Decarbonizing Power Sectors in the Middle East: Storage or Digital?
Cristiano Rizzi, Managing Director and Partner at BCG, Massimiliano Masi, Partner and Associate Director at BCG and Simon Birkebaek, Principal at BCG share their thoughts about the future of energy storage in the Middle East
What is the future of energy storage in the Middle East? Will trends shift towards a future powered by super-cheap renewables? And will these be backed-up by large-scale electric batteries covering for renewables’ inherent intermittency during periods of clouds or no wind?
Globally, there is much hype around energy storage and the promises it could deliver to the power sector. In recent years, installed energy storage grew by ~6GWh to 17GWh at the end of 2019 and is projected to grow with a further exponentially reaching close to 150 Gigawatt Hours (GWh) cumulative installations towards 2025.
Anyone who has experienced a long power blackout will appreciate the excitement for energy storage’s future. Given just a few days without power, most basic human activities will undergo a degree of disruption. Without electricity for a couple of weeks, our society will crumble to resemble a scene reminiscent of 18th-century life prior to the awakening of the first industrial revolution.
So, due to its nature, it is little wonder energy storage is perceived as a highly valuable innovation for the power sector. Currently, setting aside the fundamental appeal of energy storage, the main use cases for energy storage are:
- Conventional generation support: Battery supporting with ramp up/down of conventional plants
- Renewable ‘baseload-capability’: Battery co-located next to renewable plant to manage intermittency and to add “baseload-capability” and ability to directly follow demand
- Transmission or distribution grid support: Battery used to provide ancillary services to power grid operator (e.g. balance electricity generation and grid frequency)
- Micro/off-grid availability safeguard: Battery used as a backup to ensure uninterruptable power supply or to secure supply in remote locations in combination with local power supply (e.g. wind, PV) or as a substitute of existing power supply (e.g. diesel)
- Behind the meter consumption optimization: Battery used to increase self-consumption and/or to achieve peak shifting/load leveling to optimize power purchase spending
For renewable load shifting, the main value propositions for currently installed solutions range from 1. Exploiting price spreads in the spot market, to 2. Avoiding balancing costs, and 3. Reducing lost revenue from curtailment. Most growth is expected to come in these areas, but many speculate whether large-scale load shifting can, in the future, become the enabler of a power sector fully driven by renewables.
Multiple countries in the Middle East have shown interest in these topics. The appeal of renewable and energy storage in the region is especially clear: Middle Eastern renewable (Solar PV) projects are setting record after record at the lowest power prices worldwide; national oil companies are eager to move from domestic consumption to international export of both oil and gas; and governments want to attract new industries and knowledge workers. At the same time, there are ambitious targets for introducing renewables (albeit from a low base currently), and increasing international pressure to become more sustainable.
A simple vision can be imagined: Why not to move towards a fully renewable system, powered by cheap solar PV backed-up with batteries, to free up fossil fuels for export and create jobs in the process? – The answer is cost, security of supply, and innovation.
Compared with a system that runs on PV during the day, and gas-fired power plants during the night, a fully renewable system with PV and storage would need at least three times the amount of PV capacity (to charge the batteries for night supply). It would also require at least three times the storage capacity measured in GWh. Due to the low costs of gas in the region, the cost of additional PV capacity and high storage capacity far exceeds what it costs to run gas-fired power plants.
Furthermore, as the power sector cannot rely solely on batteries that run dry after one night, ‘dispatchable’ capacity would need to remain in use to power the system during a spell of cloudy or windy days.
While battery storage does appeal – especially when used for multiple use-cases, solutions for providing adequate flexibility to cope with increased renewables required to decarbonize the power sector do not have battery storage listed first:
- Expand demand-side-management to shift consumption towards time with available renewable power
- Utilize ‘sector coupling’, e.g. electric vehicle storage (also for supply), cooling storage (for ACs)
- Disperse renewable locations to reduce supply curve alignment (of especially wind, but also PV)
- Electricity storage, e.g. battery or pumped storage (incl. decentral installations with e.g. rooftop PV)
- Secure carbon-neutral ‘dispatchable’ capacity through e.g. renewable produced hydrogen storage, natural gas or traditional CCGTs with carbon capture and storage
As with many problems, the solution is not straightforward. Renewable and battery storage alone will not be the solution for decarbonizing the power sectors in the Middle East. Instead, the path forward includes a multitude of levers – central and decentral - that need to work together to manage the inherent variability of renewables and fluctuating demand.
Digital and connected power market platforms are required, enabling optimization of production and consumption in real-time, as well as anticipating future energy demand and supply. This would enable robust, cost-efficient, and sustainable future power sectors in the Middle East.