Unef maintains that hybrid plants with batteries will thus internalize the risk that storage will not obtain sufficient remuneration to cover costs and be profitable.
The Spanish Photovoltaic Union (Unef) is working on an alternative to promote storage in Spain, which is causing so many headaches due to the lack of a regulatory framework that hits the key. Part of the sector is calling for the implementation of capacity mechanisms to achieve a strong deployment of batteries, but UNEF also proposes that the installations that participate in the next auctions of the Economic Regime of Renewable Energies (REER) must include a certain amount of storage. To talk about these REER auctions with Storage, it uses the acronym REERcA.
The association highlights that the generation facilities included in the REER would be remunerated like any other, while the storage part would operate completely independently in the various daily and intraday markets, both of OMIE and of Red Eléctrica de España (REE). Unef argues that this would be a way for hybrid generation facilities with batteries to internalize the risk that storage cannot obtain sufficient remuneration in the markets in which it operates to cover costs and be profitable. Thus, in exchange for a slightly more expensive generation to compensate, additional storage is incorporated that allows reducing waste, adding more renewables to the system and reducing the participation of fossil technologies in those hours with less renewable generation.
The energy sector is eagerly awaiting the implementation of a remuneration model as a complement to the current lines, whether through capacity markets, flexibility payments or through the aforementioned REER. Income can also come from adjustment markets as the costs of resolving technical restrictions increase. REE, as the operator of the electricity system, has the mandate to facilitate storage to operate in adjustment and balancing services, and this should be possible before the end of the year, so that the market pays for the service it provides. Right now its income depends on storing energy when the price of electricity is low and pouring it into the grid when it is higher. The current third vice president and minister for the Ecological Transition, Teresa Ribera, has said publicly that storage, today, “is already profitable due to the low prices of electricity” and that “it does not need incentives”, an opinion totally contrary to that of the sector and that we will see if her successor in office maintains when he or she leaves definitively for Brussels.
Up to three possibilities to face the “challenge”
However, at Unef they are aware that this proposal poses a “challenge”: that of determining the size of the storage that must be associated with each generation facility. They propose several possibilities in the association and the first is to include a proportion similar to that which exists in the National Integrated Energy and Climate Plan (PNIEC), whose final version has not yet been sent to Brussels. The document foresees 22 GW of storage by the end of the decade, which would represent 16% of renewable power. Therefore, according to Unef, each MW of renewable energy should include 160 kW of storage. “Ideally, this storage would be four hours long, taking into account the need to transfer large volumes of energy from hours of high renewable generation to other hours of lower generation,” they emphasize.
On the other hand, a second option would be to apply the previous criterion in another way, taking into account the installed power and the power pending installation, and taking into account that there are already 6 GW of pumping in operation, more than 27 GW of solar photovoltaic and more than 31 GW of wind power. The third and final possibility is that more technical criteria are taken into account, based on which a relationship between generation power and storage power is established that is common to all participants in the auction. In this case, it would be taken into account that the detailed generation specifications estimate that energy can be injected with a probability of 90% of the time. Therefore, storage would be needed to be able to assume part or all of the excess energy that is produced and cannot be integrated into the network the other 10% of the time.
In addition to the auctions for hybrid generation facilities with storage, UNEF is proposing specific auctions for independent storage (‘stand alone’) that would require specific regulatory development. The association calls these independent storage auctions the Economic Storage Regime (REA), in analogy with the REER. As they explain, they would have a similar operation to the REER, but instead of being a virtual Contract for Difference (CfD) based on the hourly price, it would be a virtual CfD based on the maximum price differences between the cheapest hours and the most expensive hours. This economic storage regime would give investors security to invest in storage, substantially reducing the exogenous risks that often occur in electricity markets.
Problem with access and connection permits to the grid
According to industry estimates, REE has already granted access to almost 11 gigawatts (GW) of batteries and 2.7 GW of pumping. The bulk of these projects are currently processing the remaining permits (environmental, administrative, urban planning, building permits, etc.). In addition, there are at least another 10 GW requested. The sources consulted indicate that there would even be more if there were more capacity to access the electricity grid, which is currently ‘blocked’ for possible future tenders for both new renewable generation facilities and storage. There is also a problem related to the requests for access and connection permits in cases where there is capacity for generation, but not for demand. In this way, companies that want to start processing now risk being left without the corresponding capacity on the demand side, necessary for the project to operate.
According to the National Commission for Markets and Competition (CNMC), network managers are applying different interpretations in the processing of applications, with some granting access only to the generation part of the storage, leaving the demand conditional on the result of a subsequent analysis once the regulatory circular for demand facilities, which is currently being processed, has been approved. As an alternative and on a temporary basis, the regulator is proposing the possibility that network managers offer capacity applicants a permit for access and connection limited to generation capacity. For their part, once the resolution on detailed demand specifications has been approved, these projects may also request the capacity corresponding to the demand part “under the same conditions as any other application that has been submitted at that node, so that no discrimination would apply to some subjects compared to others.”
