A few years ago, you wouldn’t have associated the word storage with the electricity sector. But as South Africa changes its model for producing and distributing electricity, the demand for energy storage solutions is likely to rise.
As coal-fired power plants are decommissioned and renewable energy sources – typically intermittent – are increasingly adopted, reliable and efficient energy storage is coming more and more to the fore.
In this article, we speak to Dieter Matzner from Investec's Energy and Infrastructure Finance team about the potential of storage, but also some of the challenges that will need to be met to make it a reality.
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A transition phase for South African electricity
Matzner explains that South Africa is currently in the process of transitioning to a new system for electricity supply and consumption, from the one previously built around a single, state-owned utility (Eskom). This transition involves the splitting up of Eskom into three separate companies, with the expectation of moving towards a free market system over the next five years.
The transmission company will come into operation by July 2024 and the distribution and generation companies within the next two to three years. This transition will create opportunities for private sector involvement in the energy sector, including the development of storage solutions.
The storage aspect is important because this transition involves the move into energy sources such as wind and solar. According to The Economist magazine, the amount of installed solar capacity in South Africa has risen from 2.8GW to 7.8GW, and this excludes solar capacity installed in homes.
These installations have been driven by the desire of businesses and homes to reduce their reliance on Eskom and ensure security of supply which has been made possible on the back of the relaxation of restrictions on installed privately owned solar power.
They’ve also been driven by a substantial rise in electricity tariffs and a reduction in equipment costs. Having fallen about 90% over the previous decade, while industrial users pay 20% to 40% less per unit from private suppliers than the lowest Eskom tariffs.
However, both solar and wind are intermittent by nature. Power during the down periods can be provided by traditional sources, but often the best solution is through effective electricity storage capacity, to help balance supply and demand.
Battery storage provides the flexibility to store excess energy during periods of high generation and release it during periods of high demand, thus ensuring a stable and reliable electricity supply for businesses and households alike.
Matzner notes that South Africa has already made some progress in the deployment of battery storage systems, which can typically provide up to four to five hours of energy storage. Eskom, the national power utility, has also built its own battery storage facilities with a capacity of around 400 megawatts and four to five hours of storage with two RfP’s out for additional capacity.
With battery storage system costs falling (The Economist believes these have halved over the last five years) and two Eskom bidding rounds having taken place for utility-scale battery storage projects, (projects ranging from 500 to 600 megawatt-hours in size) battery storage is likely to dominate in meeting the short-term storage needs of the grid.
For the foreseeable future, let's say for the next 10 years, it’s going to be all short-term storage through battery systems, which will deal with the peak morning and evening hours.
Longer-term storage solutions
From 2035 onwards, however, as more coal-fired power stations become decommissioned, so the need for longer-term storage to ensure a continuous and reliable electricity supply will grow, says Matzner.
Pumped hydropower (or pumped hydro for short) storage is a possible solution for providing this supply. Pumped hydro involves two water reservoirs at different elevations, where water flows from the upper reservoir to the lower one, and so doing generates power from a turbine when needed.
When power isn’t needed the upper reservoir is “recharged” by pumping the water from the lower reservoir. The upper reservoir is thus akin to a rechargeable battery. Matzner says there are advantages to pumped hydro over battery storage, in terms of both cost and longevity.
“The typical cost of building a pumped hydro plant is circa $80,000 per MW hour, whereas battery storage is in the order of $200,000 to $250,000 per MW hour,” says Matzner.
“Most importantly on hydro plants is that they have a lifetime of approximately 100 years (with a refurbishment after 50 years). They are essentially there forever whereas batteries, depending on how they're managed, have a lifetime of about 15 years.”
Pumped hydro facilities could also use wind and solar power to move the water during times when the storage isn’t required. Unfortunately, notes Matzner, South Africa doesn’t have many obvious sites for pumped hydro installations and there are also technical challenges to developing capacity.
“To project finance projects like this can be challenging because they typically take an extended period to construct and there are often complex geotechnical risks.,” he explains.
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Challenges to opportunities
There are a few other key challenges that South Africa will have to face in rolling out the required storage capacity. One is the sheer scale of the rollout that will be required.
Here, Matzner highlights the problem of lack of maintenance on infrastructure, particularly at a municipal level, as well as increased densification, this means more and more electricity is being consumed without a commensurate upgrade in the old existing infrastructure. Thus, further investment in local infrastructure will be needed.
“This is something that would be interesting from an energy storage perspective, namely the location of these energy storage systems so that they are not just sitting next to the large utility-scale projects, but also near municipal substations,” he adds.
“There’s also an opportunity to digitise the management of the municipal distribution systems and to add storage into this. A lot of municipalities have a lot of vacant land, which can be utilised for storage.”
Another challenge facing the battery storage market in South Africa is the reliance on imported equipment, the bulk of which is sourced from countries such as China and South Korea.
“The Chinese have built a massive industry over the last 10 to 15 years, so from a cost perspective it's impossible to compete with them,” Matzner points out.
However, given the projected growth in demand for battery storage systems in South Africa, there are likely to be opportunities to expand local manufacturing to reduce dependence on imports. Similarly, the recycling of batteries could be another area of opportunity for South Africa.
Notwithstanding these challenges, given the size of the rollout of renewable energy required to meet South Africa’s needs, the storage opportunity remains a significant one.
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