The next phase of the energy transition

Wind-hydrogen storage system power to gas by E.ON and Swissgas (Photo: Paul-Langrock.de)

Low costs and high fluctuations in electricity production and sector integration are giving companies in the wind industry the chance to develop new business models.

Part of the costs of producing electricity from wind power and photovoltaics and of power storage facilities fell drastically in 2016. At the same time, the share of renewable electricity on the German power grid is continually growing. The annual average stood at 32.3 % in 2016, despite it being a low wind year. During some hours, renewables covered more than 85 % of the country's energy needs. This fluctuation occasionally leads to high electricity surpluses, particularly on sunny or windy days, and can lead to wind turbines being shut down temporarily. At the same time, there are periods during which wind and photovoltaics generate very little power – in October and November 2016, for example.

This trend is set to last: the share of renewables is growing, the cost of production is falling. The highest attainable prices in the upcoming calls for tenders are capped at 7 cents per kilowatt hour (cents/kWh). The solar power tenders in late 2016 achieved only 6.9 cents/kWh on average. A well-documented German-Danish solar tender achieved a price of 5.4 cents/kWh. Production prices are falling for all renewables in Germany and worldwide.

The costs of storing energy are also falling. According to "Electrifying Insights", a McKinsey study published in early 2017, investment costs in lithium-ion batteries dropped by almost 80 % from 2010 to 2016, i.e. from $1,000 to $227 per kilowatt hour ($/kWh). The authors expect costs to fall to between 100 $/kWh and 180 $/kWh by 2020.

Energy companies are therefore increasingly developing new business models in three different areas: the compensation of fluctuations in the power grid, the use of electricity in the areas of transport and heating (sector integration), and the direct delivery of electricity to commercial and private end customers. In this way, they can benefit from the intermittently low energy prices in the energy exchanges.

The concept developed by Naturspeicher GmbH is particularly relevant to the construction of wind turbines. A subsidiary of the Max Bögl Group, the company has been building wind turbines that combine with water storage in southern Germany. Under the wind turbines, there are large water basins that are connected to basins in the nearby valley and work like a pumped-storage power plant. Unlike in most traditional pumped-storage systems, the turbines used in this case can be regulated to work continuously in both directions. The power storage system will become cost-efficient by being built in combination with wind turbines and marketed in various different markets, such as the electricity balancing market, balancing group settlement, and quarter-hour, intraday and day-ahead markets. According to Naturspeicher, simulations of previous years have shown that the overall concept will become profitable with this kind of flexible marketing approach.

An experimental clause in the Renewable Energy Sources Act (EEG 2017), which was amended in 2016, gave the Federal Ministry for Economic Affairs and Energy (BMWi) the chance to approve new business models. This would in turn make it possible to continue operating wind turbines when the feed-in supply is halted due to grid overload if the power can be used directly on site in power storage facilities, in conversion projects such as electrolysers (power-to-X), or for generating heat directly through a special immersion heater (power to heat). The BMWi has announced further provisions for improving integration between different areas of the sector. The key details and consequences of these provisions will be specified in regulations over the coming years.