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Purpose of Review Energy storage systems are becoming important agents in electricity markets. They are deployed to support further integration of renewable energy sources and can offer various services to the network operators. Recent Findings As the European electricity network operation moves toward market-based decision-making, it is necessary to ensure a fair playground for all participants. This implies adaptation of regulatory framework and market rules to allow unobstructed participation of energy storage in markets at all levels. Summary This paper aims at providing a brief overview of the status of energy storage in European market framework, identifying the obstacles and proposing actions to overcome them.
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Energy Storage Integration in European Markets
Marija Mileti´c ·Hrvoje Pandˇzi´c
Received: date / Accepted: date
Abstract Energy storage systems are becoming important agents in electric-
ity markets. They are deployed to support further integration of renewable
energy sources and can offer various services to the network operators. As the
European electricity network operation moves toward market-based decision
making, it is necessary to ensure a fair playground for all participants. This
implies adaptation of regulatory framework and market rules to allow unob-
structed participation of energy storage in markets at all levels. This paper
aims at providing a brief overview of the status of energy storage in Euro-
pean market framework, identifying the obstacles and proposing actions to
overcome them.
Keywords energy storage ·European market design ·policy
1 Introduction
Traditionally operated in centralised way and planned robustly, today’s power
systems are going through a paradigm shift caused by high penetration of
renewable energy sources (RES). Large quantities of RES installed in both
the transmission and distribution networks induced changes in ways the two
systems are run and planned. To ensure stable grid operation, more and more
flexibility sources are necessary, which brought energy storage into the equa-
tion as one of the environmentally acceptable options. However, it must be
noted that the emission-reducing property of energy storage unfolds at high
penetration of RES, while at the lower penetration levels it can even have the
opposite effect. Energy storage is now being installed at the transmission and
M. Mileti´c
Unska ul. 3, Zagreb, Croatia
H. Pandˇzi´c
Unska ul. 3, Zagreb, Croatia
2 Marija Mileti´c, Hrvoje Pandˇzi´c
distribution grid levels, but also at the end-user level to ensure high utilisation
of the energy produced by RES. Energy storage is considered for other pur-
poses besides RES integration, such as an alternative to network investments,
and as a congestion management tool, changing the traditional approach to
network planning.
Energy storage is not a new technology. Pumped-hydro-power plants have
been an important part of the modern power systems since almost their be-
ginning. In the past they were usually used for energy arbitrage charging
when consumption is low and discharging when it is high. Restructuring of
the European power system, which begun in the nineties and continues to-
day, made way for independent investors instead of the traditional regulated
utilities. The independent investors are concerned with ensuring the return
on their investments by making profit in the markets. Furthermore, the latest
Electricity directive (EU) 2019/944 [1] prohibits the system operator’s own-
ership over energy storage, requiring that a fully competitive market entity
owns and operates storage. It was proven in simulation as well as in practice
that investments in energy storage cannot be justified by arbitrage only [2].
Therefore, in order to stimulate investments in energy storage, it is necessary
to open multiple markets to energy storage participation.
2 Drivers and obstacles
In the document ”A Clean Planet for all” [3], European Commission presented
a long-term strategy to direct EU toward a competitive and climate neutral
economy. According to this document, energy storage will have an important
role in reaching CO2neutrality by 2050. The issue of competing technologies,
such as demand side management, is presented in the said document as well.
However, the conclusion is drawn that, in order to reach the EU-level goal of
total carbon neutrality by 2050, all the technologies will need to be employed
Although it was shown that increasing the usage of RES in combination
with batteries decreases negative impacts on the environment, it can also
cause increase in fresh water contamination and depletion of mineral sources
[4]. Negative implications of battery storage are considered by the European
Commission’s European Battery Alliance. The main goal of this incentive is
to stimulate research and investments related to sustainable battery technolo-
gies, accounting for environmental impacts of their production, utilisation and
disposal [5].
Long-term energy storage is a standing issue in power systems today [6].
The long-term energy storage services were traditionally provided by hydro-
power plants [2]. Their main downside is the scalability issue it is infeasible
to build small-scale pumped-hydro facilities. This is one of the reasons why so
much effort is placed in investigating power-to-gas (P2G or P2X) technology,
e.g. hydrogen storage [3,7].
Energy Storage Integration in European Markets 3
Many European countries with weaker interconnection capacities and in-
ternal grids vulnerable to congestion are turning to energy storage [8]. In this
context, using energy storage for ensuring the N-1 criterion was investigated
[9]. Moreover, many countries with autonomous islands are replacing diesel
generators on these islands with hybrid RES-storage facilities to avoid high
costs of fuel imports and reduce contamination in the islands [10,11].
3 Legal and regulatory framework
Energy storage was considered in many studies as support for photovoltaic
systems and various other applications in the distribution grids. It was shown
in [12] that there is a large potential for distributed battery storage systems,
with conclusion that grid planners and policy makers should start considering
them as a system asset. However, Electricity directive [1] from ”Clean energy
for all Europeans” legislative package defines only special circumstances un-
der which the transmission and distribution system operators are allowed the
ownership of energy storage. These circumstances include scenarios in which
it can be proven that the system operator is the only agent ready to invest in
energy storage within a specified time frame and that the storage system is
indispensable for stable operation of the grid. As the directives are legal docu-
ments that require implementation into the member states’ national laws, the
consequences of this provision remain to be seen.
A recent report published by the Agency for Cooperation of Energy Reg-
ulators (ACER) [13] provides an overview of network tariffs charged to the
generators, consumers and energy storage. The report differentiates pumped-
hydro and other storage facilities, but for the sake of brevity we take them
as one. About half of the countries represented in the report do not charge
generators for injection charges and therefore the energy storage is not charged
either. However, 13 countries (Austria, Belgium, Denmark, Finland, France,
Ireland, Norway, Portugal, Romania, Slovak Republic, Spain, Sweden and the
UK) apply injection charges to the generators. Out of these countries, the same
charges apply to the storage as well, except Slovak Republic and Belgium, as
well as France and the UK in some cases. Withdrawal charges are applicable
to the consumers in all the represented countries, but there are some that
explicitly exclude storage facilities from these charges (Italy, Latvia, Lithua-
nia, Poland, Portugal, Slovak Republic and Slovenia). Therefore, with some
exceptions, the countries that have some kind of injection network charges
set up, energy storage is charged both when withdrawing and injecting power
into the grid (Figure 1). The fact that it happens in many European countries
is a result of energy storage being seen not as a standalone entity, but as a
hybrid between a load and a generator. This is problematic because it makes
energy storage less competitive to generating units and consumers, who pay
the network charges only once.
Similarly, distribution grid-connected energy storage is often considered a
combination of a consumer and a producer. For example, the Croatian Dis-
4 Marija Mileti´c, Hrvoje Pandˇzi´c
Fig. 1 Network charges for energy storage in selected European countries
tribution grid code does not include energy storage as a separate entity, but
defines it as a subset of prosumers [14]. This categorisation implies that energy
storage connected to the distribution grid can only trade electricity with its
supplier in the retail market and cannot gain access to the wholesale market
on its own nor through an aggregator. A contract with a supplier entails not
only energy costs, but also VAT, renewable energy support charges and other
socialised charges that consumers pay, but not the generators. Consequently,
energy storage connected to the distribution grid have even more limited profit
opportunities in comparison to the ones connected to the transmission grid.
There are, however, countries such as Italy where distribution grid-connected
energy storage systems are regulated fairly as stand-alone entities. Potential
for using energy storage for active and reactive power regulation in Italian
low-voltage grids is explored in [15].
Energy Storage Integration in European Markets 5
4Techno-economic properties
While pumped hydro-storage is a mature technology without forecasted cost
reductions until 2030, the remaining energy storage technologies have a po-
tential for installation cost reductions, ranging from 20% for compressed air
storage, to between 54% and 61% for lithium-ion battery technologies [16].
Such large cost reduction potential for electrochemical storage technologies is
owed to their low maturity level. Similarly to cost reductions, improvement
in technical parameters for all storage technologies is expected in the com-
ing years. Because of their maturity, large changes in technical parameters
such as energy efficiency, energy density and cycle life are not anticipated for
the pumped hydro and compressed air units. On the other hand, new ma-
terials and inventions are deemed to increase these properties for all other
storage technologies, especially electrochemical. For example, cycle life is ex-
pected to double for selected lithium ion as well as lead-acid technologies and
to increase by 50% for sodium-based batteries [16]. A reader interested in a
thorough overview of the state-of-the-art in energy storage technologies and
recommendations for future research directions should refer to [6].
Energy storage technologies’ costs and benefits were investigated by many
researchers, e.g. [17,18, 19]. The general conclusion is that the costs are cur-
rently too high to justify the investments in energy storage for most applica-
tions. However, various factors can influence their profitability, e.g. political
decisions or incentive schemes for other technologies [8]. Prices of batteries are
mostly driven down by the growth of electric vehicle and consumer electron-
ics industry. Programs such as the World Bank’s incentive for investments in
energy storage in less-developed countries [20] are certain to push the prices
even lower. By directing the research activities and promoting recycling and
reuse of old batteries, incentives like European Battery Alliance will influence
future price trends at the EU and global level as well.
5 Market participation
The ”Clean energy for all Europeans” package aims through the Electric-
ity regulation [21] at unifying the wholesale markets throughout Europe. Al-
though organisational differences between various day-ahead markets do exist,
the issue of unified day-ahead electricity market for the entire Europe was suc-
cessfully tackled by introducing the Euphemia algorithm [22, 23]. Nonetheless,
market rules are specific to each country so the integration of energy storage
remains an issue in most of Europe. Article 8 of Regulation (EU) 2019/243
[21] sets a rule for minimum bid size of 500 kW or less in all day-ahead and
intraday markets, which will make the market participation a more attain-
able goal for many smaller system assets. The same Article sets the imbalance
settlement period at 15 minutes, unless regulatory authorities allow an excep-
tion. This will be beneficial for the energy storage systems’ participation in
balancing markets.
6 Marija Mileti´c, Hrvoje Pandˇzi´c
As a market participant, energy storage is surrounded by controversies
caused by its dual nature. It was shown in [24] that, opposite to the economic
theory’s idea of imperfect market competition, adding storage to markets in
some circumstances actually decreases social welfare. While most researchers
have considered only one strategic energy storage system and shown that it can
benefit from strategic price-setting or capacity withholding, the authors in [25]
have shown that increasing the number of energy storage systems that behave
strategically limits their respective profits, which is in line with the economic
theory. Decision makers have tried in various ways to overcome obstacles for
competitive energy storage, from EU’s ban on regulated entity-owned storage
systems, to the US regulators’ attempts to increase competition in markets
Rules for pre-qualification process for frequency reserve market participa-
tion in Germany contain a specific section dedicated to only energy storage.
Specific tests are devised for energy storage to prove the ability to perform fre-
quency regulation. The storage unit is tested in alternating 15-minute cycles
of regulation provision and idle mode, repeating until the storage capacity
is depleted. If the entire control reserve is called, the storage must be acti-
vated within 30 seconds for frequency control reserve (FCR), 5 minutes for
automatic frequency restoration reserve (aFRR) and 15 minutes for manual
frequency restoration reserve (mFRR) [27]. The positive example of German
frequency reserve market stands out as the rest of the European countries
struggle to keep up with the new developments in the EU’s electricity sector.
In European Resource Adequacy Assessment Methodology Proposal by the
ENTSOe [28], energy storage is given a separate role from the generators and
consumers. However, capacity market rules in most European countries place
the minimum capacity offers at 2 GW, making it impossible for the smaller as-
sets to participate. Capacity mechanisms employed in European countries are
strategic reserve, demand response schemes and market-based mechanisms.
Market-based capacity mechanisms exist in Italy and Poland [29]. Capacity
mechanisms that allow energy storage participation are still a rarity because
of the storage’s specific properties and currently only the UK capacity mar-
ket admits storage facilities. In order to ensure that various technologies can
provide the capacity they offer in capacity markets, UK’s network operator
attributes to all of them de-rating factors. For energy storage these factors
depend on their discharge duration. For example, for the current T-3 auction
energy storage with 30 minutes duration has de-rating factor 10.59%, while
the storage with longest duration (over 5.5 hours) has 95.08% [30].
6 Conclusion
Conclusions drawn based on the information presented in the paper are listed
Energy Storage Integration in European Markets 7
It is time to introduce incentives for the storage technologies alone or in com-
bination with RES. Incentives did miracles for RES integration in almost all
European countries and energy storage was for a long time piggybacking on
the RES hype. Although enabling RES integration remains the most promi-
nent use case for energy storage, without incentives designed specifically for
energy storage we cannot expect to see the rise of energy storage installa-
tions, regardless of the end-use. As there is a potential for incentivising energy
storage utilisation by carefully designing retail electricity market tariffs, the
incentives need not be aimed at investment cost reductions only.
Legal framework must be adapted to enable market participation of energy stor-
age. Legal framework at the EU level sets firm guidelines for energy storage
integration. However, many countries adapt the European Commission’s regu-
lations into their national laws by translation, only to satisfy the form. Energy
storage potential varies from country to country so the national laws should
also be specific to each country, reflecting said potential. The latest regula-
tions place prohibitions on system operator-owned energy storage, limiting
the potential of using it as a system asset.
Regulatory framework must include energy storage as a stand-alone agent.
Grid codes in many European countries consider energy storage as consumers
while charging and generators when discharging, which makes them compliant
to various regulations pertaining to both market participants. These regula-
tions tend to reduce the energy storage’s potential for profit, making them less
attractive to investors. The authors of this paper advocate the standpoint that
energy storage is not an end user of electricity and should not be charged: i)
the retail price, but the whole sale price instead; ii) renewable-support fees;
iii) network fees; iv) peak power payments.
Market rules need to be relaxed and trading times shortened to enable market
participation of energy storage. This is true for energy, capacity and reserve
markets in many European countries. There are rules in existence that limit the
minimum size of market participants, as well as the rules that set requirements
on the duration of the service provided by an agent. Those rules prevent many
energy storage systems from market participation and should be relaxed to
increase market competition.
Acknowledgements This work was supported in part by the Croatian Science Foundation
under project Active NeIghborhoods energy Markets pArTicipatION - ANIMATION (IP-
2019-04-09164). It also received funding from the European Union’s Horizon 2020 research
and innovation programme under grant agreements 863876 and 773430 in the context of
FLEXGRID and CROSSBOW projects. The contents of this document are the sole respon-
sibility of authors and can under no circumstances be regarded as reflecting the position of
the European Union. Employment of Marija Mileti´c is fully funded by the Croatian Science
Foundation under project DOK-01-2018.
8 Marija Mileti´c, Hrvoje Pandˇzi´c
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