On the market prospects of long-term electricity shortages

Dr Amela Ajanovic, Vienna University of Technology

Reinhard Haas, Vienna University of Technology

Overview. The European Commission has set ambitious targets for increasing the share of electricity from renewable energy sources (RES-E).  An increasing share of these new RES-E comes from intermittent sources like wind and solar. To balance electricity supply over time calls for storages has been launched. Because intermittency also exists over longer periods – months, years, — also the need for long-term- electricity storages  is discussed.

The core objective of this paper is to investigate what are the market  prospects  of such  long-term- electricity  storages like hydro pump storages, hydrogen and methane from power-to-gas conversion technologies. To answer this question we use a dynamic framework to model supply from various quantities of intermittent RES- E in Western Europe and the load profiles.

The method of approach is on the supply side based on technological learning  for the future development of investment costs of long-term  storages based on quantities  for technologies described in IEA (2011). On the electricity market side we use a fundamental approach where the intersection of supply and demand at every point-of-time gives the corresponding electricity market price. It is important to note that the quantity of storage has a feedback on the market price for charging storages as well as discharging.

The major results of our Investigations are: Over the period up to 2050 decreases in the prices of PtG technologies will take place mainly due to learning effects. For hydro pump storages (over  a year) further prices will rather increase mainly due to a lack of sites with reasonable costs and lack of acceptance. In a dynamic market framework the costs of all centralized long-term storage technologies will finally be too high to become competitive. By 2030 under most favourable learning conditions the costs of hydrogen and methane for 2000 fulloadhours per year will be between 0.15 EUR/kWh and 0.20 EUR/kWh. For the same fulloadhours  the price spread will be at the utmost about 0.08 EUR/kWh. An additional reason for the unfavorable economic conditions of  long-term storages is the self-cannibalism of storages in electricity markets. This means that every additional storage reduces the price spread and, hence, its own economic performance, Ehlers (2011). Other reasons are competition with demand response options, demand -side management, power-to-heat  and decentralized storages. The costs of the latter will not decline significantly faster but they will compete on end-user price level which is (and will remain)  remarkably higher

The major conclusions are: (i) with respect to all centralized long-term storage technologies the future perspectives will be much less promising than currently indicated in several papers and discussions; (ii) new long term hydro storages will not become economically attractive in the next decades; (iii) For PtG-technologies it will also become very hard to compete in the electricity markets despite a high technological learning potential. Yet, for hydrogen and methane there are  prospects for use in the transport sector. Fuel prices in transport in recent years have rather increased compared to stagnation or decreases in electricity spot markets. Consequently, and given in addition the lack of environmentally benign fuels for mobility hydrogen and methane from renewable electricity might become an economically alternative alternative for fueling passenger cars.

References

Ehlers, N: Strommarktdesign angesichts des Ausbaus fluktuierender Stromerzeugung, Dissertation, Technische Universität Berlin 2011.

IEA: Energy Technology Perspectives, OECD/IEA, Paris 2011

Keywords: storages, electricity markets, power-to-gas, hydro pump storages, economics