Incentive design for hybrid energy storage system investment to PV owners considering value of grid services

Yong Soon Kim, Gye Hyun Park, Seung Wan Kim and Dam Kim

Applied Energy, 2024, vol. 373, issue C, No S0306261924011553

Abstract: Hybrid energy storage system (HESS) is an ESS integrated with renewable energy source (RES), allowing PV owners to participate in the electricity market. By investing in HESS, PV owners can yield additional revenue by providing services to system operators, such as avoiding and delaying transmission and distribution network investment, relieving grid congestion, and providing ancillary services (AS). However, in some jurisdictions, the high installation expenses of HESS make the investment by PV owners economically unviable. In this paper, a business model is proposed to improve the investment value of HESS, and a mixed-integer linear programming (MILP) optimization problem is modelled to calculate the optimal capacity of HESS that maximizes the PV owner's profit. The simulation results of the proposed model were used to assess economic feasibility through internal rate of return (IRR) and levelized cost of energy (LCOE). Based on economic evaluations, the appropriate level of capacity incentive needed to motivate investment in HESS was identified. The simulation used the historical system marginal price (SMP) of Jeju-island, Korea, and the PV generation patterns of various regions. The Monte-Carlo method was used to obtain results that are robust to the regional and temporal uncertainty of RES. Simulation results using the 2021 SMP data indicate that at a capacity incentive level betweem 29 and 31%, the NPV, IRR, and LCOE meet the required thresholds, demonstrating the economic viability of HESS investment. In scenarios with negative pricing, HESS investment is feasible without providing a capacity incentive. The IRR derived from the simulation is above the cost of equity, and the LCOE is below the maximum LCOE of unsubsidized gas peak resources confirming that the level of capacity incentives is appropriate.

Keywords: Hybrid energy storage system; Capacity incentive; Business model; Economic evaluation; Negative pricing (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.apenergy.2024.123772

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