Battery Storage: Is the

Middle East ready yet?

A joint study by Dii Desert Energy and Arthur D. Little

December 2019
 Content
About the report 3

Introduction and report overview 5

1. Batteries to support the energy transition 7

2. A business for all, except for system operators 8

3. High synergies with other sectors will push Li-Ion batteries 17

4. Local regulation decisive in giving the boost to battery deployment 29

5. Concrete use cases for battery applications in MENA 36

6. Conclusions: fast move for some, wait for others – shape for all 39

Authors:

Adnan Merhaba Amit Maheshwari

Partner, Energy & Utilities Practice Manager, Energy & Utilities Practice
Middle East Middle East
merhaba.adnan@adlittle.com maheshwari.amit@adlittle.com

Gaya Haciane Cornelius Matthes

Business Analyst, Energy & Utilities Senior Vice President
Practice, Middle East Dii Desert Energy
Haciane.gaya@adlittle.com cornelius@dii-desertenergy.org

Dr. Andrei Zschocke Antonio Iliceto

Senior Business Development Chairman-elect of Cigrè Committee
Manager Energy Storage & Hydrogen System Development & Economics
ThyssenKrupp Uhde Chlorine
Engineers GmbH

Marc Yacoub Fadi Maalouf

Chief Financial Officer Chief Technical Officer
Yellow Door Energy Dii Desert Energy
marc.yacoub@yellowdoorenergy.com fadi@dii-desertenergy.org

Other contributions:
Our additional thanks to Dr. Alexandre Oudalov (Manager Power Systems of the Future from ABB Power Grids),
F2M2 and other network operators and multiple storage technology providers for their valuable contribution to this
report.

2
About the report
The present piece is a joint study conducted by Dii Desert Energy and Arthur D. Little. The study
analyzes the battery energy storage value chain, the players across this value chain, the use cases
and their applicability, and the positioning of global benchmarks within this space; A close-up analysis
on the MENA region is conducted to identify the current and future trends in energy storage in the
region as well as the enumeration of the opportunities and challenges of the region in view of the
growing global trends for the adoption of energy storage systems.

Dii Desert Energy

Launched in 2009 as an industry initiative in Germany (initially called ‘Desertec Industrial Initiative’) for
exploring the potential of renewables in the desert areas of Northern Africa and the Middle East,
improving market conditions and examining the synergies to be captured through connecting the
European and MENA power markets.

In 10 years’ time, Dii Desert Energy has grown from a rudimentary ‘Desertec Vision’, initially mainly
concentrated on power from the deserts for Europe, (Desertec 1.0) via a focus on the conditions of
renewables in the local markets (Desertec 2.0) toward a highly recognized market enabler for ‘green
electrons’ and ‘green molecules’ from the deserts of MENA for MENA’s own population, and for
MENA to become a ‘Power House’ for the world markets (Desertec 3.0). Today, Dii Desert Energy are
looking at the entire power system starting with various forms of Renewable Energy (RE) generation,
grids, new technologies & innovations, energy storage, e-mobility, smart cities, towards the long-term
objective of ‘energy without emissions`.

Vision – Increased competitiveness of renewables shall swiftly lead to economic growth and
secure 100% energy supply without harmful emissions or waste
Mission – Towards a fully emission free energy supply in MENA before 2050 and making
MENA a ‘power house’ for the global energy markets offering benefits to the region
Strategy – Connecting the international industry active in the MENA region with authorities and
institutions. Focus on practical conditions for ‘green electrons’ and ‘green molecules’ along the
energy value chains leading to tangible and profitable projects and other benefits for local and
international stakeholders

3
Dear friends of emission-free technologies,
Storage of energy and power will be a key application for efficient and reliable energy systems based
on wind and solar generation. With the global trend towards renewable energy, storage will grow out
of the niche.
After a first glance at storage technologies and potential for cost reductions between 2011-2013 as an
integral part of "Desert Power 2050", the Dii Storage Working Group 2.0 intends to give market
insights and potential business models to provide guidance to project developers and decision makers
in this promising business field.
Launched at the 9th Dii Desert Energy Leadership Summit in October 2018, we first highlighted the
steep decline of costs of battery technologies, with much more to come. Now, the Dii Storage Working
Group 2.0 is delighted to present this report together with our partners Arthur D. Little. This report
offers valuable market knowledge and more importantly for the first-time concrete project examples
and use cases with focus on battery applications in the Mena region. For further information please
visit https://dii-desertenergy.org/

Special thanks from coordinators of this group to those who contributed to the success of this report.

Arthur D. Little

Arthur D. Little is a global management consulting firm that has been at the forefront of innovation
since 1886. We are an acknowledged thought leader in linking strategy, innovation and transformation
in technology-intensive and converging industries. We navigate our clients through changing business
ecosystems to uncover new growth opportunities. We enable our clients to build innovation
capabilities and transform their organization.

Our consultants have strong practical industry experience combined with excellent knowledge of key
trends and dynamics. Arthur D. Little is present in the most important business centers around the
world. We are proud to serve most of the Fortune 1000 companies, in addition to other leading firms
and public sector organizations.

For further information please visit www.adlittle.com

Copyright © Dii Desert Energy & Arthur D. Little 2019. All rights reserved.

4
Introduction and report overview
Variable Renewable energy deployment over the last decades has posed unprecedented challenges for the planning and
operation of power systems. In the context of increasingly decentralized and intermittent generation, power utilities1 and
system operators need to rethink their portfolios, business models and positions in the market in order to be resilient to these
changes and benefit from them.

Battery storage has gained strong interest as an option to respond to these new challenges and provide flexibility to the
system to cope with high levels of renewables. Driven by increased usage in the automotive industry, costs of batteries have
significantly dropped since 2010 (84% decrease for lithium-ion batteries2), although further cost reductions are necessary for
widespread use in the power sector.

Actors all along the energy value chain find themselves facing a number of key questions when considering how energy
storage may affect their businesses:

◼ In what applications will battery storage play a key role in managing the future grid?

◼ What will be the most attractive business models? For which (combination of) actor(s) along the value chain?

◼ What factors influence the choice of battery technologies?

◼ Which battery technologies will likely be the most important in each application?

◼ What are the drivers, enablers and alternatives to battery storage deployment?

◼ Where do MENA region countries fall within the global scene for battery storage deployment?

◼ How will the MENA region’s deployment of renewables facilitate the deployment of storage?

In this report we respond to the above questions and describe the results of a study in which we have reviewed battery
applications, battery types, drivers & barriers to battery storage and trends in key markets, with a specific focus on the MENA
region, based on interviews with major market players in the energy sector. We have explicitly addressed what’s in it for the
different types of stakeholders along the value chain. The key conclusions of our study are summarized below:

Deployment of stand-alone batteries to provide grid services such as frequency response and frequency regulation has
mainly been achieved in selected markets where ancillary services are attractive, as well as in the MENA region under pilot
projects. Widespread deployment has been hindered by high costs and regulation uncertainty, but grid-scale storage for
frequency regulation3 is still seen as one of the most promising applications to date although the total market size in MW is
limited. Large-scale hybrid battery configurations, to stabilize and manage the latency of renewables output, is the biggest
driver of battery storage adoption in MENA. Finally, hybrid residential battery configurations have seen a significant boost in
some markets, such as Germany, where incentives are put in place.

DSOs and TSOs can use batteries for grid-support applications such as congestion avoidance, frequency regulation,
frequency response4 and voltage stability, and tend to see co-ownership as the most likely option for making a positive
business case. Indeed, all market players generally see the combination of several applications as essential to make battery
solutions economically viable. However, system operators are only likely to make major moves when the regulatory
framework for ownership and operation of storage technologies has been further clarified.

Compared to system operators, power utilities can leverage batteries for a wider range of applications and less constrained
by regulation. They can potentially use batteries to generate revenues from arbitrage in the market, decrease exposure to
imbalance costs and provide grid services to system operators. Vertically Integrated Utilities (VIUs)5 can also deploy

1 For the purpose of this study the term “power utilities” includes generators (i.e. IPPs) and vertically integrated utilities (involved in generation, trading and
retail), and excludes system operators, which are considered separate categories.
2 Bloomberg New Energy Finance, 2018.
3 Equivalent of FCR in ENTSOE terminology
4 Equivalent of FRR in ENTSOE terminology
5 Power utilities involved in several steps of the supply chain, including generation, trading and retail (e.g. Engie, EON).

5
batteries as part of their offerings to end-customers, this will likely be the case in the MENA region considering that energy
markets are mainly led by VIUs in the region.

Partnerships between VIUs and aggregators as well as battery manufacturers/ system integrators and aggregators have
been developed over the last few years to generate revenues primarily from ancillary services and the wholesale market with
batteries at residential, commercial and industrial levels. The roles of aggregators continue to evolve, and the emergence of
aggregators acting as software providers rather than technology operators is reshaping the position of VIUs in the market.

In conclusion while battery storage, globally, remains a market for early adopters today, with more mature business models
for some players (e.g. power utilities) than others (e.g. system operators), time for inaction is over. For the MENA region, the
introduction of renewables for purposes of energy sufficiency and sustainability will present a strong case for the deployment
of energy storage and several countries are moving in that direction already.

Whenever the technology shall be cheap, it will belong to those who invested in its development. Once the regulation will be
more facilitating, the opportunities will be captured by those who have a business model ready.

This is the moment for markets to be shaped, regulators to engage with and early strategic actions to be performed for actors
along the energy value chain to make sure they will be part of the future framework and at the forefront of market trends.

6
1. Batteries to support the energy
transition
The power grid is in the midst of unprecedented change. marginal (~4 GW) today7, the announcements of several
Large amounts of renewables are being added to the grid large-scale commercial projects and some major
in many parts of the world, coal is increasingly disfavored, transactions over last few years are clear signs that the
and there is a shift from the old centralized model of sector is taking off.
generation, transmission, and distribution to a more
Several models have emerged in which existing and new
dynamic grid incorporating diversity of generation assets
players in the power sector deploy and operate batteries
on a range of scales.
to respond to the new challenges. Progress on both the
While generally positive from an environmental technology and costs, as well as regulation fronts are
perspective, such changes present a number of required to clear uncertainties as to whether batteries are
challenges to grid operation, particularly for managing the economically sound, and for whom.
integration of intermittent renewable generation
This paper analyzes how battery storage can contribute
technologies such as solar PV and wind. Among several
to the energy transition and addresses:
solutions6, energy storage will likely play a critical role in
managing such challenges, for example, by smoothing The applications of batteries and business models
the output from renewable sources and storing energy in across the value chain.
times of high generation for later release when demand is
Subcategories of electrochemical batteries, their
strong.
characteristics, costs and specific fields of
Due to their flexibility, applicability on wide scale, and application.
potential synergies with other applications such as
The drivers for battery deployment and diagnostics in
electric vehicles, electrochemical storage technologies
key country archetypes.
have received particular attention in recent years.
The growing interest in the Middle East for their
While the amount of battery storage installed remains
deployment.

Figure 1: Recent major transactions and alliances in the battery storage sector

6 Interconnection, Demand Side Management, flexible generation

7 https://www.iea.org/newsroom/news/2019/february/battery-storage-is-almost-ready-to-play-the-flexibility-game.html

7
2. A business for all, except for system
operator
Batteries can be used at different levels of the electricity differences in wholesale markets. The main applications
system and in various applications, from providing grid- are briefly described below.
support services to generating revenues from price
Table 1: The use cases for energy storage systems

Terms8 Description

Self-supply Combined physically (hybrid systems) or virtually with distributed renewable sources, distributed storage
& TOU behind the meter or on the distribution network allows at least partial self-sufficiency, resulting in
decreased costs for grid supply and reduced exposure to price fluctuations. Savings could also be
achieved by optimizing consumption based on time of use (TOU) and related price profiles
Stand-alone, they improve reliability and power quality to end users in systems with poor security of
supply or access to power supply

Arbitrage Batteries potentially located at any level on the grid (distribution, transmission or behind the meter
aggregated as a virtual asset) are used to exploit the wholesale electricity price spread and charge during
off-peak periods while discharging in peak periods (peak shaving)
Note that Time of Use (TOU) included in the above application is also a form of arbitrage but operated by
end- users (residentials, industrials).

Frequency Under normal operating conditions, continuous charge and discharge of batteries located at distribution
regulation9 or transmission can maintain demand and supply in balance and keep frequency within required limits

Frequency Under contingency conditions, when system failure leads to major and sudden frequency variation,
response10 batteries are activated to restore primary control. Batteries at distribution, transmission or behind the
meter are aggregated as virtual assets

Voltage Batteries, at specific locations in the distribution and transmission network, release or absorb reactive
stability power to maintain power quality locally

Congestion Charge and discharge of batteries, at specific locations in the distribution and transmission network,
avoidance enable postponing investments, remaining compliant during works on the network, and increasing
renewable penetration where the limits of the grid are reached in order to avoid congestion at substations
during local peak periods

Black start Batteries, at specific locations in the distribution and transmission network, are used to energize pieces of
the network when there is a black-out

Stable Batteries at distribution or transmission level, combined with intermittent renewables (e.g. wind, solar)
output enable the generator to smooth output to comply with regulatory duties or mitigate imbalance

8 Ancillary services/operating reserves required by TSOs/DNOs have been classified into frequency regulation, frequency response, voltage stability and black
start. Planned/ strategic reserves (e.g. capacity mechanism) are considered as a way for batteries when operated under a specific application to capture
additional revenues.
9 Equivalent of FCR in ENTSOE terminology
10 Equivalent of FFR in ENTSOE terminology

8
Most of the above applications can be clustered together output and limit imbalance costs while also capturing
based on energy requirements and the most demanding revenues through the provision of ancillary services11.
application, allowing the operator/owner of the battery to Figure 2 maps stakeholders across the value chain to the
capture the value across several services. For example, a potential applications they will address when operating
wind-farm operator would install a battery to stabilize its batteries. It also shows the positioning of MENA region
countries across the value chain

Figure 2: Mapping of battery operators & key applications

Power utilities, and in particular vertically integrated with applications at the power utilities level, as well as for
utilities (VIUs)12, are the only players in a position to residential and commercial
address all major applications, from providing support to
The same application often sees several competing
the grid to maximizing revenues from the wholesale
models across the value chain (R&D, development,
market and operating batteries to optimize consumption.
ownership, operation and maintenance). Ability to provide
However, their ability to stack these applications strongly
the services and possible structures or business models
depends on the accessibility and definition of these
are discussed below:
services and the extent to which they are mutually
exclusive.
Residential & commercial
The MENA market, considering that energy generation is
Three main reasons can lead the residential &
still significantly centralized under power utilities, is
commercial sector to operate batteries:
perfectly positioned to integrate several applications for
battery storage together. Most of the MENA region ◼ Poor security of supply, with frequent outages:
countries are incentivized to incorporate energy storage battery is an emergency back-up if an outage
into their generation mix to stabilize output, especially occurs. However, the business case remains
renewables’ output which is characterized with variability challenging and depends on the value of stable
and dependence on the weather and time of the day. supply and loss load, which is especially hard to
assess at residential level.
It is also worth mentioning that the UAE seems to be
ahead of the curve in terms of adoption of battery storage ◼ Poor access to the main grid and the possibility,
with battery storage combined with distributed
generation, of remaining off-grid. Battery storage

11 Services identified as necessary by the transmission or distribution system operator to enable them to maintain the integrity, stability and power quality of the
transmission or distribution grid
12 Power utilities involved in several steps of the supply chain, including generation, trading and retail (e.g. Engie, EON, DEWA)

9
 is, for example, installed in telecom towers and
“Today, modern utilities and grid operators are utilizing
responds to the needs of telecommunication
battery technology like never before. The next step in
networks willing to expand to the remotest
tapping the potential of energy storage is putting
places in the world and provide uninterrupted
together thousands of batteries to form an energy
supply. The telecom sector is the leading market
network that utilities can use to deliver immediate value
for commercial use of battery storage so far and,
for the electric system. For instance, Tesla can now
as such, the market is expected to grow at 18%
bundle Powerwall and Powerpack batteries into a single
over the next five years13 in key markets such as
portfolio, also called aggregation, to make the grid
India and Africa.
cleaner and more efficient. Meanwhile, Powerwall
◼ Desire to become more self-sufficient and customers who allow Tesla and the utilities to use their
reduce electricity costs by combining storage battery when energy demand is highest will not only
and distributed generation (e.g. PV panels) and have home backup power, but will also receive
increase self-production. compensation for its use on the grid”– Tesla & Green
Mountain Power Program Announcement
OEMs and system integrators14 such as Tesla sell directly
to end users or through the intermediary of official
suppliers15, which install the technology at the end user’s Aggregators
premises. End users, in turn, operate and own or more
The aggregator role has developed to fill the gap left by
often lease16 the devices. A leasing business model for
increasingly distributed generation that is unable to
residential batteries can be particularly interesting in
participate in the energy and ancillary services market.
facilitating the combination of storage applications that
Aggregators effectively aggregate a large number of
span multiple stakeholders. In Germany, for example,
generation and demand sources into controllable power
residential hybrid PV/ battery systems are mainly used to
plants referred to as virtual power plants (VPPs).
increase self-consumption during summer months, and
the batteries’ usage rate is near zero during the first three The German, French, Belgian, UK markets have been
months of the year. This means system operators could incubating virtual power plants for several years now
potentially use residential batteries for grid-support whilst the United Arab Emirates followed suit in early
applications during this period. Such a business model 2019. VPPs have started to become viable, but this
could be facilitated through a leasing contract and evolution will accelerate by decreasing battery cost and
enables residential and commercial customers to benefit involvement of strong players in the market such as
from the use of batteries for other applications and Tesla. In Germany, Tesla and Sonnen signed deals with
improve the business case. VPP player Lichtblick to link residential batteries to the
control platform in 2015. Savings can be passed on to
In Dubai, United Arab Emirates, Enerwhere, an Energy
customers in multiple ways (not comprehensive): through
company has been leasing Tesla battery systems to
direct payment to the end customers when the aggregator
construction sites to combine it with a PV-generator
is using the scheme or fixed yearly payment (preferred
hybrid system operating on PV energy during the day and
models so far); under a profit-sharing model; or upfront as
on the battery system at night and resorting to the
a discount on the battery investment costs (with the
hydrogen generator only if needed.
challenges that it poses in terms of forecasting reserve-
Other business models have been developed to leverage auction results).
batteries owned by residential and commercial customers
The provision of ancillary services by aggregators is a
to capture price spread and/or ancillary revenues via
proven model tested through demand-side response for
aggregators and Vertically Integrated Utilities (VIUs).
years now. Electricity trading by aggregators for arbitrage,
on the other hand, faces more hurdles because of the
volume of imbalances it can cause for balance-
responsible parties (BRPs) prior to the settlement
process.

Therefore, coordination between aggregators and BRPs

is needed for aggregators to operate in a deregulated
energy market (e.g. day-ahead or intraday). Aggregators

13 Research and markets, October 2018

14 System integrators are responsible for packaging the batteries and adding auxiliaries such as control systems
15 VIUs or distributors of battery solutions
16 The leasing model is quite common for solar PV and CHP

10
have been working hand in hand with VIUs, which enable have the potential to relieve grid congestion and therefore
aggregators to not only overcome the balancing- avoid or postpone grid reinforcement. Battery storage, in
responsibility issue mentioned above, but also channel this case, finds itself playing a role in the medium- and
their business propositions to end customers. However, long-term operation and planning of the system.
as the market matures, we can observe a progressive However, batteries today remain, in most markets, too
split between aggregators willing to remain operators of expensive and do not present favorable economics
flexibility in the system and those focusing more on relative to the critical time of use and/or alternative
selling the demand-response management software (e.g. system-wide upgrades.
AutoGrid Flex from Autogrid). This evolution might, in
Another field of application for batteries is the provision of
turn, fuel a shift for VIUs, which will reposition themselves
voltage control to improve the quality of supply, but this is
in the market and offer these services without
likely to be only as part of a wider set of applications,
aggregators.
given that it can be achieved through other, cheaper
More specific to the commercial and industrial sectors, components of the network (e.g. stand-alone inverters).
energy service providers (e.g. Dalkia, part of VIU EDF)
In Europe, the unbundling of the sector has confined
have also acknowledged the potential of acting as
system operators (DSOs, TSOs) to owning and operating
aggregators. We can expect them to play an important
transmission and distribution assets only. It has not been
role in leveraging additional value from battery storage
clear so far whether some regulatory bodies consider
building on their current client bases and further transform
battery storage a generation asset, but the European
the aggregator landscape in the near future.
Commission (EC) in 2016 proposed a definition for
energy storage and the principles of its deployment (see
Industrials
box page 16-17.) This will hopefully mark the end of a
Furthermore, this operator can be integrated into a VPP period of uncertainty regarding the exact roles that
of a utility company the same way households are system operators can take with batteries. In the
integrated, to cope with power-outage issues and become meantime, system operators are already considering
more self-sufficient, as well as reduce network charges innovative business models to deploy batteries without
where consumption is measured at certain times of the entering the energy market.
year. Industrials will either operate their battery storage
themselves in the same way they participate in ancillary Examples of such business models are the deployment
services or outsource the operation to power utilities or of batteries at complementary locations in the network
aggregators. (centralized and congested areas) in order to neutralize
the charging and discharging effects on the energy
Depending on their size and the part of the network they
market and avoid interacting with wholesale markets to
are connected to, industrials could be partnering with
balance the network (Tennet, the Netherlands).
Distribution System Operator (DSOs) and Transmission
System Operators (TSOs) in order to optimize their
consumption patterns while generating revenues from Regulatory uncertainty so far and challenging business
grid-support activities (e.g. voltage stability, black start). cases explain why the track record of commercial battery
We see few applications of this business model to date, deployment for distribution-grid applications remains poor
but it can be a particularly good alternative for system today. While many pilots have been running in Europe
operators that have their hands tied regarding their roles and worldwide to test the technology and its performance
in storage activities. for specific applications, actual commissioning of battery
solutions for commercial grid applications is limited.
DSO
The aforementioned regulatory uncertainty regarding
The integration of renewables poses a number of TSOs and DSO in the MENA will not be a deterrent for
challenges for DSOs in terms of power quality and grid the adoption of battery storage systems for system
reinforcement to accommodate renewables at their operators, mainly, because utilities are vertically
maximum potential. integrated in many MENA countries and therefore, the
integration of battery storage for TSOs and DSOs is
Renewables, being characterized by high variability and
anticipated to be smoother.
dependence on weather and time of the day lead
unstable supply. The instability of supply makes the The vertically integrated utilities of the MENA region will
integration of renewables difficult to achieve without take full advantage of deploying battery storage systems
further grid reinforcement to thwart that variability. to respond initially to their grid stability requirements, but
Batteries deployed in strategic locations of the network

11
their integration will facilitate the use of these batteries distribution and transmission networks to improve
across the entire chain from generation to distribution overall grid reliability

“The landmark deployment [of grid scale energy

storage in Abu Dhabi] ensures sustainable energy
In Benelux Eneco has been supplying the Tesla
supply across several key sites in Abu Dhabi as part
Powerwall to its customers since the start of 2016. A
of an integrated plan to secure sufficient electrical
couple of months later it expanded its services to
power production to meet growing demand for energy
CrowdNett with the support of Tesla, SolarEdge and
in the Emirates; the battery plant is expected to
Ampard. The software developed by Ampard allows
secure additional electricity supply for 6 hours using
controlling residential batteries remotely so they can
storage batteries” – Awaidha Murshed Al Marar,
participate in the provision of ancillary services. In
Chairman of the Department of Energy
exchange for the use of 30% of the battery capacity,
residential customers receive 450€ in compensation
Partly, TSOs and DSOs are not able to play in the energy
guaranteed over the next five years.
storage space due to regulations and limitations by the
EU, the U.K. or the U.S. However, in the Middle East (e.g. Beyond the retail side, battery storage represents a key
UAE, KSA), TSO/ DSOs are integrated with the power opportunity for VIUs and generators in the following
utilities which might disrupt the norm and offer applications:
opportunities for energy storage at the distribution or
transmission level. Decrease exposure to imbalance charge from
renewables intermittency
Power utilities17 Increase stable energy supply for countries with
Vertically Integrated Utilities (VIUs), being at the interface unreliable grids
between end customers and system operators, have the Optimize your CAPEX investment and utility assets
potential to play a significant role in the battery market. load levelling to cater to peak power usage, i.e.
In their capacity as retailers, they act as enablers for consumers’ peak shaving
deployment of residential battery storage. In adding Optimize asset production and sales in the wholesale
battery storage as part of their energy services packages, market based on market signals (arbitrage)
VIUs aim at differentiating themselves and benefiting from
extra revenue streams. Capture revenues from ancillary services and
capacity mechanisms
Several VIUs in Germany are offering battery solutions Support industrial or consumer groups in reducing
to their customers. E.ON, for instance, released its system charges, where these are calculated based
home storage system combining PV, storage, app and on consumption at peak periods, and negotiate to
tariff in April 2016. While Duke Energy announced that receive a portion of this saving
the company plans to invest USD 0.5bn in battery
storage in the Carolinas, USA over the next 15 years. Among the above applications, the first two represent the
most promising opportunity in several Middle Eastern
countries as a result of an increasing interest in the
development of renewable energy generation capacity to
In the Middle East, the Dubai Electricity and Water meet energy demands as well as the interest in improving
Authority (DEWA), a vertically integrated utilities (VIU), the unreliability of the grid by stabilizing output and
has been testing the deployment of a 7.2 MWh NaS suppressing energy outages
battery storage system manufactured by Japan’s NGK
Insulators connected to a utility-scale photovoltaic plant Egypt is also emerging as a potential country with
to provide stabilization of output of renewable energy. future opportunities deploying energy storage systems.
DEWA is testing the implementation a battery energy The main drivers in Egypt are like Jordan’s. Egypt’s
storage system to help stabilize renewable energy growing electricity demand and dependence on energy
outputs, but it is expected that if the viability of the imports along with ambitious environmental targets is
technology is proven, then there will be a great leading the country to the development of renewable
opportunity to dispatch the batteries across DEWA’s energy + battery energy storage system to respond to

17 For the purpose of this study the term “power utilities” includes generators (i.e. IPPs) and vertically integrated utilities (involved in generation, trading and
retail), and excludes system operators, which are considered separate categories

12
 the intermittent renewable energy and ensure stable The United Arab Emirates is probably the most advanced
output in the MENA region in terms of energy storage and on top
of experimenting with battery energy systems, the UAE is
On the other side, another strong driver for the also building the first of its kind pumped hydro storage
deployment of battery energy storage systems is the plant
unreliability of the grid in certain MENA countries. The
negative capacity margins are driving countries like The Dubai Electricity and Water Authority in the UAE
Lebanon in the direction of developing more renewable is developing a first of its kind project in the region to
capacity couple with energy storage develop a pumped hydro storage plant of a capacity
of 250 MW. The plant is designed to use and store
The Lebanese government is undertaking several water from the existing Hatta dam, which was built in
projects to develop renewable photovoltaic + storage the 1990s, for generating electricity during peak
power plants working in collaboration of the European demand periods –
Bank for Development and Restructuring with an
“Our use of hydroelectricity is part of our drive to
expected generation capacity of 300 MW and a storage
achieve the objectives of the Dubai Clean Energy
capacity of 210 MWh
Strategy 2050, to transform the Emirate into a global
hub for clean energy and green economy, and to
The third application is expected to find considerable
increase the share of clean energy mix in Dubai to 75
success in markets where energy time shifting is
per cent by 2050.” – H.E. Saeed Mohammed Al
necessary around peak demands and especially with the
Tayer, CEO of Dubai Electricity and Water Authority
introduction of high variability renewable sources (e.g.
Solar) in the generation mix.
The possibility for power utilities to combine revenues
from multiple applications improves the battery business
In the MENA region, Jordan is emerging as a trail
case but depends on market design specifics (e.g.
blazer in the development and deployment of solar +
provision of multiple services to multiple parties at the
energy storage systems. Jordan has commissioned
same time).
the first ever solar + energy storage plant based on
Li- ion technology provided by Tesla and is amid An example of production optimization/arbitrage can
tendering a second project for the development of a already be seen on a large scale in the US, where we
battery storage plant to be able to respond to energy expect that within four years the world’s biggest storage
demands, stabilize output and add flexibility to its capacity project in Los Angeles will be delivering over 100
grid. One of the main drivers in Jordan is the MW for about four hours at peak period18.
country’s reliance on imports of energy, which is
Finally, depending on local regulations, generators might
leading the country to invest significantly in the
have to comply with specific ramp-up and ramp-down
development of renewable + storage systems
profiles and therefore be obliged to couple intermittent
generators with battery technologies on site. Islands are a
good example of markets where such constraints have
The UAE government in Abu Dhabi inaugurated a been put in place (e.g. Puerto Rico, La Réunion).
battery storage plant in 2019. The NaS battery
TSO
technology supplied by NGK insulators Ltd. The
system is said to substitute an investment in a new In the same way TSOs might contract with power utilities
thermal generation asset and respond mainly to peak and large customers for ancillary services (frequency
demand needs with its 6-hour charge time. The NaS response, voltage control) and reserve (strategic reserve
system was chosen over an alternative (e.g. Li-ion) for through capacity mechanisms), they could potentially
its longer discharge time while being able to stand meet their requirements by owning batteries.
high temperature with no need for air conditioning of
However, similar to DSOs in Europe, the business
the cells
models under which TSOs will be able to own and
operate batteries remain to be defined in most countries.
The last two applications are good entry points for new
Market solutions are always preferred. The development
entrants, aggregators, energy traders and merchant
and ownership of batteries by TSOs raise questions
players to generate revenues of battery storage under a
about market distortion and funding of regulated
more opportunistic approach than incumbents.
monopolies. But some players have highlighted the

18 Scientific American, July 2016

13
necessity, when market conditions are not appropriate the performances over time, the maintenance
and a solution is required, to implement storage through a and assistance required from manufacturers;
regulated solution (Red Electrica and ENTSO-E19, Terna).
◼ monitor the usage and use cases, the rationale
and specific value added, the technical and
In Italy, the regulatory framework was adapted to allow
economic benefits for the system;
for the TSO Terna to develop, own and operate
batteries in the network. Two major pilots, respectively, ◼ evaluate the benefits against the investment
of 40 MW in cost on a life-cycle basis and assess the
economic feasibility for the system.
Sicily and Sardinia (power-intensive projects) and 35
MW in South Italy (energy-intensive projects) have been On the last point detailed and periodic reporting is given
installed are being led by Terna in collaboration with to the Regulator, who had allowed the relevant
manufacturers universities and research companies to investment to be treated within the Regulated Asset
prove the applicability of batteries for system balancing, Base, on which TSO remuneration is calculated. This
ancillary services, power quality and possibly tertiary Regulatory Sandbox, in the form of Pilot Project, is
reserve. The technologies under consideration include essential for this kind of initiatives.
lithium-ion, flow and Sodium-Sulphur batteries from
several different manufacturers. Such an early move by Again, transmission system operators such as National
a TSO, before any regulation (national or European) Grid and Tennet agree on the fact, to make the business
would be elaborated, had multiple aims. case positive, multiple value streams and collaboration
between different market players are required.
◼ investigate the available technologies and
assess them through direct on-site operational
comparisons;

◼ develop from scratch design skills for

installation of completely new devices into
power substations;

◼ explore the path for large scale field installation

of new devices with peculiar and possibly
critical characteristics, also from the
authorization and permitting point of view; in
particular, local construction permitting and
compliance to anti-fire rules were a painful first-
of-a-kind experience;

◼ derive guidelines for subsequent applications on

both technical performances and
building/permitting procedures;

◼ learn how to use the capabilities of the batteries

and to best exploit their specific characteristics,
while preserving their integrity and lifetime;

◼ test the performances in field application and

real duty cycles (according to grid operational
needs), which turned to be quite different from
the factory datasheets and laboratory test;

◼ develop procedures and operational handbooks

for replication and improvement of subsequent
installations;

◼ monitor the operation in long term real

conditions to assess the degree of utilization,

19 Energy Storage, global conference – Brussels – 2016 regarding law adaptation for energy storage in Gran Canaria

14
Because of their scalability and the multitude of applications they address, batteries can be owned and operated by
many market players. Figure 3 shows the position of key market players across the value chain and potential business
models.

Figure 3: Potential business models across the value chain

The gap in the regulatory framework regarding batteries in markets such as Europe has slowed down development of
clear strategies and business models by system operators, but positive signs have been seen recently (ENTSOE,
Ofgem, the European Commission) to establish a clear framework and market mechanisms for batteries.

To clarify the legislative framework in which batteries operate, the European Commission released the Electricity
(EC) New Market Design Package in November 2016, providing clarifications on the role of system operators with
respect to energy storage in their proposal for a revised electricity Directive. The EC states that “Transmission
system operators shall not be allowed to own, manage or operate energy storage facilities and shall not directly or
indirectly control assets that provide ancillary services”.
However, under some conditions, TSOs could derogate from this obligation:

a) other parties, following an open and transparent tendering procedure, have not expressed their interest to own,
control, manage or operate such facilities offering storage and/or non-frequency ancillary services to the
transmission system operator;
b) such facilities or non-frequency ancillary services are necessary for the transmission system operators to
fulfil its obligations under this regulation for the efficient, reliable and secure operation of the transmission
system and they are not used to sell electricity to the market; and

c) the regulatory authority has assessed the necessity of such derogation taking into account the conditions under
points “a” and “b” of this paragraph and has granted its approval.”

In addition, the EC provides with a definition for energy storage as “deferring an amount of the electricity that was

15
generated to the moment of use, either as final energy or converted into another energy carrier”.

Despite those propositions, EASE (European Association for Storage of Energy) requests the EU to recognize energy
storage as a separate asset class, alongside generation, transmission/ distribution and consumption to avoid the
unwarranted double charging (energy imported from the grid and exported to the grid, including levies and taxes)
imposed to storage facilities, which does not reflect the value of storage to the grid.

In the U.K., Office of Gas and Electricity Markets (Ofgem), released the “Smart systems and flexibility plan” aiming to
remove barriers for smart technologies such as energy storage. Among the interventions of the plan:

a) The definition of energy storage as a subset of the generation asset class. (Modifying license charges to exempt
storage systems from final consumption levies)

b) Clarify the frameworks for the co-location of storage with renewable energy generation plants without impacting
existing agreements such as “Contracts for difference and feed-in-tariffs”

In the United States the Federal Regulatory Energy Commission (FERC) Orders 755/841/ 854 has mandated that

a) Regional transmission organizations and independent system operators pay storage asset owners for providing
ancillary services such as frequency regulation

b) Market operators allow storage to provide every product that the resources are physically capable of providing
capacity, energy, and ancillary services

c) Revision of “generating facility” to include electricity storage explicitly by revising interconnection rule sand
protocols for storage

In 2017, China released its first national level guiding policy document covering energy storage entitled: “Guiding
opinions on Promising Energy Storage Technology and Industry Development” which is a document that is
structured around:

a) Affirm importance of energy storage in relation to development priorities such as smart grids, high renewable
grid penetration and the internet of energy

b) Set development goals and key tasks over the upcoming 10 years

c) Outline necessary supporting policy directions to be enacted to achieve these goals including the definition of
and establishment of policies governing pricing mechanisms, technology standards, IP protection, and battery
material recycling. As well as listing out plans to bolster support from continued trial demonstrations, clarifying
compensation mechanisms, guiding investments and continuation of power system, market reform

Establishment of pilot projects in countries that do not have significant utility-scale battery storage (e.g. South Africa,
UAE)

a) South African company secured a grant from the US Trade and Development Agency to develop a pilot project
that demonstrates the performance of an energy storage system

b) The UAE Virtual power plant pilot projects in Abu Dhabi and Dubai suggest that an update to the regulatory
frameworks will be put in place in the near future to facilitate further deployment

“Power utilities, especially in MENA markets where utilities are mainly vertically integrated, are the only players in a position
to address all major applications, from providing support to the grid to maximizing revenues from the wholesale market
and operating batteries to optimize consumption.”

16
3. High synergies with other sectors will
push Li-Ion batteries
Technical features deployed capacity, new trends are underway within the
energy storage space such as the rise of Chemical (e.g. Li-
Historically, pumped hydropower storage (PHS) has been
ion, NaS), Electro-mechanical (e.g. Compressed air energy
dominating the energy storage industry due to its reliability
storage (CAES)), and thermal energy storage. Figure 4
and the fact that the technology for electrochemical storage
shows a distribution of the global energy storage power
was not attaining the performances that will make it a viable
broken down by technology group and by use case
option. As of late, even though PHS is the runaway leader in
terms of

Figure 4: Global energy storage power capacity by main use case and technology (mid 201720)

The numbers shown in Figure 4 are expected to grow at an commoditization of the technology. The other technology that
exponential rate for Chemical (e.g. Li-ion, NaS), Electro- is expected to grow steadily during the forecast period is
mechanical (e.g. Compressed air energy storage (CAES)), Sodium-Sulfur (NaS) battery technology; especially
and thermal energy storage. Although Pumper Hydro considering that the technology is receiving considerable
Storage (PHS) is also expected to grow, the growth for PHS interest in grid-scale applications where discharge time and
will be lower in comparison to the other technologies. reliability are of a prime concern. Flow batteries have started
Pumped hydro storage (PHS), although it has been the to move out of development phase – in fact China is building
technology of choice for storage applications, has some the largest energy storage systems with flow batteries and
disadvantages such as the requirement for water resources Australia is in talks to build a 50 MW grid scale flow battery
as well as the lack of portability of the system. storage facility. Solid state is promising, but the pace
towards commercialization is frustratingly slow with several
As per a Bloomberg 2019 energy outlook (Figure 4), energy
startups and established technology companies racing to
storage market (all technologies excluding PHS) is expected
develop and bring a solid-state battery to the market. For
to grow 122-fold (from 9 GW in 2019 to 1,095 GW in 2040)
instance, Dyson decided to end its electric car development
for the next two decades as a result of falling prices, strict
project and focus its manufacturing efforts on the
environmental targets and improvement in the battery
development of solid-state batteries.
technologies. A strong contributor to the growth will be the
growth in production of Li-ion batteries which will be The rate of adoption of battery storage system is set to
benefiting from wide adoption of EVs and as a result their increase in the future, driven by several factors, the
cost of production will drop significantly leading to a expectation is that other regions of the globe – Marked as

20 IRENA Energy Storage outlook

17
“Other” on Figure 5 below – in which the MENA region falls,
will record the most growth considering how nascent the
market is today.

Figure 5: Growth of the energy storage capacity (excluding PHS) globally 2018-2040 (BNEF)

The growth in the adoption of energy storage systems will be KSA, although the country has very ambitious renewable
seen in MENA – Falling under the category “other” on Figure targets as part of its vision 2030 and its high ambitions to
5 – as a result of country policies to achieve more grid diversify the energy mix and breakaway from its dependence
stability and strong push towards renewables. The UAE is on oil, has not seen any projects come to fruition. The
already ahead of the curve in terms of deployed energy country has signed a Memorandum of Understanding with
storage to support its grid during high demand hours with Japan’s Softbank in 2018 for the development of 200 GW of
two NaS projects in Abu Dhabi and Dubai. Jordan, Morocco renewable energy in the kingdom and EDF was anticipated
and Egypt, Lebanon have ambitious renewable energy to develop nearly 10 GW of energy storage, but the project
targets and are working to achieve those targets through the has been dropped since and the country is not pursuing the
construction of renewable energy plants and integrating development of large-scale energy storage projects as of
them with energy storage for more reliability, and the now.
stabilization of intermittent renewable energy sources.

Figure 6: MENA region relevant chemical energy storage projects power capacity by technology and country (MW, ADL analysis)

18
 The growth of the battery energy storage market will be seen around the world over the next two decades. This growth
is mainly driven by countries’ objectives to decrease their dependence on fossil fuels and the introduction of variable
renewables into the energy generation mix. The introduction of intermittent renewables into the generation mix requires
energy storage capabilities to keep supplying energy around-the-clock. This growth will be particularly observed, in
electrochemical (e.g. Li-ion batteries), and thermal energy storage, through concentrated solar power (CSP) adoption,
as a result of falling prices and improved technology. This growth will be witnessed in the MENA region as well, driven
mainly by a desire from MENA countries to introduce more renewable energy into their energy mix to achieve
environmental targets as well as achieving a more reliable and stable output from the grid

MENA countries adoption of renewables will be a major long discharge times but slow response times would be
driver for the deployment of energy storage. Two good for arbitrage or stabilizing output from renewables
archetypes manifest themselves in the MENA (Discussed but may not be suitable for applications such as
in chapter 4) – countries with low capacity margin frequency response, which require rapid changes in
deploying renewables to increase their generation output. Figure 7 maps applications to economically
capacity and therefore they will resort to battery storage feasible power ratings and discharge times, and also
to ensure continuous output is delivered to the grid, as indicates where some of the major technologies (see
well as countries with a healthy capacity margin that will discussion below) are most applicable.
be adopting battery storage to couple them with their
In addition to the main parameters, the following factors
renewable plants in view of ambitious renewable energy
are important when considering an investment decision:
targets. In either case, the expectation is that the MENA
region will be deploying battery storage in the future. ◼ Reliability, in terms of percentage of time that
the capacity is available when needed. Utilities
For grid applications, three critical parameters
require >99% system availability
characterize the performance of electrochemical storage
technologies and are the most important in the selection ◼ Energy and power density, amount of power or
of a technology: energy stored per unit of volume and/or weight.
Determines the practicality of a given application
◼ Power capacity rating is the rating of maximum
and technology combination particularly in space
continuous output/input being exchanged with
constrained environment.
the connected grid/device available to address
flexibility needs ◼ Calendar lifetime, time before the battery
capacity decays below usable levels (usually a
◼ Energy capacity rating, is the maximum amount
function of temperature, dynamics of operation
of energy which can be stored in the battery, and
and calendar time)
it is expressed as discharge duration at rated
power indicates how long a storage device can ◼ Cycle lifetime, number of cycles (charge
maintain its service to the connected grid/device discharge) before the battery capacity drops
output below usable levels

◼ Response time is how quickly a storage plant Efficiency, in terms of delivered power versus input power
can activate the energy exchange (charge or including cooling and heating energy, >90% is desired,
discharge) with the connected grid/device >75% is acceptable.
technology can be brought online and discharge
From a technology point of view, electrochemical systems
energy
encompass an array of chemistries, ranging from mature
Potential applications for a given technology will depend lead-acid and lithium-ion systems, to less well-developed
on the balance between these parameters. For example, approaches such as flow and Sodium-Sulphur batteries.
technologies with high power capabilities and rapid The latter have been gaining in popularity and new
response but short discharge times will lend themselves projects in China (Flow battery), and UAE (NaS) are
to applications such as frequency regulation but will being implemented. Newer battery chemistries such as
struggle with large-scale energy storage applications Zinc-air, Lithium-air, Sodium-ion and Lithium-Sulphur are
such as arbitrage. Conversely, technologies with very emerging.

19
An overview of the cost of installing various batteries as (discharge from seconds to four or five hours). These
well as future forecast is provided in Figure 8. features enable lithium-ion batteries to be used for most
applications in principle.
Due to strong synergies between power applications and
both electric vehicles and consumer electronics, much of Furthermore, massive investment by companies such as
the recent focus of battery development has been on Tesla/ Panasonic and LG Chem is pushing down costs
lithium-ion (Li-ion) batteries. (and raising production rapidly). For example, battery
packs for vehicles from some of the major players
Indeed, Li-ion systems do have a number of advantages
decreased by 85% from 2010 to 201821 and they are
for grid applications, including high energy density, rapid
expected to fall to even lower prices by 2020.
response, very high efficiencies and flexible operation

Figure 7: Mapping of battery technologies and supercapacitors: applications to key functionalities

Figure 8: Electro-chemical battery storage systems costs drops by 2030 22

21 Source: Bloomberg
22 The range of capital costs for Li-ion batteries varies significantly due to variants in cell chemistry. These variants have different trade-offs between energy
density, efficiency, safety, lifetime, etc.

20
 Improvements in technology, economies of scale and high demand for battery energy storage systems will be the main
drivers of the price drop by 2030

investment costs, efficiency and lifetime, leading to

levelized costs on average higher than lead acid
Jordan has commissioned a photovoltaic + a 12 MWh batteries, with less cost reduction potential than lithium-
energy storage system based on Tesla’s Li-ion ion and lead acid batteries. However, NaS has the great
powerpack. advantage of being reliable operating in high
temperatures, which makes the technology appealing to
Nevertheless, Li-ion batteries do suffer from some MENA markets
disadvantages. They remain still expensive (in
comparison to other energy sources), despite recent cost
These characteristics of long discharge times along
reductions. Additionally, safety remains an issue as
with high stability and reliability operating at high
electrodes are thermally unstable, which can lead to a
temperatures led to NaS being tested and implemented
thermal runaway. This means complex electronic circuitry
in the UAE where Dubai is testing an NaS energy
is needed to reduce the prospect of fires or explosions to
storage system manufactured by Japan’s NGK
an acceptable level, which adds further cost. And finally,
insulators of 7.2MWh for purposes of renewable energy
recycling of Li-ion batteries could be challenging for some
integration While Abu Dhabi is deploying more than
countries that do not master the technology and
648 MWh of NaS storage to defer investments in
processes, but other countries such as China and South
thermal generation assets.
Korea are emerging as solid players in the recycling of
batteries. Disadvantages reduce the prospects for Li-ion
Flow batteries are at the R&D stage. One of their main
batteries to be used in bulk energy-storage applications
advantages is the decoupling of energy and power. The
requiring many hours of storage capacity, e.g. back up for
main drawbacks to date include poor efficiency, low
renewable energy sources. The Disadvantages of Li-ion
energy density and the use of toxic chemicals.
batteries make them more attractive in European
Maintenance and reliability are also significant concerns.
markets, as in the MENA region, their attractiveness is
Similar to NaS batteries, flow batteries are best suited for
large-scale energy applications such as arbitrage and
stable output applications.
second to that of NaS considering that several grid-scale
applications in MENA will require +4 hours of energy Nickel-metal hydride (NiMH) batteries remain costly
storage as well as robustness operating in high today, with generally poor performance regarding lifetime
temperature environments and efficiency. They are particularly suited for frequency-
response, frequency regulation and voltage-stability
Despite poor lifetime and average efficiency, lead acid
applications. Safety under high-power charge or
batteries remain the technology with the best
discharge is an advantage versus lithium-ion
cost/performance ratio today in terms of capital cost per
technologies, and strong resistance makes NiMH
kWh and kW. There is room for further cost reduction
batteries the preferred technology for applications in the
through mass production. Disadvantages of lead acid
transportation sector and extreme conditions (e.g.
batteries include low energy density requiring batteries of
remote, off-grid).
larger dimensions and weight to produce the required
energy. Another disadvantage is the risk of pollution from Supercapacitors, which store charge in an electrostatic
toxic chemicals content. The technology is mature, but field, compete with batteries in fast response, low
new generations of advanced lead acid batteries with duration services: they have very quick reaction time and
improved performance (e.g. lifetime, energy density) very high cycle lifetime, making them particularly fit for
continue to be introduced. Lead acid batteries can be frequency regulation applications. However, they have
used in most applications except arbitrage, given their low energy density and their costs remain prohibitive
energy density and therefore limited discharge today for energy applications.
capabilities at rated output. Sodium-Sulphur (NaS)
batteries have high power, high energy density and high Costs
discharge time, and are therefore particularly suitable for
Today, the cost of battery storage technology is too high
intraday energy applications (arbitrage, self-supply &
for large capacity commercial deployments lasting for
TOU, stable output). The technology is approaching the
longer duration, other than where local regulations
maturity phase. NaS batteries rank average in terms of
incentivize its deployment (See Section 5). Values of the

21
installation cost of battery storage by technology vary and cycle), efficiency and characteristics of the application
Lead acid leads the pack with an average cost between (e.g. O&M, Charging, etc.). The levelized cost ranges are
USD 150/kWh and USD 240/kWh, Li-ion’s cost of wide, even within specific applications, however, as noted
installation varies between USD 400/ kWh and USD above the cost of batteries continues to fall, particularly in
600/kWh, whereas NaS’s cost average is around USD Li-ion, in which leading players are making huge
400, and finally flow battery’s costs vary between investments in a bid to drive down costs and penetrate
USD300/ kWh and USD800/kWh. multiple markets. Assuming past learning rates continue,
the best battery packs should become competitive with
Calculating costs is a complex exercise, since it depends
alternative energy extrapolation of learning rates is rather
on the application characteristics, the overall system
simplistic, since the costs of battery technologies are
configuration, and the average shape of the charge and
determined by factors such as raw material costs and the
discharge curves, in addition to the basic parameters of
fundamental physics of electrochemical processes, which
the battery system (capex, efficiency, lifetime, etc.). It is
may limit the ultimate potential for cost reduction. This
thus expressed as Levelized Cost of Storage (LCOS: total
may push back the date of competitiveness with
lifetime cost of battery divided by the cumulated stored
alternatives. Of course, economics are not the only
energy. The LCOS can be used as a first indicator to
determinant of technology choice; aspects such as safety
compare costs between different battery types and
and portability also play important roles and they vary per
broadly position batteries compared to more conventional
application.
generation. Since levelized costs highly depend on the
applications, they should only be compared on this basis. Below, we show an example of an LCOS analysis for 1) a
Standalone battery energy storage system (BESS), and
The LCOS of electrochemical storage technologies is a
2) A BESS coupled with PV generation.
function of the upfront capital costs, lifetime (calendar and

◼ LCOS study of a battery storage energy system (Standalone)

The Levelized Cost of Storage LCOS, analogous to Levelized Cost of Electricity (LCOE), is a metric that calculates the
cost of generating electricity from an energy storage system by considering the CAPEX, OPEX, and charging costs and
dividing it by discharged electricity in Watt-hours. LCOS is powerful because it includes calculations that include several
variables such as (cost of equity/ debt), system configuration (generated electricity, percent uptime in a year, etc.).
∑(𝐶𝐴𝑃𝐸𝑋𝑡 + 𝑂𝑃𝐸𝑋𝑡 + 𝐹𝑢𝑒𝑙𝑡 ) ∗ (1 + 𝑟)−𝑡
𝐿𝐶𝑂𝑆 =
∑ 𝑀𝑊ℎ𝑡 ∗ (1 + 𝑟)−𝑡

Where (1 + 𝑟)−𝑡 is the discount factor for year t;

Standalone BESS Use-Case Description:

1. Purpose of report: rough estimation,

benchmarking and research purposes.
2. The use-case is a pure storage project rated at
100 MW / 400 MWh.
3. The costing is based on a long list of
assumptions (input parameters).
4. The plant is connected at HV (see use case
schematic).
5. The use case assumes 1 cycle per day, 365
cycles per year.
6. The use case assumes 100% energy shift of
surplus solar PV energy.
7. The energy charging source is assumed to be a
nearby GW scale PV plant
8. The energy source cost is assumed to be USD 2
cents per kWh.
9. The model includes 1D and 2D sensitivity
analysis tables & charts for various input
parameters.

22
Exhibit -1: Key assumptions for the calculation of LCOS of a standalone battery energy storage system

Source: F2M2 Financial Model by Fadi Maalouf

23
Exhibit -2: Results of LCOS analysis of a standalone battery energy storage system

The LCOS calculations for the standalone system show that the BESS system under the assumptions of exhibit 1 achieves
an LCOS of 12.25 USDcents/ kWh for a 25 years project and 12.84 USDcents/ kWh for a 20 years analysis period. Although
promising, the BESS LCOS is still a bit more costly than the average LCOEs for most renewable energy sources (except
for CSP) and standalone BESS will have to make some strides on the cost reduction front to be competitive with other
sources as a standalone option. However, if additional revenue streams are added, e.g. grid services, then the same
system LCOS/LCOE will go down significantly.

Source: F2M2 Financial Model by Fadi Maalouf

24
 ◼ LCOE study of a battery energy storage energy system coupled with a PV system

For the second analysis, instead of having a standalone BESS, the system has a PV generator coupled to it and therefore,
the metric that will be calculated is the LCOE. When you couple a BESS with a PV generation system, the charging costs
can be reduced to zero as the PV system will be supplying energy to the BESS to store it for later use. This is a more
realistic realization and it offers a more appealing business case as showing on exhibit 4.

PV + BESS Use-Case Description:

1. Purpose of report: rough estimation, benchmarking

and research purposes.
2. The use -case is a solar PV plus BESS project:
a. Solar PV: 192 MWp / 160 MWac.
b. BESS: 100 MW / 400 MWh.
3. The costing is based on a long list of assumptions
(input parameters).
4. The plant is connected at HV (see use case
schematic page 7).
5. BESS is coupled at MV.
6. The model is built around “PU”, Per Unit, i.e.
a. per unit of storage 1 kW / 4 kWh.
b. coupled with 1.6 kWac / 1.92 KWp PV
Plant.
c. The estimated cost unit rates are based
on utility scale (100+ MW).
7. General sizing estimate:
a. if BESS AC capacity is “X”, and with 4
hours storage,
b. then PV Plant AC capacity is “1.6X”,
c. and PV Plant DC/AC ratio 1.2, and hence
PV Plant DC capacity is “1.92X”.
8. Based on preliminary analysis, such setup is
estimated to provide (90%-95% target period
capacity factor):
a. 6 hours firm “X” capacity form PV during
day,
b. and 3 hours firm “X” capacity from BESS
during evening.
9. PV plant injects 71% of its production directly to
gird.
10. PV plant supplies 29% of its production to BESS.
11. Overall Energy injection to grid percentage:
a. PV: 76%.
b. BESS: 24%.

Source: F2M2 Financial Model by Fadi Maalouf

25
Exhibit -3: Key assumptions for the calculation of LCOE of a battery energy storage system + PV

Source: F2M2 Financial Model by Fadi Maalouf

26
Exhibit -4: Results of LCOE analysis of a PV+ battery energy storage system

The LCOE calculations for the BESS+PV system show that the BESS system under the assumptions of exhibit 3 achieves
an LCOE of 5.30 USDcents/ kWh for a 25 years project and 5.69 USDcents/ kWh for a 20 years analysis period. LCOE/ LCOS
calculations for renewables + storage show that a viable business case can be obtained, which makes the adoption of
energy storage seem like inevitable in the near future.

27
PV+BESS LCOE Breakdown

PV+BESS LCOE Breakdown

Source: F2M2 Financial Model by Fadi Maalouf

28
4. Local regulation decisive in giving the
boost to battery deployment
To date, much of the development in battery
technology has been driven by the consumer device Fundamental drivers of battery storage
and, recently automotive industries. However, the We have seen in the previous section that batteries
evolution of the energy market is rapidly escalating can be used in various applications and by a broad
needs for storage technologies, meaning the power range of market players.
sector is likely to become a catalyst for cost reduction
The flexibility offered by batteries becomes even more
and technology development. Energy-market evolution
valuable as renewable energies develop and constrain
calls for more flexibility in the network, which batteries
system operation and planning. But renewable
can provide. The drivers for battery use in the power
penetration is not the only parameter driving the
sector are discussed in more detail in the following
business case for storage in particular markets. Table
section.
2 summarizes the key drivers for storage deployment
and the applications they directly address

Table 2: Drivers of battery storage

Drivers Rationale Key applications

1 High grid- ◼ Need for further flexible generation to step in/out at short notice ◼ Frequency response
renewables due to fluctuating, unpredictable power generation in the
penetration ◼ Frequency regulation
network
◼ Stable output
◼ Tends to increase price differentials in the market through
introduction of low marginal generation costs (see Driver
5)
2 Degree of ◼ Pressure on the distribution network to accommodate new and ◼ Frequency response
physical unpredictable generation capacity in the network
decentralization ◼ Frequency regulation
of renewable ◼ Stable output
generation
assets ◼ Voltage stability
◼ Congestion avoidance
3 Low flexible ◼ Reflects low flexibility in the system to accommodate ◼ Frequency response
capacity intermittent renewables
margin ◼ Frequency regulation
◼ Tends to go along with expensive generation at the margin,
◼ Stable output
leading to high prices at peak periods (Driver 5) and high retail
electricity prices (Driver 6) ◼ Peak shaving
4 Poor security of ◼ Provision of enhanced security of supply with battery systems ◼ Self-supply & TOU
supply (coupled or not with renewables) at all times or during network
outages

Enablers Rationale Key applications

5 High peak/base- ◼ Benefits the battery-storage business case by increasing ◼ Arbitrage
load price spread revenues from charging/ buying electricity during low price
periods and selling/discharging during high price periods
◼ Price spread is closely related to the generation mix, including
renewable share and capacity margin

6 High electricity ◼ Incentives for optimized self-production through a combination ◼ Self-supply & TOU
retail prices of self- generation (from PV, for example) and storage (e.g.
store surplus for later usage)

29
High renewable penetration (grid and distributed) and A selection of countries has been mapped against these
tight flexible-capacity margin have been identified as key two drivers, allowing identification of high-potential
drivers, conveying an indication of both flexibility needs countries for battery deployment, on Figure 9.
and the underlying economics (e.g. price spread and
retail prices).

Figure 9: Countries mapped against key drivers of battery deployment 23

capacity margin
Low firm

Jordan Lebanon Archetype VI: Low renewable

Lithuania Archetype IV: Moderate renewable penetration, low
capacity margin large size systems
penetration, Low capacity margin
Latvia
France
Morocco US
Archetype V: Moderate renewable penetration, Finland
Moderate capacity margin, small size systems
Egypt
Austria
Archetype I: High renewable
Italy Greece penetration, low/ moderate capacity
margins Slovakia
Lux Ireland
Czech
Bulgaria
UK

Cyprus Slovenia Spain Portugal

Belgium
Nether-
lands Germany
KSA Croatia Malta
Archetype II: Low renewable
Denmark
penetration, moderate capacity margin
UAE Hungary Sweden
Poland
Archetype VII: Low renewable
penetration, moderate capacity
margin Romania
capacity margin
High firm

Archetype III: High renewable penetration, moderate

capacity margin
Estonia

Low renewables High renewables

penetration penetration

Renewables penetration is the ratio of renewable energy generation to the total electricity produced in the country. The
countries with the most appealing case are the countries that have a high renewable penetration as a higher
renewables’ penetration suggests that energy storage is inevitable. For instance, Germany is famous for developing a
lot of renewables projects, but the penetration is still relatively lower. Germany is an interesting case for energy storage,
and although the most interesting cases for energy storage are the ones with lower capacity margins and high
renewable penetration, Germany is an exception to this rule

This framework highlights groups of countries that face interconnection, distributed conventional generators,
similar constraints, representing potential for battery DSR) as well as cross border flexibility as is the case for
deployment. Germany. Despite high costs, key competitive
advantages of battery storage compared to alternative
Among these high-potential groups are countries at the
storage technologies and business models are rapid
forefront of storage development and deployment, such
deployment31 (versus the development of connections,
as Italy, the United States, the United Kingdom and
interconnections and hydro-storage) and reliability
Germany. On the other hand, other markets under similar
(versus demand-side management);
conditions have, until now, only seen very limited
development of batteries. This could be explained by: Lack of strong political involvement to clarify the
regulatory framework and market mechanisms and lack
The development of alternative storage technologies
of willingness to bring down the major cost barriers left
(hydro- storage and pump-storage plants, CAES,
today. Examples of levers include clarifying the role of
flywheels, power to gas) and/or alternative business
TSOs and DSOs related to storage, reviewing the
models, providing indirectly similar flexibility services (e.g.

23 Firm capacity margin evaluated based on installed intermittent capacity, incl. interconnection on peak demand; renewable penetration evaluated based on
intermittent renewable installed capacity at peak demand

30
procurement of system services (eligibility and each amounting to a total capacity of 300 MW with a
combination of services) and reconsidering taxes and storage capacity of 210 MWh. Lebanon battery storage
fees on storage to avoid double charging (load and tender is the largest in the region. The country sought the
generation). help of the European Bank of Reconstruction and
Development to manage the tendering process for the
In the Middle East, the main drivers for the deployment of
construction projects and received 75 Letters of Interest
battery energy storage systems will be the adoption of
in 2018.
renewable energy sources in countries with low capacity
margins and high dependence on energy imports to meet Jordan is another Middle Eastern country that is expected
their energy demands. The battery storage systems are to undertake several renewable energy projects that will
starting to be deployed for the purposes of output lead to growth in the adoption of battery storage systems.
stabilization and are mainly deployed at the generation Jordan’s growth in the use of renewable energy is
side of the network. motivated by the country’s desire to break away from the
dependence on imported fuel for energy generation and
Several Middle Eastern governments are putting in place
therefore, the country has been working on the
policies to facilitate the adoption of renewable energy
development of renewable energy plants. The country’s
sources to be able to meet their energy needs and break
strong push for the adoption of renewable energy led to
away from the dependence on imports of energy. As an
two projects; One project coupling photovoltaic
example, Lebanon relies on the imports of energy from
generation with Li-ion battery energy systems of a
Syria and Egypt through the interconnected grid.
storage capacity of 12.6 MWh and a second project as
However, the instability in Syria and increase in the
standalone battery plant of storage capacity of 60 MWh.
demand for energy in Lebanon led to serious issues with
securing stable energy supply which is negatively Another example of progressive policies in the MENA
impacting the economy of the country. This has led the region, is the case of Morocco that has worked with Abu
country to adopt the resolution of increasing the supply of Dhabi based consortium Masdar to provide electricity
energy from renewable sources and rely on storage to through a rooftop photovoltaic panel coupled with a
ensure stability of output. Lebanon is planning on building battery system to 19,000 rural homes.
3 photovoltaic plants of 100 MW capacity each coupled
with battery storage system of a minimum of 70 MWh

Deployment status, enablers and alternative

Archetype I: High renewable penetration, low/ moderate capacity margin Austria

Austria is one of the leading countries in the development of renewable energy, with 33.5% of its total energy
consumption and 72% of its gross electricity consumption generated from a renewable energy source. The
country is a strong developer of pumped hydro storage, being one of the earliest countries in the EU to build PHS plants.
Its plants date back to 1890s. Its efforts carry on till today, being heavily invested in the development of battery energy
storage capacity. In 2017, the government amended its Green Electricity Act, introducing additional subsidies for PV
systems and energy storage amongst others. For the combined PV and energy storage category, the government
allocated 15 million Euros for 2018 and 2019, of which 40% can be directed towards energy storage. This does not only
apply to greenfield energy storage projects, but also expansions of existing ones. Upon the launch of this program,
OeMAG, The Clearing Agency for Green Electricity, received 3,000 applications in the first 5 minutes, compared to
receiving the same volume in 10 minutes the previous year, signaling an increase in demand one year after the other. The
increase in demand is expected though given the target that was set by Austria’s government to generate 100% of its
electricity from renewable sources by 2030.

For instance, the funding in Austria offers a subsidy of EUR 500 per kWh of storage capacity with a maximum subsidy
amount of 45% of the investment costs. The country has cut the sun tax that was mandating that consumers of solar
energy pay if they consume beyond a certain amount of energy from solar, and the newly elected government has agreed
to put aside €36 million per year from next year to 2022 to fund solar and energy storage as part of the green electricity
package

The Austrian energy storage market, driven by high renewable penetration, is already at a relatively advanced stage and
considering the countries targets, and the current market dynamics, the energy storage market will continue to grow in the
coming years. As per Bavarian battery developer Sonnen, the orders for batteries in the Austrian market is growing and
the expectation is that this growth will be sustained over the next years

31
Archetype II: High renewable penetration, moderate capacity margin
U.K. Spain Germany
The United Kingdom is one of the key battery markets in Europe:

◼ Changes to the policy and regulatory landscape are ongoing to further support
the deployment of batteries. The launch of a call for evidence was announced for summer 2016 to investigate
ways to facilitate use of flexibility before a reform is proposed by Spring 2017.

◼ National Grid foresees 1 GW of non-pumped storage by 2020, providing regulatory barriers are removed.

◼ In response to the flexibility challenges already faced today in the UK, National Grid ran the Enhanced
Frequency Response auction during summer 2016, which resulted in 200 MW battery storage clearing the
auction, with April 2017 as the earliest start date.

◼ In the Irish Single Electricity Market, where the share of renewables is higher than in the UK, AES recently
commissioned a 10 MW battery to provide fast-response ancillary services and initiated the first step of a
planned 100 MW battery project.

On the other hand, the deployment of battery storage at the residential level remains limited in the UK: residential PV is
less developed, battery prices are too high, and subsidies are insufficient compared to the retail price.

Battery storage competes with other flexibility tools on the market such as interconnectors, flexible generation and
demand-side management. Distributed conventional generators, in particular diesel generation, have lately had
significant success with current grid challenges in the UK. Responding to market signals, distributed conventional
generators are regaining interest with VIUs, generators and merchant players to generate revenues from capacity
mechanism and ancillary services and reduced network charges (TRIADS).

About 1.1 GW small-scale distribution connected generators cleared the capacity mechanism auctions, hoping to
capture revenues not only from the capacity mechanism, but also through embedded benefits that include the avoidance
of transmission network charges. Stand-alone batteries today did not succeed in clearing the CM auctions, and hybrid
renewables/batteries so far have not been allowed to participate in it.

The UK government, through National Grid, is also supporting demand-side response as a tool to provide flexibility to
the grid. In fact, demand-side response is increasingly seen as a potential contributor to frequency response through the
intermediary of aggregators (more details in ADL’s Viewpoint on Demand Side Management - Untapped Multi-Billion
Market for Grid Companies, Aggregators, Utilities and Industrials?).

The business model consisting of incentivizing end consumers to reduce their consumption or switch to behind-the-
meter generators to respond to grid requirements has been widely tested and enabled through regulatory changes. But
the extent to which operators could rely entirely on third-party response and substitute assets, providing flexibility with
DSR, has not been fully proven yet.

Demand-side management is not necessarily competing with storage applications and can be complementary to
storage. In fact, batteries could be used as a complement to behind-the- meter generators (e.g. hybrid generators) and
activated through demand-side response.

In conclusion the market development of energy storage in the U.K. will have to be closely monitored in the future as
conflicting evidence suggests that within the U.K. certain trends suggest that there will be space for grid stability in the
U.K. but the threat from substitutes such as generators might impede the development of the energy storage market.

Battery deployment in Spain remains very limited despite a high share of renewables in the network. The government
started cutting back on subsidies for renewables in the past five years, and the new self-consumption law adopted at the
end of 2015 is expected to adversely impact residential battery storage. Under this new law, hybrid battery-storage
owners will not be able to decrease their maximum connection capacity and therefore benefit from lower network
charges. So, although market fundamentals (e.g. high deployment of PV panels, relatively high retail prices) are present
in Spain for the widespread development of residential battery storage for self-consumption, the absence of incentives
slows down the deployment of battery storage. Especially, considering that serious alternatives exist for Spanish
households when it comes to clean energy sources. Spain’s adoption of battery storage will not be driven by subsidies
only, but also, market designs and an update in the regulatory framework will facilitate deployment when the country
decides to move in that direction.

32
The German power system is characterized by moderate (as a percentage of total generation) penetration of distributed
(PV) and centralized (wind) renewable generation, and a residential storage market on the rise. Policy measures have
been promoting hybrid distributed systems (PV + batteries) for more than 4 years now, in order to accommodate
distributed renewable penetration in the grid. The KfW programme 275, for example, provided a 30 % investment grant
for equipment purchased with low-interest loans until the end of 2015 to residential customers who could see their on-
site consumption increased with batteries. While high retail prices also facilitate the business case for residential
batteries, incentives are playing a key role in a market where the average state of charge of batteries approaches is low
over the first three months of the year. Potential savings achieved with residential battery storage for self-consumption
are fundamentally lower in Germany than in other markets, such as California, which benefits from favorable irradiation
all through the year.
Compared to the residential sector, the industrial and commercial (I&C) sectors have so far lagged behind. And still,
retail prices are high, capacity margin is decreasing with the closing of nuclear plants, and I&C-owned renewables are
ever growing. But the incentives for German I&C are not there: network charges and tax regimes do not promote I&C
storage. Furthermore, Germany’s high interconnectedness with neighboring markets means that excess supply is better
sold to neighboring countries than stored and kept for self-consumption or for later hours in the day. In a nutshell,
integrated power grids via interconnections lead to a smoothing impact on power-price spreads and volatility, which
goes against part of the battery-storage business case.
In Germany we can see how market rules can inhibit business cases. According to the renewable energy act (EEG)
curtailed power from renewables is payed to the operator. Otherwise, this would be a positive business case.

Archetype III: Moderate renewable penetration, low capacity margin,

USA
large size systems
In the U.S. market Activity in the battery storage market is highly dependent on the state. California is one of
the states with the highest renewable capacity (wind and solar), and a leader in battery storage deployment.
Its 30% penetration rate of renewables and 70%–30% split of solar capacity between utility-scale solar and distributed PV
has driven the deployment of battery storage at both grid and residential levels.
Beyond favorable fundamentals, the deployment of battery storage is supported by relatively high residential tariffs and
strong regulatory signals, with California’s Public Utilities Commission setting clear targets that require utilities to build
energy-storage capacity and clarifying the market rules for behind-the-meter battery aggregation. Southern California
Edison (SCE) acted as first mover and bought 261 MW of energy storage by the end of 2014, 100 MW of which were from
AES and 85 MW from Stem (both battery storage). Stem also recently won close to 1MW capacity in the demand-side
response (DSR) auction held this summer by Con Edison for the state of New York, testifying to the complementarity of
battery storage and DSR.
The state of New York is also one of the early adopters of battery storage, and currently clarifying market rules for
enabling battery storage to access the market. In the PJM (Regional Transmission Operator, part of the Eastern
Interconnection grid), the creation of fast regulation reserve combined with pay-for-performance framework introduced by
the Federal Energy Regulatory Commission have promoted the development of battery storage with about 250 MW
energy storage (flywheel and battery storage) installed to date. However, the decrease in clearing prices, namely due to
falling oil prices, have raised concerns on the economics of battery storage.
Other parts of the United States, such as the Northwest, will likely be later adopters given their significant hydro-resources
and the flexibility provided by hydroelectric and pump storage, which are enough to manage current levels of renewables.

33
Archetype IV: Moderate renewable penetration, moderate capacity
Greece Italy USA
margin, small-size systems
Island markets have seen a lot of activity in battery storage. The unique challenges faced
improve the business case for battery storage: networks are more quickly saturated given their smaller grid size and
higher generation costs driven by more expensive generation mixes (e.g. diesel generators). Battery storage is an
opportunity for these markets to support the development of renewable energies, support decarbonization of markets
often heavily reliant on oil-fired generation, decrease exposure to oil prices and potentially reduce costs. Island markets
also have fewer available alternatives to add flexibility to their systems: pump-storage plants are often not an option, and
interconnection is weak if existent. So, it is with no surprise that most countries have concentrated their pilots on these
islands when possible: La Gomera and La Aldea de San Nicolas (Canary Islands) in Spain, Azores (Graciosa Island) in
Portugal, Tilos in Greece, La Réunion in France, Sardinia and Sicily in Italy, and Hawaii.

Pilots have so far focused on grid-scale batteries within hybrid configurations or stand-alone providing support to the grid
to enable renewables integration.

In Hawaii, where about 90% of solar capacity is distributed PV, HECO recently announced it would finance and deploy
residential storage to resolve grid congestion and enable more distributed PV to connect to the grid. This is one of the
few examples where utilities are paying for and remotely operating residential storage. A couple of grid-scale hybrid
configurations have also been announced: Ambri battery storage next to a wind farm on Oahu’s North Shore, and
SolarCity’s solar PV battery project on Kaua’i.

Some islands
Archetype haverenewable
V: Low made energy storage mandatory
penetration, for margins,
high capacity every new renewable plant in the system in order to better
manage
need for intermittency: Puerto Rico, La Réunion, Guadeloupe, Martinique and Azores.
energy mix shift UAE KSA
The UAE and KSA are two Middle Eastern countries with considerable potential for the adoption of
renewable energy and battery storage systems. Both countries have expressed strong interest in
breaking away from the generation of electricity from fossil fuels and the adoption of renewable sources to meet energy
demands and environmental targets

The Dubai Electricity and Water Authority (DEWA) has been constructing the largest solar park in the world in Dubai under
the name of Mohamed Bin Rashid Al Maktoum Solar Park as a five-phase project amounting to a total value of 5 GW
generation capacity from solar sources (Photovoltaic and Concentrated Solar Power).

The fourth phase of the solar park has achieved many world records. It will have the world’s tallest solar tower, at 260
meters, and the largest thermal energy storage capacity in the world of 15 hours, which allows for energy generation round
the clock. It also achieved the lowest Levelized Cost of Electricity (LCOE) of 2.4 US cents per kilowatt-hour (kW/h) for the
250 MW photovoltaic solar panels technology and USD 7.3 cents per kW/h for the 700 MW CSP technology, the lowest
worldwide. DEWA has trialed the installation of a network attached storage battery system of a 7.2 MWh capacity built by
NGK insulators. The battery system was connected to the first section of the solar park to stabilize fluctuations in the solar
output, plus other grid applications (e.g. energy time shifting and frequency control)

In Abu Dhabi, the department of energy (formerly Abu Dhabi Electricity and Water Authority) has inaugurated a 108 MW/ 648
MWh Sodium-Sulfur (NaS) battery plant which is the largest battery plant in the world with a size 5-times that of the Lithium-
ion plant installed by Tesla in Australia.

The ambitious targets of the UAE to produce 60% of its electricity demands from clean energy will be a major driver for the
adoption of renewable energy sources. But also, the emergence of new players like Enerwhere in the country with innovative
business models in terms of providing photovoltaic panels coupled with batteries and diesel generators will accelerate the
adoption of such systems for off-grid applications such as construction sites.

Similarly, KSA set out very ambitious renewable energy targets and had signed a memorandum of understanding with
Japanese investment firm Softbank to finance the development of 200 GW worth of renewable energy projects to boost the
KSA economy and limit the dependence on fossil fuels. French EDF was expected to build 10 GW worth of battery storage
system but project was called off.

Despite halting the project in KSA, experts anticipate that several projects will emerge in KSA and that battery energy storage
systems adoption will grow as a result. In KSA as well as in the UAE, the increase in the penetration of renewable energy
sources (e.g. the country has increased its renewable energy targets from 9.5 GW in 2022 to 27.5 GW by 2040) at the
generation side will turn out to be the main driver for the increase in demand for energy storage systems.

34
Archetype VI: Low renewable penetration, low capacity
margin, dependence on energy imports Lebanon Jordan Morocco Egypt

Lebanon has been facing serious issues with balancing its electricity supply
and demand. With a total generating capacity of 2 GW and a recorded demand
peak of 3.4 GW, experts estimate that Lebanon’s supply-demand gap is on average as high as one 1 GW. The discrepancy
in supply and demand along with the fact that Lebanon relies heavily on imports for its energy suppliers made the country
adopt the resolution of launching ambitious renewable energy projects. Lebanon is planning to boost its energy supply
capacity with a handful of renewable energy projects to improve the reliability of its energy supply and respond to the
increasing demand in the country.

Lebanon is planning on building 3 photovoltaic plants of 100 MW capacity each coupled with battery storage system of a
minimum of 70 MWh each amounting to a total capacity of 300 MW with a storage capacity of 210 MWh. Lebanon battery
storage tender is the largest in the region. The country sought the help of the European Bank of Reconstruction and
Development to manage the tendering process for the construction projects and received 75 Letters of Interest in 2018.

Therefore, opportunities in Lebanon in the battery storage market are mainly driven by the unreliability of the energy supply
leading up an increase in the adoption of renewable energy that are coupled with battery storage systems to ensure a 24/7
energy supply in the country.

With low renewable energy penetration, Jordan and Morocco rely on energy imports (fuel) to meet their energy demands.
The countries respective governments have ambitions to increase their share of renewable energy in the generation mix and
strong projects have been undertaken.

Jordan is expecting that 20% of its total electricity requirements will be produced from renewable energy by 2025. The
country has been closing in on its targets and by 2018, Jordan was producing 1.13 GW (accounting for 11% of its total
electricity requirements) from renewable energy sources and announced that this amount will double by 2021.

The country’s strong push for the adoption of renewable energy led to two projects; One project coupling photovoltaic
generation with Li-ion battery energy systems of a storage capacity of 12.6 MWh and a second project as standalone battery
plant of storage capacity of 60 MWh. The increasing adoption of renewable energy will have a positive impact on the
installation of battery energy storage systems for generation stabilization and peak shelving purposes.

Morocco, with a total electricity capacity in 2017 of 9.0 GW, has ambitious renewable energy targets of generating 42% of its
energy from renewable sources by 2020 and 52% by 2030. The country has seen important developments in the adoption of
renewable energy with its solar complex in Ouarzazate, Agadir. The solar complex relies mainly on concentrated solar power
(CSP) mirrors and uses thermal energy storage. Additionally, the country built a concentrated photovoltaic plant coupled with
a battery storage system with the help of Japanese company Sumitomo Electric Industries.

Another driver in Morocco is the implementation of home rooftop projects coupled with battery storage system in rural areas
where connections to the grid are challenging to establish. In a project, in collaboration with Masdar, the national office for
electricity and water has implemented a project for 19,000 homes supplying them with rooftop photovoltaic panels and battery
storage systems.

Although Egypt’s reliance on energy imports is not as significant as Jordan’s and Morocco’s, Egypt’s renewable energy
targets of increasing generation from 3% in 2016 to 20% by 2022 is an ambitious target that is expected to boost the
development of renewable energy projects in the country. The country started work on a new PV plant coupled with battery
energy storage for a capacity of 30 MW through a contract with the Japanese government of a value of USD 89mn and it is
anticipated that other projects will follow
Other drivers for adoption of battery systems in Egypt will be the installation of PV panels coupled with battery storage
systems on rooftops of homes where grid connections are challenging to establish. Masdar led a project in Egypt to supply
7,000 homes in Egypt with clean energy.

35
5. Concrete use cases for battery
applications in MENA
A. Battery energy storage projects in UAE
1. First Tesla Powerpack in the Middle East

Enerwhere, an SME based in Dubai, UAE, set up the first Tesla Powerpack in the Middle East in 2017 as part of a microgrid for a
construction contractor in DIFC, Dubai. The system comprised of 40 kWp solar, 250 kVA of generators and 100 kW, 190 kWh of
storage. An outline of the system and some pictures are shown below

36
 2. Lithium Iron Phosphate (LFP) ESS installation in Abu Dhabi

The first LFP based energy storage system in Abu Dhabi was installed for a waste management facility. The end client for this
solution is Tadweer. This system comprised of 150 kWp of solar and 100 kW, 200 kWh storage system. This solution reduces the
dependency on diesel by 80% in the summer and in winter it runs ~98% on solar energy only. This is also the first LFP based
energy storage system in the UAE. Below are some pictures.

3. Abu Dhabi home to world’s largest ‘virtual battery plant’

Region’s first grid scale battery deployment and the world’s largest virtual battery plant with a capacity of 108 MW distributed
over 10 sites has been setup across Abu Dhabi. Although the battery units have been fitted across 10 different locations, the
department of energy in Abu Dhabi can control it virtually from a single location.

The 108 MW/648 MWh sodium-sulfur battery plant opened in January 2019 and is about five times the size of the Tesla
battery system installed in Hornsdale, Australia in 2017.

The Abu Dhabi department of energy opted for NGK NaS batteries for this system considering NaS batteries’ long discharge
time as well as their capacity to withstand high temperatures (Up to 300 degrees Celsius) which makes them ideal for
operation in the Arabian desert.

37
B. Energy storage installation in Jordan

A 3MW/12.6 MWh lithium ion energy storage system has been setup near Mafraq, in northern Jordan, at the 23 MWp solar PV
park of Philadelphia Solar. It was commissioned in February 2019. The customer Philadelphia Solar quotes:
“The new power plant’s purpose is to enhance the grid by power peak shaving and power shifting to increase the stability of the
grid and support the grid at peak load hours. Additionally, it will also enhance the availability of energy during daytime hours and
the remaining Energy will support the grid during nighttime Hours.”

38
6. Conclusions: fast move for some, wait
for others – shape for all
Battery storage is expected to play an important role in Combined ownership is considered the most likely,
responding to the current challenges posed by the economically viable solution for system operators.
deployment of renewables. However, today there are a
For residential hybrid PV/storage, current commercial
number of barriers to its implementation, such as
developments show that the opportunity is now
regulatory uncertainty, commercial models, maturity of
where incentives are in place. In leading markets
technology and associated costs.
such as California, VIUs are entering the battery
In the short term, the deployment of battery storage in storage market to broaden their commercial offers.
specific markets will depend not only on market Also, the role of aggregators continues to expand to
characteristics (e.g. renewables penetration, cover battery storage, either as software providers or
interconnection rate, generation mix, network topology technology operators, though somewhat slowed
and system size), but also on the regulatory framework, down by the regulatory framework, access to
incentives and commercial models: ancillary services and energy market.

Grid-scale storage for frequency regulation and Deployment of battery storage by industrial and
stable output applications are seen as the most commercial customers is likely to remain limited in
promising applications today. the short term given the current challenging
economics, except for the telecom industry
It has significantly developed in countries such as
presented with challenges related to accessibility and
Japan, the US (California) and Germany, residential
security of supply.
battery storage finds positive business cases only
with strong public support. For grid-scale applications, it is time for early
adopters. Power utilities are stepping into the market
Combination of applications is essential today to
and a series of large-scale commercial battery
stack revenue streams and build a positive business
storage contracts have been announced over the last
case; current market design (definition of ancillary
year, providing flexibility services (e.g. frequency
services, access to grid services and the possibility
response, frequency regulation) to the grid and
of stack services) often doesn’t support this, hence
benefit from arbitrage. Island markets, under the
the business case will continue to be challenging in
initiative of system operators, have been leading the
the short to medium term to provide individual grid-
market in terms of grid-scale battery deployment
support services
(combined with renewables to stabilize output or for
System operators have so far been very cautious frequency regulation) by power utilities and, in some
regarding the integration of batteries in their particular cases, directly by system operators.
portfolios and limited themselves to pilots. In most
Vertically integrated utilities (VIUs) in the MENA
countries system operators are restrained from
region will be able to integrate energy storage with
developing battery storage solutions beyond pilots
their renewable projects as vertical integration offers
because of the regulatory definition of battery storage
more room for utilities to deploy energy storage with
and its interference with energy market mechanisms.
various applications (e.g. frequency response, peak
Opportunities for TSO/ DSO are more promising in demand response, or output stabilization). It is
MENA countries considering that distribution and anticipated that the adoption of renewables in the
transmission for the most part is performed by the MENA region will play major role in facilitating the
utilities themselves, so they can exploit the full deployment of battery storage.
spectrum of applications from generation to
transmission and distribution.

So, is it too early for battery storage?

“Battery storage is a fast move today for some actors in the value chain and a wait for others. But all actors can shape the
market and must develop their strategy now if they don’t want to turn up late at the party.

39
Dii shareholders:

ACWA Power is a developer, investor, co-owner and operator of a portfolio of power

generation and desalinated water production plants currently with presence in 12 countries
including in the Middle East and North Africa, Turkey, Southern Africa and South East Asia
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Grid & Infrastructure, Retail and Renewables, it addresses the requirements of a modern,
decarbonised, decentralised and digital energy world. The focus of innogy’s activities is on
offering existing and potential customers innovative and sustainable products and services
which enable them to use energy more efficiently and improve their quality of life.

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lifelines, SGCC's core business is to build and operate power grids and provides secure and
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