The importance of large-scale storage for the energy transition has long been systematically underestimated in the political arena. Although improvements to the political framework conditions for investments in large-scale battery storage to create fairer competition with conventional, generation-side flexibility have been made by legislators in various places in recent years, a comprehensive strategy to describe the role of storage in the energy system has failed to materialize. The fact that some of the central hurdles to the storage ramp-up have nevertheless been removed is the result of many years of persuasion by the storage industry and is now reflected in high, purely market-driven installation rates, particularly for large-scale battery storage systems. Due to the highly dynamic development of the market with investment announcements in the billions, the regulatory issues surrounding storage are now moving further up the political agenda for the first time. This is because the expansion of renewable energies and grids alone is no longer sufficient. Political activities are focusing on three strategies in particular: the system development strategy, the electricity storage strategy and the power plant strategy.
With the publication of the electricity storage strategy on 19 December 2023, the German government took an important first step towards politically defining and recognizing the role of electricity storage systems in the energy transition. The electricity storage strategy aims to support the expansion of electricity storage systems and comprehensively describes the key obstacles to an electricity storage ramp-up in Germany. In its current version, however, it is primarily a political declaration of intent that urgently needs to be filled with concrete measures and a clear legislative timetable in the next step.
The system development strategy , for which an interim report was presented by the Ministry of Economic Affairs in November 2023 , is currently being drafted. It develops a common vision for aclimate-neutral energy systemand shows the transformation pathways towards this goal. The system development strategy is based on long-term scenarios that look at the energy system up to 2045. Contrary to expectations, however, both the interim report and the long-term scenarios that have since been updated (February 2024) are not aligned with the German government's electricity storage strategy. For example, the reference scenario on which the system development strategy is based does not assume the expansion of storage facilities at all, while the electricity storage strategy aptly describes why (electricity) storage facilities (must) play a central role in the future energy system.
The recently announced power plant strategy (February 2024), on the other hand, essentially revolves around the question of how secure generation capacity can be created from H2-ready gas-fired power plants. It thus primarily provides an impetus for the rapid expansion of the hydrogen economy by tendering a total of 4 x 2.5 GW of H2-ready gas-fired power plants in the short term. The aim is to promote both CAPEX and OPEX. Adoption by the Federal Cabinet is planned for the summer at the latest. There is also the announcement of a "capacity market" from 2028, which is not specified in more detail. The extent to which storage should play a role in a technology-neutral market remains open, as do many other parameters that would be important for an assessment of the proposed instrument.
It seems clear that the BMWK has yet to adopt a straightforward approach to (large-scale) battery storage. This is because the individual strategies of the Ministry of Economic Affairs are still not coordinated. And worse still - the reality of the expansion of energy storage systems is not being given sufficient consideration. In particular, it is to be hoped that the long-term scenarios on which the system development strategy is based will be thoroughly revised, as the assumptions made there, especially regarding the economic viability of storage systems, are simply inaccurate. Insufficient technical understanding means that storage systems are often provided with inaccurate performance and capacity assessments, which leads to a significant increase in costs and marginalizes their effect on the energy system. The enormous technological momentum in the storage sector, which is comparable to the situation in photovoltaics in the 2010s, is completely disregarded. As things stand at present, it is therefore to be feared that incorrect conclusions are being drawn with regard to system development.
At the same time, the calculations and statements of the long-term scenarios are also in direct contradiction to the BMWK's electricity storage strategy. It emphasizes the key role that storage technologies play in the energy transition, sets the right priorities for an accelerated expansion of storage and addresses the hurdles and fields of action that now need to be tackled quickly.
If we now look at the recently announced power plant strategy from the perspective of the storage sector, the question arises as to what extent "storage power plants" should be included. While one can argue about the sense of the announced tender for 4x 2.5 GW H2-ready gas-fired power plants, the announcement of a capacity mechanism or a capacity market from 2028 alone is tantamount to a drumbeat. This decision has far-reaching consequences, as it would effectively abolish the energy-only market that has been established for many years.
The announcement of a future capacity mechanism alone will have a significant impact on the willingness to invest in various areas of energy generation, be it in conventional, renewable or H2-ready generation as well as in storage solutions. It is therefore crucial that clarity on the design of these mechanisms is provided quickly in order to prevent necessary and economically sensible investments in energy generation and storage from not being made due to uncertainties. Such a situation would exacerbate the problem and turn the capacity mechanism into a self-fulfilling prophecy.
Particular attention should be paid to ensuring that a future mechanism does not affect the price signals on the energy-only market in a way that leads to an excessive dampening of price volatility. This would make investments based on prices on the energy-only market uneconomical. However, it is precisely this market that is now the main area of activity for large-scale battery storage systems, and distortions in price volatility would therefore have a particularly large impact on the economic viability of these systems.
It must also be recognized that a capacity of a few hours, as is usually the case with newly planned large-scale battery storage facilities (and pumped storage power plants), is very valuable for the overall system: In foreign markets, it has been shown that short-term storage facilities are also successful as suppliers of capacity, regardless of the question of whether capacity mechanisms actually make sense in comparison to the energy-only market. Although this may seem counterintuitive at first, ensuring security of supply does not only play a role in the provision of baseload generation during the "cold dark doldrums". The provision of additional capacity over short periods of time (typically around 2 hours for Kyon storage systems) also offers considerable added value. This is because really critical phases in a "cold dark doldrums", to stay with the example, do not last for days and weeks, but only affect short periods of time in which a very low RE supply meets particularly high consumption. However, electricity consumption fluctuates throughout the day, which is why some hours are generally more critical than others. In precisely these hours, the storage capacity helps to ensure a reliable power supply.
In principle, the introduction of any capacity mechanism should be accompanied by a critical examination of why the current energy-only market is considered inadequate to meet the expected challenges and how a specific solution can be found to minimize the impact on the existing energy-only market. One example is the existing capacity reserve, which provides additional capacity as a "chill pill" for the system, but which in principle should "never" be called upon - except in a very rare, unforeseen critical situation for security of supply. This instrument helps to improve security of supply, but has no direct impact on the energy-only market.
However, when intervening in the market mechanisms of the energy-only market, it is not only important to keep the effects under control, but also to ensure that storage facilities receive their fair share, even if they supposedly contribute little to security of supply during the "cold dark doldrums".
Incidentally, only such an approach complies with EU law and the German government would be well advised to take this seriously. Without the implementation of legally secure mechanisms, there is a risk of a lack of investment in the medium to long term, which could really jeopardize security of supply.
The German government is undoubtedly aiming to drive forward the transition from conventional energy generation to renewable energies in a clear and accelerated manner. In this context, storage technologies and their role in the energy system are also gaining in importance and moving further into the focus of the political agenda. Nevertheless, there are disagreements regarding the coherence and clarity of the political course. The diversity of strategies, which are based on different foundations and are sometimes contradictory, makes consistent implementation difficult. Despite these challenges, it is important to maintain a secure storage investment climate in Germany. The German government must carefully weigh up the options and make smart decisions to ensure that the energy transition can succeed in the long term, both ecologically and economically. The fact that, in view of the existing contradictions, swift action is also required to minimize inefficient uncertainties on the market does not make things any easier for the political players involved. However, politicians have put themselves in this predicament.
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