Security of Supply in the Transition to Large-Scale Economically Viable Storage Solutions for Electricity

Abstract

While electricity storage is pivotal in the move away from fossil fuel-based generation to renewables, its roll-out might have undesirable side-effects. Its introduction will mitigate the intermittent nature of renewables such as wind and photovoltaics, thereby leading to higher capacity factors, and thus reduced capacity needs to meet a given demand. However, no one can predict when such a technology will become available, nor the speed of its implementation.We develop a stylised system dynamics simulation model to investigate the impact of introducing large-scale, economically viable storage, on security of supply during the transition period. If investors are over-optimistic regarding when and how fast this breakthrough will occur, they overestimate the efficiency of existing renewable generation and are reluctant to invest, leading to capacity adequacy problems, which imply high prices for consumers. On the contrary, underestimating the speed of this evolution leads to costly over-capacity. Even with correct investor anticipations, the transition is problematic, with a period of shortages, followed by a period of over-capacity. All scenarios are characterised by periods of investment freeze, a problem for the VRES industry. We conclude with a discussion of how the regulator might mitigate some of these issues.

Keywords: Green transition, electricity storage, simulation, capacity adequacy