation, Increasing solar PV Onsite generation self-consumption primarily solar PV—reduced electricity installations expenses Protect sensitive equipment from power Need for resiliency/power Backup power/improved power quality quality fluctuations/outages—ensure quality operability during grid outage Provide frequency regulation, voltage support, electric supply reserve capacity, Ancillary services etc.—improved efficiency of centralized Grid stability concerns and generation, smoother integration of variable capacity needs generation Manage charging and discharging based on Demand response (DR)/ retail electricity rates—reduced electricity expenses New utility infrastructure Transmission and distribution Limit investments in new infrastructure needs investment deferral through reduced peak demand (Source: Navigant Research) 18 As with other forms of energy storage, BTM storage can be a exclusively. Many of these firms include energy service highly flexible and valuable resource on the grid, improving companies (ESCO) that offer long-term energy management efficiencies for multiple stakeholders. Much of the focus in the contracts to their customers. Some of these ESCOs are in distributed storage industry has been on identifying the optimal turn being acquired by utilities. ways to extract both consumer and utility value for BTM Residential ESS business models are still in the early customers. To date, the key to the market’s development has development stages in most markets, but there are three been the active participation and support of utilities. primary ownership models that utilities are tending to use to deploy the technology. Behind-the-meter energy storage at customer facilities offers the ability to provide services for both the end-use customer • Full Utility Ownership and Control—The full utility and the local utility/grid operator. Table 3.2 provides an ownership and control model has no upfront cost, and overview of services that BTM ESSs can provide. While some customers pay monthly fees for backup power. The utility of these services—such as demand charge reduction—have manages the ESS remotely, and the need of the grid is a clear economic value that is relatively easy to predict and prioritized over customer needs. measure, other services are either currently unavailable to BTM systems or difficult to quantify. For example, there is much • Full Customer Ownership and Control—In the full customer debate within the industry over the value of backup power and ownership and control model, the customer pays the full improved power quality. Although there is a direct economic cost of the system with no utility control. The system is impact if power is lost at a facility or residence, the industry has managed onsite by the customer or a third party, and the yet to settle on a standard value for this service. Additionally, software prioritizes customer needs over grid needs. while BTM ESSs can efficiently provide ancillary services to the • Hybrid—In the hybrid business model, the utility may grid, they are currently unable to do so in nearly all cases due control the system at certain times, and priorities can vary to existing regulatory frameworks. by program. Upfront costs may be shared between the customer and the utility. Business models may vary across different BTM systems. The business model chosen typically depends on the company’s 3.4 REMOTE POWER SYSTEMS other offerings and experience with commercial and industrial The value chain of remote microgrids and nanogrids differs (C&I) customers. Many leading vendors offer a variety of slightly in makeup from utility-scale and BTM systems. ownership and financing options tailored to customer needs. Figure 3.5 illustrates the major components of a remote power • Vendor/Third-Party Owned—The vendor/third-party owned system project. model includes a wide range of agreements between vendors The business case for ESSs for remote power systems varies and their customers. The two leading third-party owned significantly between grid-tied and off-grid systems. Systems business models are power purchase and power efficiency connected to the utility grid focus on synchronization issues agreement plans. These models have allowed a growing and are pioneering software that can generate new revenue number of C&I customers to benefit from energy storage streams for asset owners by using ancillary services. On the without incurring significant upfront expenses. other hand, off-grid systems integrate high penetrations of • Transactional Sale—The transactional sale business model variable renewables and are addressing frequency and voltage is a more traditional sale of an ESS to end-use customers. challenges within a tightly confined space. In actuality, both This model is typically popular among customers with more sets of systems are critical to advancing greater reliance on complex building systems that have a dedicated energy and various forms of DG and advanced energy storage. One might facility management staff. think that remote systems would lag behind their grid-tied • Holistic Energy Management—Several leading C&I ESS counterparts, but this is not necessarily so. Remote systems providers are entering the market by offering more holistic have excelled in providing prototypes of robust smart inverters energy management services, as opposed to offering ESSs and containerized systems that can sustain operations in 19 Energy Storage Trends and Opportunities in Emerging Markets Figure 3.5 Energy Storage Value Chain: Remote Power Systems Either diesel, Some innovation Generation in Some revenue Monthly metered hydro, biomass, in biomass but decentralized diversification billing or flat-fee solar, or wind mostly known locations and simple model, often technologies distribution collected in infrastructure advance Design/ Sales & Billing/ Consumer After Fuel R&D Generation Marketing Distribution Payment Finance Sales VALUE CHAIN OF BUSINESS ECOSYSTEM CONDITIONS Legal & Regulatory Corporate Finance Subsidies Carbon Finance For mini-utilities, Even commercial Some use Only a few operating entities struggle government examples of context is vital since to secure subsidies to carbon finance they tend to be financing since finance the income; this regulated sector is fairly connection cost applies to new and not well for customers biomass plants understood by investors extreme heat and cold, and their performance is often a matter also incur greater costs for development/integration per unit of life and death for users. of capacity. • While there may be legacy assets that can be integrated into Defining the business case for energy storage within remote microgrids, more often than not these assets will not be power systems requires several considerations. Some issues to maintained well and will require upgrades and modifications consider are listed below to be incorporated into modern networks designed to • The need for 24/7 islanding capability requires a more optimize and maximize renewable generation harvest. robust (and sometimes redundant) infrastructure design. • Control costs are high due to the lack of available smart grid • The costs attached to construction are higher due to infrastructure at many sites and the need to rely on variable logistical challenges faced in both cold and hot climates. renewables to reduce operating costs. These factors, along Furthermore, transportation and installation costs are at a with the complexity of managing a remote power system, premium due to the distance to and from supplier locales result in control costs that are much higher than the costs in and microgrid/nanogrid deployment sites. Many of these grid-tied systems. sites are also subject to extreme weather conditions, ranging There are several remote power system market segments where from hurricanes, monsoons, typhoons, and severe storms, all ESSs have the potential to thrive. The list below details defining of which increase costs. characteristics of each. • On the lower end of the scale (that is, nanogrids), economies • Commodity Extraction—Remote commodity extraction of scale are hard to achieve. Small systems lack the ability to industries are among the least developed markets for remote obtain bulk purchasing discounts, thereby increasing overall systems, but they could become among the most attractive costs (and related implementation revenue). Small systems over the long run. Mining, oil, and natural gas companies 20 typically have deep pockets, and due to the energy-intensive nature of industrial processes, are willing to pay for higher reliability and security of supply. On the down side, many commodity markets have been depressed recently and these companies are often hesitant to invest in new infrastructure not directly related to production or that require longer simple payback times. • Physical Islands—Perhaps the most attractive remote power system markets in the world today are any physical islands that have yet to be connected to a larger grid and that burn diesel or some other fossil fuel as a primary source of electricity. A number of pilot projects have been launched in various developing market countries across the Caribbean, the Mediterranean, off of Africa, and throughout the Asia Pacific region. The key initiative driving this market is an effort to displace diesel or other fossil fuels with variable wind or solar PV resources. Once this fuel substitution take place, the need often arises for both energy storage and more sophisticated controls—in short, a remote power system. • Village Electrification—In terms of sheer numbers, the village electrification segment of the remote power system market is expected over time to become the market leader for the overall market as a whole. Given that many of these systems will be extremely small in scale (ranging from 10 kW to 300 kW), the segment still remains relatively unattractive to utilities, financial investors, technology companies, and developers. However, recently a growing volume of entrepreneurial seed capital, utility corporate social responsibility funding, and capital from corporate and social investors is beginning to flow into new business models seeking to tap this market potential. Nanogrids are easier to implement than microgrids in many ways. Therefore, many nongovernmental organizations (NGOs) and institutional sources of funding are interested in funding rural electrification via solar PV nanogrids. Introducing energy access in a modular way via nanogrids helps build economic activity through increased usage of lights, cell phones, and laptops, all of which lead to more transactions and greater information exchange, which, in turn, creates demand for and capacity to incorporate a more diverse suite of energy products and services. Certain parameters exist to illustrate the market opportunities for energy storage for remote systems. Table 3.3 outlines key aspects and associated assumptions. 21 Energy Storage Trends and Opportunities in Emerging Markets Table 3.3 Market Parameters for Remote Power Systems Market Drivers Customer Applications The plethora of companies offering hardware, software, and hybrid control solutions for remote microgrids and nanogrids continue to proliferate, with larger Engineering Challenges players (ABB, SMA, and General Electric) co-sharing market opportunities with smaller, more localized concerns. The extreme weather events that have accelerated in frequency worldwide will continue, resulting in increased power shortages and a corresponding need for Extreme Weather Patterns more resilient infrastructure globally, including regions not interconnected with a utility grid. The global economy continues to suffer from uncertainty, which may limit the Economy Considerations ability of governments to move forward with robust infrastructure development programs unless private sector funding can be leveraged. Developing countries will also benefit from efforts by the UN and others to end Energy Access Goals energy poverty through remote power systems. Several of these initiatives have crystalized in the past two years. The key value proposition for microgrids, as well as nanogrids to a lesser extent, is the high cost of diesel generation in remote markets. The steep decline in oil prices Diesel Prices has somewhat moderated this value proposition, although this motivation is still a fundamental driver of this remote market. Forecasts of continued decline in solar PV prices also anticipate a similar drop in Declining Energy Storage Costs energy storage costs, especially for Li-ion batteries, as well as the potential for major energy storage technology breakthroughs with substantial cost advantages. Current and planned regulations in place in the United States, the EU, and Asia Government Regulations Pacific will continue and will be enacted within current established timeframes. Trends toward tighter carbon limits are adopted at the current pace of approvals. Renewable energy targets as high as 100 percent are now being enacted in High DER Proliferation jurisdictions as diverse as Alaska, Hawaii, and Denmark. Many of these targets include remote microgrid and nanogrid applications and opportunities. (Source: Navigant Research) 22 Regional Market Analysis and Forecasts 3.5 INTRODUCTION electricity service to portions of their population, providing an opportunity for microgrids equipped with energy storage to In emerging markets around the world, there is only limited negate the need to expand centralized grid infrastructure to new experience with energy storage, yet vast potentials exist to areas. Energy storage is a valuable tool to support the needs of benefit from the technology. Many of these markets share many emerging markets and using it can provide a reliable peak similar energy market dynamics and needs for new resources. capacity resource, improve grid reliability, and facilitate the Driven by growing urban populations, many emerging markets integration of renewable energy. have a significant need for new electricity reserve capacity, particularly to meet peak demand. Many emerging market Chart 3.1 provides forecasts for new energy storage capacity countries have a weak grid infrastructure that is susceptible and revenue for each of the six major developing regions to frequent outages and that has only limited capacity identified in this report. to effectively integrate local renewable energy resources. Furthermore many of these countries have not yet provided Chart 3.1 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Region, Emerging Markets: 2016–2025 25,000 30,000 Middle East & North Africa Sub-Saharan Africa 25,000 20,000 Latin America & Caribbean Eastern Europe & Central Asia South Asia 20,000 East Asia & Pacific 15,000 $ Millions Total Revenue MW 15,000 10,000 10,000 5,000 5,000 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) Energy Storage Trends and Opportunities in Emerging Markets The development of distributed and local energy resources, grid in developing countries is likely to include large amounts including renewables and energy storage, can provide of renewable energy, which is becoming increasingly cost- significant economic growth, jobs, and a sustainable energy effective throughout the world. The majority of ESSs in these future in emerging markets. Energy storage deployments areas will be owned by utilities or grid operators, because the in emerging markets worldwide are expected to grow by industry has not developed to the point of having a competitive over 40 percent annually in the coming decade, resulting in market of energy system providers. Additionally, in many of approximately 80 GW of new storage capacity. The following these areas the industry is likely to adopt a more distributed sections explore energy storage market activity, challenges, and approach to grid development, using more local power potential in emerging markets worldwide. generation and microgrid systems. 3.6 EAST ASIA & PACIFIC We expect that the largest energy storage market in the East Asia & Pacific region will be China. The Chinese economy There are two main types of power grids found in the has gradually been opening to foreign investment and free Asia Pacific region, each with different characteristics and market forces over the past several decades, and this trend has opportunities for energy storage. On one side are the highly been accelerating in recent years. The state-owned State Grid developed nations—such as Japan, South Korea, New Zealand, Corporation of China—the world’s largest utility—has already and Australia—and certain major cities with advanced grids been deploying ESSs to provide various services throughout that operate reliably and utilize advanced technologies. In its grid. Furthermore China is in the process of reforming its contrast, many nations in the region are still developing energy markets to allow non-state owned power providers to fundamental infrastructure systems and have limited or enter the market, opening opportunities for IPPs to provide unreliable power grids. These developing regions areas are ancillary and capacity services with ESSs. (See Chart 3.2). also experiencing rapid population growth and urbanization, resulting in an increasing demand for electricity. The expanding Chart 3.2 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, China: 2016–2025 10,000 16,000 9,000 Remote Power Systems 14,000 Behind-the-Meter 8,000 Utility-Scale 12,000 Total Revenue 7,000 10,000 6,000 $ Millions MW 5,000 8,000 4,000 6,000 3,000 4,000 2,000 2,000 1,000 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) 24 The region is expected to be a major market for remote microgrids, although the requirements for these projects vary East Asia & Pacific Market Barriers greatly on a country-by-country basis. Developing nations in the region face more urgent issues related to power supply. Key • Vertically integrated, highly regulated challenges that developing Asia Pacific nations face include low energy markets electrification, an underdeveloped power grid infrastructure, and a lack of capital to underwrite new technologies to • Access to affordable financing advance power grid services. In a region where simply • Limited renewables outside of select providing sufficient electricity is challenging, governments markets and utilities are struggling to establish efficient ways to supply power to rural villages and remote islands. The thousands of • Underdeveloped grid infrastructure islands throughout this region with limited or new electrical infrastructure present some of the most attractive near-term opportunities for energy storage. In order to capitalize on this opportunity, developers and governments must work together by launching various initiatives, policies, support programs, to overcome the high cost of deploying systems driven by and test trials. The focus areas of these microgrid initiatives logistical challenges and a lack of local technical expertise. The are geared toward increasing power capacity at the test sites Sumba Island case study in section 4.4 of this report provides and then allowing industry (including utilities) to take the next an example of successful collaboration. steps forward. The individual governments and market stakeholders in Asia Outside of the developed markets of Japan, South Korea, Pacific seek to solve their current shortage of reliable energy Australia, there are currently 28,610 MW of energy storage Chart 3.3 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, East Asia & Pacific: 2016–2025 14,000 16,000 Remote Power Systems 12,000 14,000 Residential Commercial & Industrial 12,000 10,000 Utility-Scale Total Revenue 10,000 $ Millions 8,000 MW 8,000 6,000 6,000 4,000 4,000 2,000 2,000 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) 25 Energy Storage Trends and Opportunities in Emerging Markets systems deployed in East Asia & Pacific. (See Chart 3.3). region’s emerging markets is AES Energy Storage Japanese However over 88 percent of this capacity comes from pumped conglomerate Marubeni Corp. hydro storage (PHS), which are primarily state-owned plants in China (25,399 MW). Pumped storage plants are also 3.7 SOUTH ASIA operational in the Philippines and Taiwan. In 2016, AES The market for energy storage in the South Asia region is completed a 10 MW installation in the Philippines, the first dominated by India. (See Chart 3.4). In India, several key grid-scale battery energy storage facility in Southeast Asia. factors are driving the market for energy storage, perhaps most notably the ambitious National Solar Mission. In 2014, Prime Across the developing markets in the region, there are currently Minister Narendra Modi announced a national target to install 1,784.5 MW of ESS capacity in the pipeline. The majority of 100 GW of solar PV capacity by 2022, which would make the this capacity (1,640 MW) is pumped hydro storage. However country one of the largest solar power markets in the world. battery technologies are beginning to make an impact. There As of the end of September 2016, the cumulative installed solar are 141.5 MW of li-ion storage projects in the pipeline with capacity was over 8.6 MW. India’s rapid population growth, 100 MW in the Philippines, and 41.5 MW in China. The particularly in urban areas, is driving the need for increased market may be further catalyzed by new policy initiatives, investment in both electricity generation capacity and T&D such as China’s target for 10 GW capacity of concentrated infrastructure across the country. Furthermore, the country solar power by 2020, and plans for technological innovation, experiences frequent power outages due to severe weather, for example, in thermal energy storage. There is also the insufficient generation capacity, and fragile infrastructure, opportunity for knowledge and technology transfer from which contribute heavily to the need for new investments to hybrid solar/storage projects that have been announced in improve the grid’s resilience and reliability. some Pacific Islands, for example Reunion, Guadeloupe, and American Samoa. A leading battery project developers in the Despite a major effort by government and regulators, deployments of both renewables and energy storage have Chart 3.4 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, India: 2016–2025 4,500 8,000 Remote Power Systems 4,000 7,000 Behind-the-Meter 3,500 Utility-Scale 6,000 Total Revenue 3,000 5,000 $ Millions 2,500 MW 4,000 2,000 3,000 1,500 2,000 1,000 500 1,000 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) 26 5 MW / 2.5 MWh of associated energy storage. This type of South Asia Market Barriers requirement, typically only used for island grids, is necessary to ensure grid stability because the ESSs will be used to smooth • Underdeveloped grid infrastructure solar PV output and control ramp rates. To overcome barriers to storage development in India and throughout the region, this • Limited local experience and type of requirement for combined solar PV plus storage may be knowledge of energy storage crucial for establishing local technical expertise and developing • Access to affordable financing investor trust in the technology and project development process. • Lack of competition in markets Other than India, there have been very few energy storage market developments in South Asia to date, and deployments are expected to be limited over the coming decade. (See lagged behind expectations in India. A number of planned Chart 3.5). One exception would be increasing interest in projects have been delayed or canceled due to a lack of pumped hydro storage throughout the region. In October affordable financing and to cost overruns resulting from 2016, governments from Nepal and Bangladesh signed an poorly planned development and limited local technical agreement to develop a total of 1,600 MW of PHS capacity expertise. Furthermore the weak condition of the grid and in Nepal through two different projects. While this ambitious poorly organized energy markets are proving to be significant plan could greatly improve the region’s ability to integrate new barriers to deploying storage. However there have been positive renewable generation capacity, the fact that there have been developments in recent months. A July 2016 tender for several barriers to PHS development around the world could mean that hundred megawatts of new solar PV capacity includes the there could be significant delays to these projects in South Asia, requirement that every 50 MW of PV capacity must have which have barely begun their preliminary planning. It is very Chart 3.5 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, South Asia: 2016–2025 3,500 4,500 Remote Power Systems 4,000 3,000 Residential Commercial & Industrial 3,500 2,500 Utility-Scale Total Revenue 3,000 $ Millions 2,000 2,500 MW 1,500 2,000 1,500 1,000 1,000 500 500 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) 27 Energy Storage Trends and Opportunities in Emerging Markets possible that full commissioning of these PHS projects could not happen until past the 10 year horizon for these forecasts. Eastern Europe & Central Asia Market In the near-term, much of the new energy storage capacity in Barriers the region is expected to come from the remote power system market segment. This new capacity will primarily be deployed • Already existing PHS resources, for village electrification and physical island systems to expand energy services to new customers and improve reliability. limited need for new ESS. • Current generation over-capacity 3.8 EASTERN EUROPE & CENTRAL ASIA • Highly regulated, state-run energy The market for energy storage in Eastern Europe & Central markets Asia is dominated by a single technology, pumped hydro storage. This region has a significant installed base of energy • Lack of financing and vendors for storage resources with 9.3 GW of pumped hydro capacity distributed renewables and storage installed, and an additional 3.5 GW that is either under construction or in planning stages. Storage systems are spread among 10 countries in the region. The countries with the largest capacity are Ukraine with 2,568 MW, Poland with 1,158 MW, and the Czech Republic with 1,102 MW. This existing capacity Despite these challenges, there is a potential for a strong energy of storage resources will limit the need for additional large- storage market in Eastern Europe in the coming decade. The scale storage providing peak capacity and resource adequacy most attractive markets are likely to be the European Union in the region in the near-term. New demand for energy storage (EU) countries in the region (Hungary, Latvia, Slovenia, will be driven by the need for grid support/resiliency and the Estonia, Lithuania, Romania, Bulgaria, Czech Republic, and integration of variable renewable generation. It is expected that Slovakia) since these countries are bound to EU laws regarding 2.3 GW of new variable generation (wind & solar) capacity electricity market deregulation and reduction of greenhouse- will be installed in the region in 2016, with a cumulative 31.1 gas emissions, In addition, there are potentially attractive GW of new capacity by 2025. opportunities in Southern European countries, such as Croatia, Serbia, and Georgia. In Central Asia, it is noteworthy that There are a number of challenges facing energy storage Kazakhstan has committed to increasing variable renewable development in Eastern Europe. Electricity markets in the energy from wind and solar, which introduces the possibility of region have traditionally been very highly regulated and energy storage deployments. It is likely that most energy storage dominated by state-owned enterprises dating back to the activity in the region will involve distribution-level systems Soviet era. Although there is a push for greater competition designed to improve grid reliability and integrate distributed through deregulation, that transition is happening at different generation. These systems can also allow for the deferral of rates throughout the region, with little progress being made infrastructure investments, a benefit which large-scale pumped in most markets. Given the lack of competitive markets, there hydro plants cannot provide. Furthermore there will likely be are limited opportunities for independent companies to own numerous opportunities to expand or upgrade existing pumped storage assets. It is likely that mandates or other government hydro storage plants in the region. An estimated 44 percent of influences will be required to stimulate the regional market. A the region’s pumped hydro capacity (4.1 GW) was built before further challenge is the high level of generation overcapacity 1990 and will require upgrades and turbine replacements in the throughout the region. For example, at most times, Bulgaria has coming years. available an estimated 80 percent of excess generation capacity as a result of Soviet-era policies to build large centralized As shown in Chart 3.6, deployments of distributed (behind- generation facilities despite the limited demand for energy. This the-meter) energy storage are expected to be slow growing, excess capacity can limit the need for new renewable generation and limited overall in the coming decade. While the region and energy storage because the grid has sufficient flexibility to does have a less reliable grid compared to developed regions, accommodate fluctuations in demand. there have been to date limited deployments of distributed 28 Chart 3.6 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Eastern Europe & Central Asia: 2016–2025 900 900 Remote Power Systems 800 800 Residential 700 Commercial & Industrial 700 Utility-Scale 600 Total Revenue 600 $ Millions 500 500 MW 400 400 300 300 200 200 100 100 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) solar PV and other renewables, which are a key precursor capacity installed in the region. However nearly 95 percent of to development of distributed storage. Much of the slow that capacity comes from two pumped hydro storage facilities growth is due to regulations and rate structures which make it in Argentina. The battery energy storage market has been uneconomical to deploy behind-the-meter resources, as well as gaining traction, with three large-scale systems commissioned to the lack of available vendors and project financing. in Chile and El Salvador over the past three years, developed by AES Energy Storage and Altairnano, accounting for 42 MW 3.9 LATIN AMERICA & THE CARIBBEAN of capacity. The regional pipeline of storage projects continues Latin America is seen as one of the most attractive emerging to grow with a diverse set of technologies, including battery, markets for energy storage development. The anticipated compressed air, flywheel, pumped storage, and thermal energy growth in renewable generation, rapidly growing populations, storage projects. and relatively unstable grid conditions are among the major Three countries in Latin America—Chile, Mexico, and Brazil— factors driving interest in energy storage throughout the have emerged as the most attractive markets for both renewable region. From 2016 to 2020, Navigant Research expects energy and energy storage development. These countries, that an additional 21 GW of wind3 and 15 GW of solar4 along with Argentina, represent the largest and most advanced generation will be added to the grid in Latin America. In order economies in the region and have a history of significant foreign to effectively integrate and utilize these new resources, grid investment. This has led to well-established finance sectors operators must invest in new infrastructure, including energy supporting the development of renewable and energy storage storage, to help match supply with demand and to ensure projects by offering relatively low-cost capital. Additionally system stability. To date there is approximately 1 GW of ESS these countries have, or are in the process of establishing, relatively deregulated electricity markets. By separating 3 For comparison, The Global Wind Energy Council’s forecast for Latin America from 2016–2020 totals 31 GW. companies that provide either generation, transmission/ 4 GTM Research has published a cumulative forecast for 2016–2020 at 27 GW of solar for the region. distribution, or retail services, these markets have allowed 29 Energy Storage Trends and Opportunities in Emerging Markets Chart 3.7 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Brazil: 2016–2025 250 400 Remote Power Systems 350 Behind-the-Meter 200 Utility-Scale 300 Total Revenue 250 150 $ Millions MW 200 100 150 100 50 50 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) third parties, including multinational IPPs, to own and operate generation, and transparent regulatory structures are expected energy projects. This framework has resulted in the successful to result in a rapidly growing market throughout the region. development of battery ESSs, including the Angamos project discussed in section 5.3, that were independently developed The Chilean electricity market was deregulated in the 1980s and financed by foreign firms and joint ventures. This structure resulting in the unbundling of generation and transmission/ in turn led to projects then being free to contract to provide distribution, along with large-scale privatization that led to services to the grid operator. major new investments. Recently, the country’s market has been undergoing changes driven by increasing demand for Mexico, Chile, and Brazil also have significant renewable electricity and new infrastructure development, notably the resources and their governments are supportive of clean interconnection of three separate regional grids. Northern energy development. Chile and Mexico have both recently Chile’s Atacama Desert has the strongest solar resource in held successful auctions for new renewable capacity that have the world, and as a result, solar PV has been substantially had very high participation and some of the lowest prices per developed there. Much of the energy storage activity to date has megawatt-hour globally. Government support has also led to focused on integrating solar PV in the country’s north. a relatively stable and transparent regulatory framework for renewables in these countries, which along with longer-term Though activity has been limited to date, the Mexican market power purchase agreements (PPA) and contracts have provided is ramping up, driven in part by regulatory reforms to break up the stability required for major foreign investors and developers the state-owned electricity monopoly the Comisión Federal de to enter the market. Similar contract structures for energy Electricidad (CFE). Under these reforms, independent operators storage will have a major impact on investor confidence and the could sell both capacity and ancillary services in a competitive overall return on investment (ROI) of new projects. While only market, presenting opportunities for renewable and energy a few major ESS projects have been commissioned outside of storage developers. Chile to date, the level of government support, new renewable 30 This new ambitious target presents challenges with regards Latin America & Caribbean Market to the integration of variable renewable energy, and for this reason, both the Ministry of Energy (Secretaria de Energia, Barriers SENER) and the State-owned company Federal Commission of Electricity (CFE) are exploring storage solutions, such as • Economic instability in some pumped storage hydropower or batteries. The Energy Sector countries Management Assistance Program (ESMAP) is supporting an • Existing market regulations that limit analysis of the regulatory framework to evaluate the feasibility of storage. innovation • Access to affordable financing As the region’s largest economy and electricity market, • Underdeveloped grid infrastructure Brazil has vast potential for renewables and energy storage development. (See Chart 3.7). However recent political and economic instability has negatively impacted development in the country. In the past several months, six developers who Today, Mexico produces about 23 percent of its electricity from were awarded PPAs in Brazil’s first energy auction in 2014 renewable energy, and its new target is 35 percent by 2024, have undertaken efforts to terminate their agreements due to a In addition, large energy consumers are now legally required lack of affordable financing and the absence of a local supply to source 5 percent of their electricity needs from renewable chain, which is required under Brazilian law. The country will energy starting in 2018. Following these reforms, Mexico’s first need to undertake major changes to its auction program and renewable energy auction in March 2016 resulted in 10 projects energy policies in order to attract the same level of interest that with 15-year and 20-year contracts for clean energy certificates. Mexico, Chile, and Argentina have garnered from investors Chart 3.8 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Latin America & the Caribbean: 2016–2025 1,200 2,500 Remote Power Systems 1,000 Residential Commercial & Industrial 2,000 Utility-Scale 800 Total Revenue 1,500 $ Millions MW 600 1,000 400 500 200 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) 31 Energy Storage Trends and Opportunities in Emerging Markets and developers. While the successful efforts in Mexico, Chile, and Argentina have focused on renewable energy development, Sub-Saharan Africa Market Barriers similar programs can be enacted for energy storage. In other regions, new renewable energy projects are required to include • Access to affordable financing energy storage. Thus an established and well-functioning • Political and economic instability renewable energy procurement model can also allow for eventual development of a strong storage market. • Lack of local technical expertise • Underdeveloped grid infrastructure As shown in Chart 3.8, a significant portion of the new energy • Limited renewable energy storage capacity expected to be deployed in Latin America and the Caribbean will likely come from remote power systems. development to date Most of this new capacity is anticipated to be in physical island microgrid systems. There are a number of ESS projects already in operation or planned on islands throughout the Caribbean that are utilizing multiple technologies. These include an 8 MW li-ion system developed by AES Energy Storage in the resources in the form of 1,580 MW of pumped hydro storage, Dominican Republic, where that company is also already and this figure may double by the end of 2016 if the delayed planning a second project. There are also numerous smaller Ingula plant comes online with an estimated 1,332 MW of ESS projects being planned to facilitate renewables integration new capacity. Eskom is South Africa’s monopoly supplier. The in Puerto Rico, the Cayman Islands, Jamaica, and the U.S. group generates the majority of electricity in the country and is Virgin Islands. Perhaps the most active market in the Caribbean the sole buyer of electricity from IPPs as well as the dominant is Aruba, where the local government has established an player in the distribution system. Eskom South Africa is part ambitious goal of energy independence to use mainly renewable of the Southern African Power Pool, which as of 2013 was generation by 2020. There are two flywheel energy storage looking into developing an ancillary services market for the projects totaling 10 MW under development by Temporal Southern Africa region. However, no concrete results of these Power, along with an underwater compressed air energy storage efforts have yet been disclosed. The substantial amount of system from Hydrostor, and numerous smaller battery projects. newly-commissioned renewable generation, along with a more advanced grid and project development/finance environment, 3.10 SUB-SAHARAN AFRICA makes South Africa the top market in the region. A number of challenges have resulted in limited energy storage market activity in Sub-Saharan Africa to date. The market As has been seen in South Africa, the integration of renewable has been restricted by a lack of affordable financing, limited generation is likely to be the key driver for energy storage in local technical experience, and a lack of familiarity with Africa. There are strong renewable resources in the region, with newer technologies that are used in utility scale energy storage a growing level of government support in many countries. We systems, in addition to the logistical challenges faced by pilot expect an estimated 25.9 GW of new wind and solar capacity pioneering infrastructure projects in much of the region. to be installed by 2025. A portion of this capacity will come Although an estimated 1.6 GW of grid-tied energy storage has from distributed solar PV systems which may include energy to date been installed in Africa, 1.4 GW of it comes from large storage to enable islanding microgrids for facilities to maintain pumped hydro storage. power supply during the region’s frequent outages. During the forecast period, South Africa is expected to be the A number of European entities, both public and private, are largest market in the region for energy storage. The country focused on remote power systems in the Sub-Saharan Africa has been capitalizing on significant renewable energy resources region, historically one of the poorest parts of the world. in recent years with large deployments of renewables, mainly However, it is now economically one of the fastest growing solar PV and wind, but also in some cases including CSP with regions, largely due to its impoverished past setting the stage thermal energy storage. South Africa does have existing storage for the emergence of new economic activity. According to 32 Chart 3.9 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Sub-Saharan Africa: 2016–2025 1,000 3,000 900 Remote Power Systems Residential 2,500 800 Commercial & Industrial Utility-Scale 700 Total Revenue 2,000 600 $ Millions MW 500 1,500 400 1,000 300 200 500 100 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) Deloitte, annual economic growth has averaged 6 percent over development financing, as well as through private sector the last 15 years, and similar growth trends are expected to investments. persist over the next five years. Industrial activity is largely focused on extraction of oil and gas and mineral resources— 3.11 MIDDLE EAST & NORTH AFRICA often located far from any conventional grid—as well as In the Middle East and North Africa region, there has been on agricultural and forestry ventures (also often located in limited energy storage project activity to date. Of the 1,026 remote areas). Both of these economic opportunities are ideal MW of capacity currently installed, 1,020 MW comes from a applications for nanogrids and microgrids. single pumped hydro plant in Iran. While most battery projects have been very small research and development (R&D) systems, In the Sub-Saharan Africa region, remote power systems are there is currently a pipeline of 128 MW of a battery energy expected to provide roughly 70 percent of energy services storage system (BESS). This includes two NaS battery projects over the next few decades given the lack of grid connectivity from NGK Insulators in the United Arab Emirates, representing in the region. (See Chart 3.9). It is expected that the majority a combined 648 MWh of capacity, as well as a project in of these remote power systems will include energy storage as Jordan. There are also a number of CSP projects that include the technology continues to decrease in price, and many power thermal energy storage installed in Morocco and the United systems will begin to rely more heavily on variable renewables. Arab Emirates. However it is also estimated that the necessary funding gap to meet the needs for Sub-Saharan Africa’s continued economic While to date there have been limited energy storage growth exceeds 50 percent or even 60 percent of the required deployments in the Middle East, nations in the region are levels of investment. This gap is being addressed by nations working to exploit their significant renewable energy resources. of the European Union (EU), China, Japan, and the United Utility-scale solar deployments are expected to increase at a States through loans, equity investments, and grant-based compound annual growth rate (CAGR) of 16.2 percent over 33 Energy Storage Trends and Opportunities in Emerging Markets the coming decade with 33 GW of new capacity expected. (See Chart 3.10). These developments, combined with a rapidly growing and increasingly urbanized population, are expected to lead to increasing demand for energy storage to help manage intermittency and to improve grid resilience in the region. Many countries in the Gulf region are looking to deploy large amounts of renewable energy to reduce the amount of domestic fossil fuels used for local power generation. This will free up that fuel to be sold abroad, bringing in much needed revenue for government programs. These countries are exploring energy storage to help integrate these new generation resources and to help improve the grid’s stability and reliability. However the historical low cost for fossil fuels and subsidized retail electricity, combined with highly regulated electricity markets, remain significant barriers to storage development since there is little urgency or ability for customers to deploy BTM technologies. The most significant barrier to developing energy storage development, or to obtaining foreign investment, is the political and economic instability throughout the region. Other challenges facing energy storage in the Middle East and North Africa are similar to those in other developing regions, including a lack of affordable financing, local knowledge, and technical expertise. Despite the vast potential for renewable energy, particularly solar, only a limited amount of new generation capacity has been built to date, and national targets previously set have often not been met (notably by Saudi Arabia). Most markets in the region are highly regulated and dominated by state-owned entities which face only limited competition. However this dynamic does not necessarily limit opportunities for energy storage. For example, there is some momentum from independent power producers (IPPs) in markets like Egypt, Morocco, Jordan, and Tunisia. Middle East & North Africa Market If a country’s dominant utility or government is considering Barriers deployment of large amounts of storage, they may seek to do so directly rather than working through private companies • Political instability in a competitive market. Thus it is critical for vendors and • Highly regulated, state-run energy IPP companies to educate energy ministries, national electric markets utilities, power system regulators, and other large C&I customers in the region on the potential benefits of energy • Low-cost fossil fuels in most of storage. There is also a need to pilot commercial-scale storage region projects that provide solid reference cases to demonstrate the • Access to affordable financing value of technology. 34 Chart 3.10 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Middle East & North Africa: 2016–2025 1,600 3,500 Remote Power Systems 1,400 3,000 Residential Commercial & Industrial 1,200 Utility-Scale 2,500 Total Revenue 1,000 $ Millions 2,000 MW 800 1,500 600 1,000 400 200 500 — — 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 (Source: Navigant Research) The potential for energy storage development in the Middle electricity supplies, and energy storage may soon be required to East and North Africa is driven mainly by a rapidly growing help effectively integrate and manage the growing amount of urban population throughout the region, as well as by expected variable generation within the country’s power system. additions to renewable energy capacity. Both factors will result in the need for new flexible generation resources and peaking Opportunities for concentrated solar power (CSP) and thermal capacity in addition to new infrastructure to accommodate energy storage projects are of particular interest in this region. increasing demand and variable generation. A notable market In February 2016, Morocco inaugurated the 160 MW Noor with high potential for energy storage in the region is Jordan, 1 CSP plant, which it plans to augment by 2018 with two where a leading project developer, AES Energy Storage, is additional phases totaling 350 MW. A 43 MW CSP installation currently developing a 20 MW lithium ion ESS. Jordan has two is under construction in Duba, Saudi Arabia, that is expected main challenges; increasing energy demand (particularly peak to start producing power in 2017. Saudi Arabia has announced demand) due to population growth and urbanization; and very plans to implement as much as 34 GW of CSP in the coming limited domestic fossil fuel resources to meet demand. Over decades and the Sultanate of Oman is also considering 95 percent of the country’s energy needs come from imports, large utility-scale use of CSP. In Oman, in 2013,GlassPoint which have occasionally suffered from disruptions, resulting in commissioned a 7 MW pilot project for enhanced oil recovery high retail electricity prices. The Jordanian government through using CSP technology, followed by an announcement in 2015 of its new renewable energy law has encouraged development a $600 million 1 GW project to be fully financed by Petroleum of wind and solar PV to help provide additional domestic Development Oman. 35 Case Studies 4.1 INTRODUCTION The town worked with developer Half Moon Ventures to construct a 4.2 MW solar PV plant that will reduce the total The energy storage industry is taking shape in different ways amount of energy purchased from the market while also around the world. As a result, successful projects have been reducing the town’s carbon footprint. However solar PV alone undertaken in numerous shapes and sizes, and no one-size- cannot guarantee a reduction in the town’s peak demand, fits-all approach has been found to be ideal across all markets. which drives much of the overall cost for electricity. With this This is especially true in emerging economies where projects and other factors in mind, Minster and Half Moon Ventures have often been designed to solve a very specific problem, developed a large-scale energy storage system with systems with limited opportunities for replication in other areas. To integrator S&C Electric and battery provider LG Chem. The fully realize the potential of energy storage, it is crucial that 7 MW / 3 MWh li-ion system will provide numerous benefits for project developers and regulators in emerging economies the town’s residents and businesses. This project was financed understand the factors that have led to successful projects in and is owned by the developer Half Moon Ventures, but details other regions and how the right conditions can be established on the financing structure have not been made public. in their own areas. The following sections provide overviews of three projects as case studies for successful energy storage The stacking of revenue streams will be important for energy development. These projects were undertaken in highly storage to be a solid investment, particularly in emerging developed, middle income, and emerging economies. The markets where project development may be more expensive sections provide details on the specific factors in each project and where there are fewer opportunities to generate revenue that have resulted in success and replicability. in competitive markets. The town’s primary stated goal for this project is to reduce its cost for imported electricity by 4.2 VILLAGE OF MINSTER, OHIO, UNITED STATES reducing the total peak demand which determines its peak load The energy storage system commissioned in early 2016 contribution to the regional grid. However peak demand is in Minster, Ohio, in the United States, has been cited as a rarely reached in the town and the ESS may only be required leading case study for effectively deploying this technology. to actually reduce peak demand for about 10 days per year, The project offers an example of providing value to multiple enabling the system to be available for other services most of stakeholders, including the local municipal government, while the year. In practice, the primary application for this system is also improving the stability of the grid and facilitating the providing frequency regulation services in PJM’s competitive integration of renewable energy. Minster is a small town with ancillary services market. When peak demand is unlikely to be only about 2,800 residents. However there are several large met, the system bids its capacity into the market to respond C&I facilities which require reliable and high quality power for to signals to absorb or discharge power, earning revenue their operations. As a part of the PJM Interconnection regional based on the amount of energy dispatched. Additionally, this market, the town must purchase electricity in a competitive system is used to improve power quality in the village, a key market with costs impacted by the total peak capacity required. consideration for its C&I customers. The addition of a large Minster’s local government has been exploring possibilities to solar PV system on the town’s grid presents the possibility reduce electricity expenses. 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 Picture 4.1 Lithium Ion Battery Containers at the capacitors that would cost an estimated $350,000. According AES Angamos Plant in Chile to a July 2016 article on UtilityDive, 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 (Source: AES Corp.) affordable financing. In the Minster project, the performance of the battery was guaranteed through a warranty from LG AES Corporation subsidiary which also owns the Angamos Chem, a well-established and reputable vendor. Furthermore, storage system. Building on the success of AES’s first energy performance in the PJM frequency regulation market was storage project in the region, which was commissioned in guaranteed by Viridity, an S&C Electric and market analysis 2009, the company developed the 2012 Angamos project software provider. The involvement of these trusted vendors to allow the thermal plant to operate at optimal efficiency limited the risk to the customers and kept project costs low levels while still meeting its required obligations to provide because they enabled affordable financing. Another key to spinning reserve capacity. This legally required capacity is the success of this project was the use of advanced software required to be available to maintain grid stability in the event platforms provided by S&C and Viridity to manage the of an unexpected transmission loss or the failure of a large operation of the system and to analyze opportunities to earn generator. Furthermore the plant is required to adjust its output revenue in the PJM market. These platforms can greatly periodically in response to changes in the grid’s frequency improve a project’s economics by identifying the most lucrative because coal-fired plants are inherently inefficient and slow to operation of the storage system at all times. respond to rapid changes in system frequency. The ESS with a 20 MW peak capacity can provide the plant’s required spinning Software is key to improving the value proposition of energy reserves while also injecting and absorbing power, allowing the storage, particularly in emerging markets, by determining coal generators to run at optimal efficiency. the ideal system size and analyzing the optimal services a system should provide. This project provided a model that This project was privately financed by its owner Empresa should be, and already is, being replicated around the world. Eléctrica Angamos S.A., which is a subsidiary of AES Gener A challenge for this replication, however, is whether a project and also owns the associated Angamos power plant.The ability can be financed with complex revenue streams that financiers of the corporation to privately finance this project greatly are unfamiliar with. Working with reputable and established simplified the development process, and the owner’s close vendors can greatly reduce the risk to customers and lenders for relationship with regulators and knowledge of the Chilean such projects. energy market resulted in streamlined interconnection and integration. It is estimated that the total investment required 4.3 AES ANGAMOS ENERGY STORAGE ARRAY, to develop and commission the Angamos ESS plant was CHILE roughly $30 million. By covering the thermal plant’s reserve Commissioned in 2012, AES Energy Storage’s Angamos li-ion capacity and frequency regulation requirements, the plant will storage facility was the second large-scale advanced energy be able to increase its generation output by an estimated 4 storage project undertaken in Chile. (See Picture 4.1). The percent, about 130 GWh annually. Wholesale electricity prices project is integrated with a 544 MW coal power plant near vary considerably throughout Chile, and many generators the town of Mejillones. The plant is owned by AES Gener, an are contracted directly through power purchase agreements. 37 Energy Storage Trends and Opportunities in Emerging Markets Nevertheless, in 2014, the average spot market prices in the developments in Chile, and should be considered by market country were $104.4/MWh. By increasing the annual output regulators in other countries. of the plant by 130 GWh, the ESS could result in maximum additional annual revenue of $13.5 million for the plant. This 4.4 SUMBA ISLAND MICROGRID, INDONESIA would result in a payback period of only 2.2 years for the Indonesia’s Sumba Island has become a leading case study for 20 MW storage facility. the integration of energy storage into remote microgrids to enable the electrification of isolated communities. In 2013 the The main beneficiary of the additional revenue generated by the Indonesian Ministry of Energy assumed responsibility for a Angamos ESS will be AES which both developed and owns the national goal of achieving 100 percent renewable energy for system as well as the associated power plant. However there are Sumba. As a result the island of 650,000 inhabitants, with only numerous benefits to the entire region from the development about 25 percent of the people having access to any electricity, of this project. In addition to the investment in the region has received financial and technical support from a number of and the creation of construction and engineering jobs, this outside agencies. Because of the island’s mountainous terrain system will improve the overall reliability of the power grid and isolated villages, the Indonesian national utility estimates and can decrease both wholesale prices and retail electricity the cost of installing conventional power lines to deliver rates. By allowing the coal power plant to run at greater levels electricity to all residents would be roughly $22,000 per half of efficiency, less fuel is required to generate a given amount mile, a cost far too expensive to justify in view of the limited of electricity, reducing the marginal costs of generation. demand for electricity to provide revenue. These savings can allow the plant to bid lower prices into wholesale markets, driving down average prices in the region. Sumba Island has two separate electricity grids that are Additionally the fast responding and more accurate frequency supplied almost entirely by imported diesel fuel. The two regulation provided by the ESS can allow for a greater systems can support a total peak capacity of 13.0 MW and amount of renewable energy to be added in the region without regularly experience a nighttime peak demand (driven by compromising grid stability. lighting) of 9.3 MW with an average daytime base load demand of 5.9 MW. However recent studies indicate total peak demand This project takes advantage of Chile’s energy market could reach 28.5 MW by 2020, with over 15.1 MW of average deregulation, which separates entities for the generation, base load. This growing demand will necessitate the need for transmission, and retail sales of electricity in wholesale markets. significant new electrical infrastructure to achieve the country’s This market structure allows AES to deploy private capital to ambitious goals for renewable-based electrification. The past improve the efficiency of its plants and its competitiveness in three years have seen significant progress on Sumba in reaching the wholesale markets while at the same time providing new the 100 percent renewables goal. With support from outside infrastructure to support the regional grid’s growth and to groups, such as the Asian Development Bank, new generation integrate renewables. With some of the highest levels of solar facilities, including a 660 kW wind farm, several solar PV irradiance in the world, the Chilean government is looking to plants, and various micro-hydro power plants (less than deploy large amounts of solar PV in the country’s north. This 50 kW) have been built. (See Picture 4.2). Studies of renewable project will help facilitate the integration of these new resources potential on the island have shown that enormous resources and help the country meet a goal of generating 20 percent of are available, including up to 150 MW of wind power at three its energy from renewables by 2025. The Angamos project accessible sites. Furthermore 6.5 MW of solar PV and 800 kW is considered a major success and is leading to additional of hydro power are currently under development. These projects. AES Energy Storage is building another 20 MW new generation assets clearly have the potential to meet the project in Northern Chile, and developer NEC Energy Solutions island’s rising electricity demand. However the limited existing announced a 12 MW ESS in 2015. Chile’s experience provides infrastructure will make the integration and optimization of a good framework for how emerging markets can capitalize on this new variable generation very challenging. local renewable resources and the capital of foreign investors. Allowing for more open competition among energy generation In an effort to effectively integrate new renewables and improve and ancillary service providers has been key for these the grid’s stability and power quality, a 400 kW flow battery 38 energy storage system (ESS) was commissioned on the island Picture 4.2 Commissioning Solar PV alongside in late 2013. (See Figure4.2). The battery was supplied by the Wind Farms on Sumba Island Chinese firm Prudent Energy, and power electronics, controls, and system integration services were obtained from ABB. The primary services provided by the ESS will be improved power quality and stability through the provision of frequency regulation and voltage support, which is particularly important when integrating a high percentage of variable generation. This system can also provide additional generation capacity when renewables are not available. Government support was key to the financing and development of this project. The flow battery system was financed primarily (Source: Sumba Iconic Island) the Indonesian Agency for the Assessment and Application of Technology (BPPT for its initials in Indonesian). The group is a non-ministerial government agency, under the coordination Corporasi Peduli Kasih is crucial. The involvement of a national of the Ministry for Research and Technology of Republic of utility is advantageous because the utility company can more Indonesia, and has the tasks of carrying out government duties easily absorb the costs for a system’s deployment in an effort to in the fields of assessment and application of technology. meet its mandate to expand renewable generation. Furthermore BPPT worked with Indonesia’s state utility and Sumba’s local the utility has both the technical expertise and local knowledge electrical cooperative to provide this ESS. required to support commissioning and ongoing operation. The financial justification for this ESS project is primarily Sumba’s local cooperative is also critical because the group based on the reduction of diesel fuel used to power the islands. currently handles electricity sales and payment collection in Analysis conducted on the island in 2009 found that the remote communities. The cooperative is also responsible for average cost of generating low-voltage power is approximately educating and training local residents on the operation and $0.26/kWh, of which diesel fuel accounts for about 75 percent maintenance of the microgrid systems. As the financial results of the costs. However in an effort to make electricity more of this project emerge over the coming years, perhaps more affordable, the average selling price on the island is $0.08/kWh, important in evaluating the success of the project will be the suppressed by subsidies resulting in a government loss of $0.18/ involvement by and benefits to local residents. Sumba’s model kWh. Although exact savings estimates are not available, a 50 of utilizing both the national utility and the local cooperative percent reduction in diesel use through storage and optimized may prove particularly effective in engaging and educating wind, solar, and hydro generation could result in an end-user the island’s residents, hopefully leading to both sustainable cost savings of 35 percent, or roughly $0.09/kWh. This savings employment and continued opportunities for local clean energy was achieved while also limiting the need for new transmission development. and distribution infrastructure as well as helping meet renewable deployment and electrification goals. While the island is still working to achieve its goal of generating 100 percent renewable electricity, more work remains to be Other keys for a successful remote microgrid integrating done. However progress to date has been very promising, and energy storage are viable business plans, ownership structures, the Indonesian government is considering expediting Sumba’s payment mechanisms, and a “project champion”. In the case of renewable energy target to 2020, and views the island as a Sumba, the collaboration between national utility Perusahaan nationwide blueprint for remote electrification. Listrik Negara (PLN) and the island’s local cooperative 39 Conclusion 5.1 CONCLUSION frameworks for extracting value for storage projects. There are a number of lessons and best practices that can be learned from Energy storage technologies hold significant potential to help the industry in these areas, and the limited development that drive development in emerging economies by improving the has already taken place in emerging economies can be analyzed. quality of the electricity supply and facilitating the effective integration of renewable energy. The rapidly falling costs and Perhaps the most important factor in a successful energy improving capabilities of stationary ESSs, along with growing storage market is the availability of low-cost financing for ESS industry expertise, will quickly open new markets and cost project development. In order to unlock low-cost financing, it is effective applications for energy storage. Developments in important to utilize technology from reputable and established the industry to date have shown that the specific trends and vendors that can offer warranties and performance guaranties dynamics in energy storage markets around the world vary on their products. This reliable technology must be paired widely; this is particularly true for many emerging economies. with experienced and capable system integrators who ideally The specifics of each market, such as the applications that have a record of previous successful project development. It is storage systems will provide, and the types of technologies best also critical that energy storage industry participants educate suited to them, will depend on a number of factors, including: relevant stakeholders, such as investors, grid operators, and energy regulators, on the benefits of energy storage. These • The mix of existing generation resources, including factors can reduce the perceived investment risk, and greatly penetration of renewables increase interest and trust in energy storage as a beneficial • The existence of existing energy storage resources, in technology for emerging markets, thus reducing the cost to particular, operating pumped hydro plants which can greatly finance and develop such projects. This in turn will result in limit the need for new ESSs more replicable projects, rather than highly customized and • The extent of the electricity market that is deregulated versus specific systems, which will be crucial for the market to truly that of vertically integrated utilities, which will determine reach scale. who can own ESS and what services can be provided Finally there are a number of barriers to energy storage market • The electricity rate structures for customers, which will growth that must be overcome. Some of these barriers, such determine the value and operational parameters of BTM as the level of competition, and some aspects of regulation in storage energy markets, are complex and unlikely to be changed in • Stability and reliability of the electricity grid, including the near-term. Officials in some advanced power markets have factors such as frequency of outages for customers due to begun exploring ways to revise market rules and regulations lack of generation capacity, lack of transmission capacity, to boost the participation of ESSs and other DERs in their aging infrastructure, and extreme weather grids. Although these efforts remain in early stages, there are a number of operational practices and regulatory changes and Most activity in the energy storage market to date has centered practices that can enable better energy storage systems and on select countries and regions, mostly with well-developed foster the transformation of power systems into more resilient, economies and in energy markets with favorable regulatory clean, and technologically diverse grids. These include: • Consider ESS as a unique and agnostic asset on the grid, recognize the highly flexible nature of the technology, and allow multiple players on the grid system to install, own, and operate the system • Open-up competitive markets for ancillary services to multiple technologies rather than only sourcing from large generators, thereby allowing storage operators to obtain additional sources of revenue for different services provided, enabling financial feasibility • Encourage longer-term contracts for services from energy storage, thereby reducing risk for finance institutions. • Allow aggregated DERs to participate in capacity and ancillary service markets • Introduce time-varying rates to better align supply with demand, allowing customers to use BTM energy storage to reduce their electricity costs • Reform utility business models to encourage conservation and efficiency rather than large capital investment: Although energy storage is often a cheaper alternative to substation or transmission investments, utilities are often incentivized to make large capital investments Other barriers, such as the requirement to use locally produced products in storage systems as part of procurement processes, are easier to change. These types of local content requirements, while well-intentioned, have proven to be a significant barrier to energy storage development given the lack of vendors with quality technology in many emerging markets and the scale economies in existing manufacturing hubs. It is also recommended that utilities and governments in emerging markets always consider ESSs alongside traditional grid investments. Given the falling costs of the technology, storage will continue to be an economical alternative or addition to large-scale grid infrastructure in many areas. Requests for information from storage vendors and developers have proven to be an effective way to help stakeholders in emerging markets better understand the potential opportunities and impact for energy storage in their service territories and areas of operation. Despite these barriers it is expected that energy storage will play an increasingly important role in the development of many emerging market countries over the coming decade. The impact of energy storage technology can be magnified if stakeholders take into account the lessons and recommendations discussed in this report. 41 Energy Storage Trends and Opportunities in Emerging Markets List of Abbreviations BPTT Indonesian Agency for the Assessment and Application of Technology BTM Behind-the-Meter CAES Compressed Air Energy Storage CAGR Compound Annual Growth Rate C&I Commercial and Industrial CFE Federal Commission of Electricity CSP Concentrated Solar Power DER Distributed Energy Resources DR Demand Response EPC Engineering, Procurement, and Construction ES Energy Storage ESCO Energy Service Company ESMAP Energy Sector Management Assistance Program ESS Energy Storage Systems EU European Union IEA International Energy Agency IFC International Finance Corporation IPP Independent Power Producer O&M Operator and Maintenance PHS Pumped Hydro Storage PPA Power Purchase Agreement PV Photovoltaic ROI Return on Investment T&D Transmission and Distribution TOU Time-of-Use List of Figures Figure 2.1 Simplified European vs. North American Distribution Network Architecture Figure 3.1 Battery Energy Storage Value Chain, Upstream Portion: Utility-Scale and BTM Figure 3.2 Battery Energy Storage Value Chain, Upstream Portion: Utility-Scale and BTM Figure 3.3 Battery Energy Storage Value Chain, Downstream Portion: Utility-Scale Figure 3.4 Battery Energy Storage Value Chain, Downstream Portion: BTM Figure 3.5 Energy Storage Value Chain: Remote Power Systems 42 List of Tables Table 2.1 Estimated Fuel Savings and System Costs of Energy Storage Technologies in Remote Microgrids by Battery Type, World Markets: 3Q 2016 Table 3.2 BTM Energy Storage Applications Table 3.3 Market Parameters for Remote Power Systems List of Charts Chart 2.1 Utility-Scale Energy Storage System Cost Trends by Technology, Global Averages: 2014–2024 Chart 2.2 Behind-the-Meter Energy Storage System Cost Trends by Technology, Global Averages: 2014–2024 Chart 3.1 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Region, Emerging Markets: 2016–2025 Chart 3.2 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, China: 2016–2025 Chart 3.3 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, East Asia & Pacific: 2016–2025 Chart 3.4 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, India: 2016–2025 Chart 3.5 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, South Asia: 2016–2025 Chart 3.6 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Eastern Europe & Central Asia: 2016–2025 Chart 3.7 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Brazil: 2016–2025 Chart 3.8 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Latin America & the Caribbean: 2016–2025 Chart 3.9 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Sub-Saharan Africa: 2016–2025 Chart 3.10 Projected Annual Stationary Energy Storage Deployments, Power Capacity and Revenue by Market Segment, Middle East & North Africa: 2016–2025 List of Pictures Picture 4.1 Lithium Ion Battery Containers at the AES Angamos Plant in Chile Picture 4.2 Commissioning Solar PV alongside Wind Farms on Sumba Island 43 Energy Storage Trends and Opportunities in Emerging Markets ACKNOWLEDGEMENTS This report was commissioned by the IFC’s Infrastructure and Natural Resources Department, Bernard Sheahan, Director, and the Energy Sector Management Assistance Program (ESMAP), Rohit Khanna, Practice Manager, with technical input and contributions from the IFC Climate Business Department. The project team was comprised of Dana Younger, Rory Jones, Silvia Martinez Romero, Peter Mockel, and Charlene Coyukiat. Communications support and guidance was provided by Laura MacInnis, Sona Panajyan, Susan Pleming, Charlotte Doyle, Heather Austin, and Anita Rozowska. Report design and production assistance was provided by Gregory Wlosinski and Will Kemp. The World Bank’s Translation and Interpretation Services (GSDTI) edited the document under management of Marcelle Djomo. Printing services were provided by the World Bank’s in-house printing and multimedia team, in particular Ashley Childers. IFC and ESMAP greatly appreciate the work done by Navigant Research (Dexter Gauntlett, Alex Eller, and Ian McClenny) in preparation of this report. The Clean Energy Investment Center at the US Department of Energy provided valuable technical review, spearheaded by Sanjiv Malhotra and Marcos Gonzalez Harsha. 44 ABOUT IFC IFC, a member of the World Bank Group, is the largest global development institution focused on the private sector in developing countries. Established in 1956, IFC is owned by 184 member countries, a group that collectively determines its policies. It has six decades of experience in the world’s most challenging markets. With a global presence in more than 100 countries, a network consisting of hundreds of financial institutions, and more than 2,000 private sector clients, IFC is uniquely positioned to create opportunity where it’s needed most. It uses its capital, expertise, and influence to help end extreme poverty and boost shared prosperity. ABOUT ESMAP The Energy Sector Management Assistance Program (ESMAP) is a global knowledge and technical assistance program administered by the World Bank. It provides analytical and advisory services to low- and middle-income countries to increase their know-how and institutional capacity to achieve environmentally sustainable energy solutions for poverty reduction and economic growth. ESMAP is funded by Australia, Austria, Denmark, Finland, France, Germany, Iceland, Lithuania, the Netherlands, Norway, Sweden, and the United Kingdom, as well as by the World Bank. ABOUT NAVIGANT RESEARCH & METHODOLOGY Navigant Research is a market research group whose goal is to present an objective, unbiased view of market opportunities within its coverage areas. Navigant Research is not beholden to any special interests and is thus able to offer clear, actionable advice to help clients succeed in the industry, unfettered by technology hype, political agendas, or emotional factors that are inherent in cleantech markets. Navigant Research’s industry analysts utilize a variety of research sources in preparing research reports. 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NOTES CAGR refers to compound average annual growth rate, using the formula: CAGR = (End Year Value ÷ Start Year Value)(1/steps) – 1. CAGRs presented in the tables are for the entire timeframe in the title. Where data for fewer years are given, the CAGR is for the range presented. Where relevant, CAGRs for shorter timeframes may be given as well. Figures are based on the best estimates available at the time of calculation. Annual revenues, shipments, and sales are based on end-of-year figures unless otherwise noted. All values are expressed in year 2016 United States dollars unless otherwise noted. Percentages may not add up to 100 due to rounding. 46 Published 2017 ©2017 Navigant Consulting, Inc. 1320 Pearl Street, Suite 300 Boulder, CO 80302 USA Tel: +1.303.997.7609 http://www.navigantresearch.com