Grid Scale Battery Energy Storage Investment Potential - Analysis and Simulations of Frequency Control Markets in Germany and the UK

Abstract

The need for energy storages in future power systems is acknowledged both in literature and in industry. Simultaneously battery energy storage technologies, especially Lithium-ion, are seen technologically relatively mature with favorable cost development. Whereas frequency control markets provide exploitable commercial and technical framework for battery investment. Nevertheless, true commercial viability is still uncertain in leading European markets in Germany and the UK.

The purpose of the study was to provide complete and comparative market analysis and demonstrated prospective investment profitability outcomes for grid scale battery energy storages in Germany and the UK. In addition, the study aimed to show required conditions for desired investment performances. The study explored investment potential in primary frequency control market in Germany and enhanced frequency response market in the UK by analyzing market attractiveness from multiple aspects. The countries were ranked based on the analyzed aspects by Analytical Hierarchy Process. Finally, financial Monte Carlo investment simulations with revenue and cost uncertainties were performed. Simulations also provided required conditions for profitability. Analyzed data was based on historical market data, performed online market research and literature.

Key findings of the study revealed that the chosen markets form suitable commercial framework for battery investments, but Germany shows clearly higher potential. However, the potential was questionable since both markets face significant challenges especially in financial sense. The concerns were confirmed by the simulations which suggested around 1–5 % and -3–3 % internal rate of return levels for Germany and the UK respectively. In addition, reaching 6 % return was seen very challenging whilst over 10 % return levels seemed unrealistic in the UK and extremely optimistic for Germany. The overall conclusion was that battery energy storage investment in either of the markets cannot currently be justified primarily by financial returns but needs strategic support.