What challenges are inhibiting energy storage revenue stacking?

In our previous article, we covered how technology costs aren’t yet low enough for energy storage to be economically viable as standalone projects, and some of the innovative ways developers are using to overcome these limitations. Here we’ll flesh out one of the more attractive – yet elusive – options: revenue stacking.

Mentions of revenue stacking frequently crop up in energy storage publications and in our own interviews, but why does it appeal so much? It’s simple. When making a business case for a new project and examining all the potential sources of revenue one could think “Why not offer many of these services, increase our revenue and diversify our income stream?”

Does revenue stacking…stack up to the claims?

Revenue streams for UK energy storage, Feb 2017
Source: Amish Poonyth, Does revenue stacking…stack up to the claims?

If this sounds simplistic and too good to be true to you, you’re absolutely correct.

Most obviously, some revenue streams are not suitable for stacking, with different and even opposing technical requirements for optimum operation – frequency response and arbitrage, for example. Even for applications where operational requirements are more closely aligned, there’s a real risk of being forced into a solution that is average for every application rather than great for one.

Another challenge is that regulation still lags behind energy storage advancements. Existing revenue streams are subject to complex regulatory policies, which again, can inhibit or oppose one another. The restrictions in most countries, such as the UK, as to who can own and operate energy storage assets make co-ordinating grid-level applications difficult.

While there is no question that current regulations are outdated for today’s energy storage landscape, it is equally true that regulation changes can be introduced rapidly – for example, last week’s announced change in Capacity Market de-rating factors. The future is inherently uncertain, characterised by rapidly falling technology costs, saturated markets, planned regulatory changes and changing contract lengths. Accurate forecasting is a risky business for one revenue stream, let alone three, or six.

So does this mean that the benefits of revenue stacking should be discounted? We think not, and we can look to successful examples to see who is making it work, and how:

Don’t take on too much: There are far more successful examples focusing on two or three complimentary revenue streams than four/five. Fewer variables mean more accurate forecasting and better optimisation. An example of this strategy include solar plus storage “virtual power plants”, which receive income from direct energy consumers as well as for grid ancillary services.

Prioritise flexibility: The energy storage landscape has changed drastically over the past 10 years and all signs show to continued evolution. Be wary of relying on a single tender and keep an eagle eye on regulatory changes that could affect your forecast. Interestingly, this requirement for flexibility is causing a surge of interest in flow batteries – the long lifespans and easy scaling up and down of capacity make them an attractive choice for changing future requirements. Flow battery manufacturers RedT also encourage the development of hybrid systems for flexibility, combining flow batteries for their greater capacity with lithium-ion to deal with demand spikes.

Get smart: The adoption of smarter grid techniques, both behind and in front of the meter, allow more complex scenarios to be forecasted with greater accuracy. This smart technology is what makes sophisticated virtual power plants possible. By harnessing the power of big data and advanced analytics, network and storage systems can be regulated automatically to achieve degrees of efficiency previously unimaginable.

Finally, as technology prices continue all and the sector reaches commercial maturity, the available methods of revenue stacking will both be more possible and less necessary.

Is long term forecasting for revenue stacking inherently too risky? Does revenue stacking force developers to be “jack of all trades, master of none”? Do you know of anyone we missed really making it work? Give your opinion at the Energy Storage World Forum Group on LinkedIn with our community of 12,000 members.

Further reading:

Energy Storage Interview: How to enable revenue stacking.
What is battery energy storage revenue stacking?
Energy storage value-stacking is seductive, but brings one big risk
Go with the flow: RedT on revenue stacking and the coming of long duration storage
Scaling up energy storage in the UK
Does revenue stacking…stack up to the claims?

If you want to know more about this and other topics directly from end users of energy storage technologies join us at one of these annual events: The Energy Storage World Forum (Grid Scale Applications), or The Residential Energy Storage Forum, or one of our Training Courses.

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