Electric Energy can only flow where there are physical conducting cables to transport it (limited wireless charging aside). When discussing storage systems, the network value refers to the value-add by having access to this physical network of conductors. A storage asset without access to the network will not be able to sell services. The market value refers to the added value of the storage service.

Depending on how the storage services are offered, what actual need this storage service helps solve, it adds a different value to the end consumer, and will therefore hold a different market value. Capital intensive as Grid-Scale storage systems are, we’ll consider the ownership of the storage assets, as well as the capturing of the network and market value of the different business models:

1. System operator owns the storage asset; Network value captured
2. System operator owns the storage assets; Network and market value captured, potentially with third party intermediary 
3. Third party owns the asset; Network and market value captured 
4. System operator owns the storage assets, captures network value; Third party owns storage assets to capture market value

When system operators own the storage asset and capture the network value only, the services are not changed. The storage asset is integrated in its regulated assets base, and eligible for cost recovery through regulated revenues. This is expected to be easier to implement and less subject to regulatory constraints. However, the revenue base being limited to regulated revenues only, could hamper the economic viability of the storage applications.

When the system operators own the storage asset that captures both network and market values, potentially with the help of a third party intermediary, the storage system requires a specific regulatory status in unbundled markets. On one hand, it is expected to be a more complex business model to implement and subject to regulatory constraints. On the other hand, it increases the revenue base, which strengthens its economic viability.

If however a third party owns the storage asset and captures both the network and market value, the expenses of the TSOs and DSOs then qualify as operational costs. The TSOs and DSO would recover them via a network usage fee. This business model is expected to be complex to implement due to different contractual agreements and revenue streams. The revenue base is however larger, while the TSOs and DSOs operate cost neutral.

In the case that the system operator owns the storage asset to capture network value and a third party owns assets to capture market value, the interests of both parties are not strictly within their control. System operators and the third party would need to align their work, and could influence each other’s markets. This business model does allow for revenue for the system operators, as well as clearing the path for new market players to enter the energy landscape and lead innovation.

When grid-scale storage solutions need long-term financing, the return on investment is crucial. Third parties are not bound by regulatory limitations in unbundled markets, and can more easily capture energy storage market value. Depending on local regulations, such business model innovation may be key in unlocking grid-scale storage potential.

Join us again next week when we look at behind-the-meter energy storage business models.

Digital transformation is radically disrupting the energy industry. Business models need to adapt to keep pace with change. But as we move from products to services, from bricks and mortar to platforms, and with decentralisation changing the playing field, how do you stay up to speed with changing regulation? How do you ensure you’re truly optimising the opportunities?

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