Southeast Asia’s learning curve for energy storage adoption in focus at ESS Asia 2024

Through a varied programme that tackled both technical and business-related topics, the need to make technologies bankable as well as provide regulatory frameworks to help give monetary value to storing and discharging energy was consistently mentioned.

In terms of geographies, the event largely looked at Southeast Asian countries but also included some focus on Japan and other regions in Asia, although China and India, which are more self-contained regional markets within themselves, were mostly discussed tangentially.

There are “huge opportunities, but many challenges,” said Vikram Kumar, regional head for Infrastructure and Natural Resources, Asia-Pacific at the World Bank’s International Finance Corporation (IFC).

Kumar delivered a keynote speech on the first day of ESS Asia, noting the pivotal role that energy storage can play in delivering high-impact progress to the transition to renewable energy sources from fossil fuels.

Storage and renewables can also enable better access to stable electricity supply for populations across the nations, many of which are islands or archipelagos without interconnected electricity grids.

“Yes, there are huge opportunities, but there are many challenges. There are many regulators in this room. When I reflect on the challenges, I do want the regulators to think about some of these challenges,” Kumar said.  

“They might be in creating revenue streams for ESS and their services, come out with possible business models in different countries. There are, and we are all aware of policy gaps.” Kumar said, which might be filled with incentives and tariffs for energy storage, and “balanced policies that balance inter-sector interests”.

The technical capabilities and institutional strengthening required for widespread deployment, particularly at planning departments for load dispatch still have a long way to go in their development, and Kumar said the gaps between supply and demand for energy storage are resulting in long lead times for deployment.

Regulators must recognise value of energy storage

Andre Susanto, chief technology officer (CTO) at utility-scale solar PV and BESS developer Quantum Power Systems, discussed regulatory development in an interview with Energy-Storage.news.

The biggest factor holding back development, Susanto said, is a general lack of recognition for the services that energy storage can provide, meaning that there is a shortage of frameworks for monetisation of those services.

“A lot of it is because of the lack of regulation. Even when you do have a grid code, there’s no enforcement of the grid code, so if you don’t have any enforcement then what good is storage?”

Susanto offered the example of Vietnam, which has a high level of solar PV deployment, largely due to feed-in tariff (FiT) subsidies, but no corresponding support for energy storage to integrate that renewable energy capacity onto the grid.

“Some of the existing projects that are already operational [in Vietnam] are being curtailed significantly and unexpectedly. In that case, some of those projects, you can come in and say: ‘Is there a way we can sit together, calculate the cost-benefit ratio of installing storage, so you can sell more [power], so maybe you don’t lose so much money?’” Susanto said.

While that example refers specifically to Vietnam and its high levels of solar curtailment, Susanto said that regulators could consider the valuation of storage and monetising their services throughout the whole region of Southeast Asia.

Perhaps the good news is that broadly speaking, the forward development now relies on regulators more than it does on policymakers.

Politicians in the region are making commitments toward increasing the share of renewable energy in the generation mix in their respective countries but implementing that change must lean on the capabilities of storage technologies, whether batteries, pumped hydro energy storage (PHES), or something else.

One leading example of proactive policy engagement is to be found in the Philippines, the government of which views energy storage as key to success in delivering renewable energy targets. During the ESS Asia event, Philippines Department of Energy (DOE) assistant secretary Marco C. Marasigan announced that a forthcoming round of government renewable energy auctions will include energy storage.

‘Lenders don’t like risk’

The other side of the coin is de-risking investments in energy storage technologies and projects, and that perhaps comes down more to the private sector, specifically banks and the investment community.

In ‘Using storage to enhance the grid,’ a panel discussion on day two of the event moderated by Quantum Power’s Andre Susanto, Ashraf Rahman, director for renewables, utilities, and infrastructure at Sumitomo Mitsui Banking Corporation (SMBC), noted that banks are naturally risk averse.

“Unfortunately, most financiers don’t like risk. The tendency is that we are actually kind of limiting the energy storage usage for the grid,” Rahman said.

This is because mostly, SMBC and other lenders will be looking at two particular revenue structures or business models that they deem financeable: capacity contracts and energy contracts.

Therefore, they don’t look at ancillary services like frequency regulation or grid stability services like inertia, which might more typically be merchant market plays, rather than capacity or energy, which would be tied into long-term power purchase agreements (PPAs) or government contracts.

Again, this is nothing new from the perspective of the global energy storage market. Energy-Storage.news has consistently heard over the years from more mature markets like the UK or US that long-term contracts that offer some degree of revenue certainty are preferable from a lender’s perspective to merchant risk, even though markets like ERCOT in Texas or the National Electricity Market (NEM) in Australia might offer higher returns overall.

There is also a lack of competitive frameworks for providing ancillary services in Southeast Asia of the type that has enabled those merchant plays in other regions too, Rahman said.

Moderator Andre Susanto commented that developers might be able to create business models for providing a holistic suite of services that could, in turn, be monetised over long-term contracts. Again this would require the right regulatory frameworks to be in place.

“It’s a bit of a breakthrough that’s not quite there yet,” Susanto said.

“But when we can start saying to the utility companies, ‘look, here’s the BESS that can provide the function and the services you need, give us a long-term contract for it’. Not just services just when you need the peak, just when you need the frequency regulation, but [also] spinning reserves etc.”

Rising shares of renewable energy should compel closer look at valuation of storage

At present, there is a feeling that the responsibility is being placed on solar and wind generators to find ways to integrate their resources in many Southeast Asian countries, Andre Susanto said.

With the exception of Vietnam, most countries in the region haven’t yet reached the threshold of variable renewable energy (VRE) penetration on their grids that will require regulators to consider how to cope with a high renewables electricity mix, panelist Nick Morely, APAC technology lead with developer Eku Energy, said.

That too was the case for the world’s more mature energy storage markets a few years ago, but the likes of National Grid Electricity System Operator (ESO) in the UK or the Australian Energy Market Operator (AEMO) have in recent years been compelled to become increasingly proactive in helping to support storage through the markets.

For example, grid-forming inverters at battery storage plants can provide synthetic inertia to the grid previously provided by the spinning mass of thermal power plants and long-term contracts for this grid stability service have started to be written in the UK and Australia.

Those contracts provide only a relatively small portion of the potential revenues that BESS assets can stack, alongside merchant opportunities, or even PPAs, but are still important in providing that revenue certainty that lenders need to see, Nick Morley said.

“The idea is that it’s a stacking opportunity, it’s not the sole purpose of the battery, and that’s really the key to advanced grid services, and making them cost-effective and also allowing them to be considered in the revenue stream by lenders, getting these fixed-term contracts from utilities.

“For that to happen, utilities need to understand the nature of the problem. If they don’t have any, or a significant percentage of grid-following inverters and wind and solar on the grid, there may not be a need, so it’s tied to the deployment of other renewables, and the development of policy and planning policies.

“So I think it’s too early for us to see that in most of Southeast Asia. They’re not having the penetration of renewables that would justify it, but certainly, in the UK and Australia, those contracts are starting to come through, and we can stack those on top of our revenue streams.”