Net Present Value of storage based on selected technologies

Thus far, the models presented were technology neutral with a focus on revenue streams. However, there are significant parameters within the technologies which determine their lifetime economic feasibility such as efficiency, capital costs, O&M costs and lifespan. A Net Present Value (NPV) analysis was undertaken, incorporating these parameters. The chosen technologies were CAES, AACAES, Fe-Cr flow battery, Vanadium redox flow battery, lithium ion battery and PHES. The NPV values are shown in figure 6.13. CAES has a special power configuration due to the compressor-expander ratio, as well as natural gas costs as fuel, detailed in Chapter 4.

As a result of the findings of the sensitivity analysis whereby most of the revenues were captured with 6 hours of energy capacity, all storage technologies were assumed to have an energy capacity equivalent to 6 hours of output, reduced from 12 hours assumed in previous analysis.

Figure 6.13: The NPV of selected storage technologies over their lifespan based on co-optimised

revenues from 2011-2014.

For all the technologies explored, PHES remains the most economically viable storage technology yielding a positive NPV at £25,825,530. It is important to point out that one of the major contributing factors to the positive NPV results is the lifespan of the system which in this case is 60 years, equal to three times that of a VRB system for example and approximately 6 times that of lithium-ion batteries. CAES, the second most profitable technology, showed a positive NPV at £8,336,998 benefitting from a high output to input ratio due to the use of natural gas. The NPV result however is strongly dependent

on future gas prices which were assumed as fixed; a rise in natural gas prices would be detrimental to CAES’ NPV.

AACAES, despite being less profitable than CAES due to additional capital costs of thermal energy storage, still yields a positive NPV of £ 6,595,176. On the other hand, Lithium-ion batteries showed the worst performance of all, with a negative NPV at £139,873,017 despite having the highest efficiency at 94%. Equivalent full cycles were calculated at 521, 591, 614 and 550 for 2011-2014 respectively, averaging 569 cycles annually. This average translates into a lifespan of approximately 10 years assuming a 6000 full cycle life. The high capital cost of £613/kWh as well as the short lifespan are largely responsible for the negative NPV; media reports of lithium costs in the range of £267-400/kWh and projected future costs of £107/kWh (Russel et al. 2012) could potentially change the economics of lithium-ion battery storage.

VRB was found to be unprofitable under the current market revenues with a negative NPV of £51,567,530 similar to lithium-ion suffering from high capital costs and additional O&M costs. A similar configuration with less than half capital costs, representing Fe-Cr flow batteries, yields a negative NPV of £ 260,930 making the project almost feasible.

An alternative measure of economic feasibility is shown in figure 6.14 in terms of nominal annualised rate of return and lifetime return on investment. Compared to NPV figure, the results show that Fe-Cr flow batteries can be a feasible project under a lower discount rate than initially assumed. At present however, VRB and Lithium Ion batteries do not generate sufficient revenues over their lifetime to cover their costs.

Figure 6.14: The return on investment of several storage technologies under a co-optimised schedule

Besides round-trip efficiency, one of the major factors which dramatically affects the economic feasibility of energy storage systems is the capital costs. These, in turn, are strongly dependent on the type of technology. As a simplification, capital costs can be broken down into power capacity costs and energy capacity costs.

Figure 6.15: The disparity between feasible power and energy capacity cost combinations, displayed

as solid coloured lines, and the assumed power and energy capacity costs in this thesis, shown as coloured dots.

Figure 6.15 shows the levels of power and energy capacity costs at which the selected technologies become feasible, shown as lines, as well as their current costs shown as dots. The area below (or to the left of) the line shows profitability and similarly the area above (or to the right of) the line indicates losses. The perpendicular distance between the respective dots and lines is a measure of actual profitability.

The analysis assumes an average annual revenue equal to the average co-optimised revenues from 2011-2014. Furthermore, discount rates are ignored in this particular analysis but include O&M costs. The most noticeable feature of figure 6.15 is the disparity in terms of profitability between PHES and the other technologies explored. This result is driven by the specific parameters playing in favour of PHES; this mature technology has a moderately high round-trip efficiency at 81%, low energy capacity cost at £7/kWh, moderate capacity costs of £1000/kW and very long lifespan of over 60 years. The current costs parameters for PHES, shown as a green dot is well below the economic feasibility threshold line, shown in green.

By contrast, Li-ion batteries generate the lowest total revenues from co-optimisation due to their short lifespan. Consequently, it has the highest threshold for profitability and combined with the fact that it is the most expensive of the selected technologies leads to the conclusion that it is not economically feasible under the three revenue mechanisms explored.

CAES has been shown to be profitable at appropriate discount rates, with a substantial difference between the actual capital costs and feasibility threshold costs. Similar to CAES, AACAES also shows profitability potential. AACAES considered a novel technology, as least in part, benefits from further possible cost reduction. Several thermal storage mechanisms/mediums have been put forward within AACAES systems with varying costs (Pimm et al. 2015; Drury et al. 2011; Kloess & Zach 2014; Pickard et al. 2009)

Figure 6.15 also shows a stark difference in feasibility between two types of flow batteries; VRBs are substantially more expensive than Fe-Cr flow batteries, unlike VRBs, which have a lower capital costs than their profitability thresholds. The efficiencies between the two systems are very similar, however Fe-Cr electrolyte is significantly less costly than conventional vanadium redox electrolytes (Zeng et al. 2015; Viswanathan et al. 2014).

From figure 6.15, two major forces can change the economics of the storage systems; firstly, manufacturing and technological advances which lower capital costs, increase efficiency and the lifespan of the system would increase lifetime revenues, shifting the profitability threshold lines to the right. These advances would also reduce the capital costs, moving the dots to the left.

The other force is market and regulatory changes leading to the increase in existing or additional revenue streams. Aggregation of benefits is a well-known issue for storage value (Grunewald et al. 2012; Anuta et al. 2014), and policy which addresses these issues could have a dramatic effect on the economics of energy storage, considering there is significant value in network investment deferral for example, especially at distribution level (Strbac et al. 2012).