Recognition of the role energy storage must play in Europe’s energy transition has been long overdue. Now that it has arrived, the hard work begins, write Julian Jansen and Lars Stephan of system integrator Fluence.
This is an extract of a feature article that originally appeared in Vol.40 of PV Tech Power, Solar Media’s quarterly journal covering the solar and storage industries. Every edition includes ‘Storage & Smart Power’, a dedicated section contributed by the Energy-Storage.news team, and full access to upcoming issues as well as the nine-year back catalogue are included as part of a subscription to Energy-Storage.news Premium.
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National and European policy makers need to step up in the implementation of the European electricity market design reform. While its recognition of the critical role energy storage must play is welcome, the next chapter of crafting a European industrial policy around sustainability, resilience and cybersecurity is already on the horizon.
In the EU’s REPowerEU package (in 2022), the role of energy storage and other flexibility assets to support the integration of additional renewables was broadly overlooked. In March 2023, the European Commission proposed a reform of European electricity market design (EMD). By then, policymakers had started to embrace the role of energy storage.
But as we have seen before, the challenge of EU legislation often lies in its implementation at a national level.
The role of energy storage in changing power systems
Taking a step back, let’s recognise the role of energy storage. In the middle of the last decade, energy storage started being deployed across Europe’s power markets. First delivering fast frequency response services in Germany, UK and Ireland, energy storage took a foothold.
Newly developed EFR and DS3 services in the UK and Ireland showed the value of energy storage assets providing ultra-fast responding stability services. Energy storage then established itself as an asset class in capacity markets in Ireland, the UK and Italy.
Electricity market design reform as a game-changer for energy storage
The European Union’s response was the publication of a balanced market design reform in March 2023, following fierce debate and some radical proposals. It introduced the concept of flexibility for the very first time to European electricity market design.
It is now an integral part of European power markets, including clear guidance on methodology and policy options around energy storage. The key elements pertaining to energy storage are implemented in the newly created Article 19, according to which, EU Member States will have to assess flexibility requirements over the next five to ten years, reflecting energy security, reliability and decarbonisation.
Combined, the new provisions could create a tailwind for energy storage, as Member States now must proactively analyse the benefit of energy storage to their energy systems and take dedicated action to foster its integration.
The challenge of implementation
The non-discriminatory application of grid fees for energy storage, often referred to as double-taxation of energy storage, is an example. Under this structure, storage assets are discriminated against by applying grid fees and levies twice during both charging and discharging. This is caused by storage being classified wrongly as both a consumer and generator of electricity. In some markets, energy storage assets are also not able to participate in all markets—energy, ancillary services and capacity.
Aware of remaining barriers, the European Commission published a recommendations paper on energy storage alongside its reform proposal. This summarises key provisions on energy storage from past and current electricity market design rules. Being a recommendation, it is not legally binding nor holds Member States responsible for implementing existing rules.
Fortunately, the European Commission is willing to step up the enforcement of rules around energy storage.
Watching the implementation in action
The Energy Storage Coalition, brought together by prominent European trade groups for solar, energy storage and wind, together with Breakthrough Institute, assesses that four countries are conducting flexibility assessments (Hungary, Italy, Luxemburg and Portugal), while Greece, Malta and Spain have developed comprehensive strategies on energy storage.
Other Member States, namely Belgium, Poland, Ireland, Italy and France, have proactively integrated energy storage in national capacity markets. Batteries have secured contracts covering 23GW of capacity in capacity mechanisms across Europei to date. Showing the way for Germany and Spain, who are looking to introduce capacity markets, there also remains scope for reform to ensure technology neutrality and recognition of technologies’ emission profile.
A host of energy storage support schemes are being funded through the Recovery and Resiliency Facility. Spain, Greece, Bulgaria, Romania and Hungary have or will award energy storage projects in 2024. With further storage tenders on the horizon in Italy, Ireland and France, policymakers are already using the new tools that have been made available to them under the new electricity market design.
With the introduction of support schemes for energy storage, clearer EU-level guidance on how to disperse public funding in support of energy storage projects should be provided.
Is European industrial policy next on the European agenda?
As electricity market design reform moves to implementation, new policy areas start to emerge following the 2024 European Elections. Investments into clean technology manufacturing are still high on policymakers’ priority lists, and the strategic agenda of the European Council for the upcoming term provides a clear focus on bolstering European competitiveness, by increasing sovereignty in strategic sectors such as net-zero technologies.
The European storage industry will look for signs from policymakers. For now, the focus is on safeguarding fair competition and fighting unfair practices. There are indications for a new willingness to ramp up investigations into foreign price dumping, but not for the introduction on a broad front of tariffs, especially on a commoditised product such as battery cells.
European industrial policy could instead focus on crafting a European market space based on extended value creation that is in line with European policy targets of sustainability and resiliency.
Finally, Europe should focus on its strengths. From a customer value perspective, European technology suppliers can deliver long-term value over project lifetimes. Such mechanisms could be strengthened by crafting a European storage market around the highest standards on safety, sustainability, cybersecurity or technical requirements, including grid-forming capabilities. Crafting a European Storage Market could provide a clear message to European suppliers, incentivise innovation and allow them to compete on international markets with a strong value proposition.
About the authors
Julian Jansen is growth and market development director, and Lars Stephan is policy and market development director for the EMEA region at Fluence, a global energy storage technology company and products and services provider. Julian and Lars work to support growth in energy storage markets, working in the policy and regulatory space as well as business development with stakeholders including transmission system operators.
