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As the economics of energy storage technologies improve, the need for unreliable gas in South East Europe is declining

This opinion editorial was co-authored by Kostantsa Rangelova, Senior Energy and Climate Analyst at the European public policy institute, at the Center for the Study of Democracy. At CSD, she works on international research projects dealing with the politics and economics of energy transition, energy security and international energy markets.

Russia’s war in Ukraine and the ensuing global energy market disruption have sent EU countries scrambling for alternatives and stepping up efforts to secure domestic energy supplies. At the same time, renewable energy technologies now rank among the cheapest sources of electricity worldwide.

Taken together, these two factors are driving an unprecedented transformation of Europe’s energy landscape. The extreme price volatility and geopolitical dependencies associated with fossil fuels have made it clear to policymakers worldwide that accelerating the transformation of the energy system is essential to improving energy and climate security for all.

In some respects, momentum is already moving in the right direction: governments across the EU have taken a range of important measures since Russia’s invasion of Ukraine, including accelerating the deployment of renewable energy technologies and reducing reliance on imports by expanding energy trade within the EU.

And yet, challenges remain: while integrating 10-20 per cent shares of variable renewables like wind and solar into the mix of most countries is achievable without requiring major investments, reaching higher shares such as 40 per cent to 50 per cent or more requires a concerted effort to improve power system flexibility. As the share of variable renewables grows, as seen recently in countries like Greece, Albania, Kosovo* and Montenegro in particular, the need for power system flexibility grows.

While there are many ways of improving power system flexibility, rapid cost declines have made storage technologies an increasingly cost-competitive flexibility option.

Source: based on Schmidt, O., Hawkes, A., Gambhir, A. et al. The future cost of electrical energy storage based on experience rates. Nature Energy 2, 17110 (2017).

In addition, battery storage systems are starting to beat fossil gas on both price and performance, undermining one of the main arguments for prolonging countries’ reliance on this costly and increasingly unreliable fossil fuel.

The question that decision-makers across the region should be asking is simple: why continue importing a volatile and geopolitically unstable fuel to meet the region’s essential electricity and heating needs when abundant renewable energy potential, generated and stored domestically in both electric and thermal form, can cost-effectively replace it?

One of the key findings of a new study published by Berlin-based E3 Analytics, in partnership with the European public policy institute, Center for the Study of Democracy, is that storage technologies can not only help improve the security of power supply and smooth the path to decarbonisation but can provide utilities with greater confidence as they increase the share of wind and solar power in the system.

Zooming in on the SEE region, there is a flurry of projects in operation or under construction.

Source: see E3 Analytics 2022.

The report lays out a number of policy priorities to unleash storage technologies’ potential in the region:

  • update wholesale power market rules to allow fairer compensation for power storage service providers;
  • adopt long-term strategies that include clear targets for storage adoption;
  • introduce storage auctions and/or auctions for hybrid VRE+storage projects;
  • remove unnecessary technical and licensing requirements for the integration of storage technologies;
  • accelerate the shift toward a circular economy, including by investing in local facilities for battery recycling and the adoption of second-life applications.

From an economic standpoint, one of the keys to unlocking more commercial investments in storage is to create market conditions that enable storage projects to monetise the various services they provide (including energy, capacity, spinning reserves and frequency response, among others.)

As the chart below shows, battery storage systems can provide a range of services to utilities, system operators and to the wider power system.

Source: see E3 Analytics 2022.

Enabling storage to be compensated for a wider range of these services can significantly improve project economics, reducing if not eliminating the need for public subsidies.

Russia’s war of aggression against Ukraine has served as a wake-up call for decision-makers across the continent. Supported by rapid cost declines, storage technologies are now starting to beat gas at its own game, pointing to a turning point in electricity markets. By harnessing more of the region’s abundant renewable energy potential and pursuing a balanced mix of grid-scale and behind-the-meter storage investments, countries throughout the SEE region can eliminate the need for both coal and gas-fired power generation while unleashing a wave of domestic investment in clean, reliable energy supplies.

For more charts, graphs and analysis, see the full report.

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