As part of our Advanced Master in Energy Management and Marketing in Grenoble, our team of five students (Maxime Bousseaud, Gilles Deotto, Christine Garnier, Sébastien Milongo and Marion Thillou)) realized a mission on an innovation consulting project named PIMS (Projet d’Innovation par Mission de Service) for a local start-up during 5 months.
This start-up asked our team to identify potential markets for its technology in Electricity Storage and to propose an associated Business Model. Here is below an executive summary of our recommendation.
An increasing interest in energy storage
Many reports, articles, conferences, have been done these past recent years on electrical storage solutions. Before diving on our analysis and recommendations to the start-up from the initial project objectives, we believe it is important to remind quickly why there are so many talks on electricity storage.
Historically, electricity storage has helped maintain the equilibrium between centralized production and electrical demand, distributed via network operators. Because of its operational advantages and OPEX costs, the Pumped Hydro Systems then captured 99% of the worldwide electricity storage market. The Worldwide market for electricity storage has been estimated at around 1.5 billion euro in 2012 by Pike Research Cabinet and the International Energy Agency.
Yet, this model has been changing dramatically these last years and continues to evolve due to four main drivers:
1) The integration of renewable electrical production which is not only fluctuant but also decentralized as the production sites are closer to demand than historical production sites.
2) The increasing consumption of residential combined with the upcoming development of electrical vehicles and its associated dispersed charge platforms
3) Electrical networks are getting smart to try and handle these changes. They will probably require further capabilities to store electricity on demand, and limit direct costly network investments. This later aspect is called “Load leveling”, delaying alternate larger requirements in investments.
4) Local, autonomous sub-network groups will appear, even on large national lands. They are called “micro grids” and can be compared to off-sites where electricity storage is a major requirement to compensate their isolated locations.
Potential segments identified for the electricity storage solution from the local start-up
From a regional standpoint, we focused on Europe and North America. Due to the current position of the start-up in its investigation, we made a deeper analysis on Europe, but we also analyzed the initiatives in North America where electrical network needs more upgrading and where the investment capabilities are also more relying on private funds.
As per the start-up objectives described earlier in the introduction, we built our recommendations by segmenting the demand for electricity storage and analyzing the potential business value of each cluster. In each cluster, we took into account not only the other storage solutions available, but also the alternate solutions like smart demand management that could erase the need for electricity storage for instance, or the improved production forecasts of renewable energies.
Our conclusions, developed further in this document, favor the following segments as higher potentials in Europe:
- The renewable production sites like wind and photovoltaic farms as per legal requirements on capacity management prior to connecting to the distribution network, combined with the business interest to store the overproduction for later use, when financially valued.
- The off-sites and micro-grids that have by nature unavoidable requirements in terms of electricity autonomy and capacity to redistribute their overproduction to their own network and sometimes to the main network when financially valued. In their latest study from March 2013, Naviguant Research states that this worldwide microgrid market will generate $40 billion per year by 2020.
Due to the new electricity storage drivers described earlier and limitations of Pumped Hydro Storage solutions, the market is looking for the right innovations among the electricity storage options below.
The importance of the Institutional supports
The new solutions require investments research, pilots and demonstration of business potential before triggering the installations. We therefore analyzed the regulations in their important roles of providing subsidies to pilots, or in designing tariffs incentives required to drive business value for electricity storage. The European Commission has a key role in selecting and funding the innovation pilots. The Energy Group of the European Commission decides through its Research Group which technology and pilot to fund. Within their “Strategic Research Agenda SmartGrid 2035”, they also stated in April 2012 that “the main challenges will be around the development of distributed energy storage technologies (…) mainly in the range of kWh per storage device, and less, to MWh” and the “major challenge (remained) to prove a positive economic value for energy storage”.
Yet, there is no true European tariff regulation on electricity storage due to the discrepancies among all 34 regulators, 27 nations, and associated institutions like the Agency for the Cooperation of Energy Regulators (ACER) and the European Network of Transmission System Operators (ENTSOE). Germany and Austria are among the only European countries to favor further the development of electricity storage by removing the network access fees to stored electrical capacities. But there is no common agreement in Europe in regards to deciding on the responsibility of electricity storage among the network manager, or the producer or the end “consumer”. The latest March 2013 French law on capacity management (Loi Brottes) does not clarify this part, and only supports the aggregator roles in shifting demand.
Key recommendations to the local start-up for a successful entrance into the market
As a conclusion, despite the increase of renewable production in Europe, the requirements on off-grid sites and the development of “micro grids”, there is currently no clear opportunity for a new solution of electricity storage in Europe. The market sizing is therefore difficult to state despite a rough estimate of 10% of installed renewable production for distributed storage. We believe though that the start-up should focus on capacity solution from 100 kW to a few MW only, as per these two segments requirements. Success would only be possible through demonstrated pilot against alternate solutions like PHS, Hydrogen and Li-Ion batteries depending on the targeted usage. Besides technical, safety and maintenance criteria further summarized later in the document, the country legal and financial incentives will be the key triggers to favor new innovations for an alternate electricity storage distributed solution.
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The PIMS Team (Maxime Bousseaud, Gilles Deotto, Christine Garnier, Sébastien Milongo and Marion Thillou)