According to reports from foreign media, the Spanish government has set a target to achieve a 2.5 GW installed capacity for energy storage deployments by 2030. Meanwhile, Portugal is currently conducting a solar power facility tender, which includes proposals for complementary energy storage solutions. However, both countries require additional industry regulation and market design improvements to create sustainable opportunities for energy storage deployment in the long term.

These conclusions were drawn by experts at Clean Horizon, a consulting and market analysis firm, who analyzed the role of battery energy storage systems and other energy storage technologies in the current and future energy transition across the Iberian Peninsula, including Portugal and Spain.

Spain’s first grid-connected energy storage system, with a capacity of 3 MWh and a discharge duration of up to 5 hours, was deployed and operationalized by the Spanish utility company Iberdrola by the end of 2019 in Murcia.

Clean Horizon’s energy storage market analysts Tanguy Poirot and market analysis director Corentin Baschet shared their perspectives on the initiatives taken by Portugal and Spain in energy storage deployment, as well as the improvements still needed.

Portugal: Guaranteed Auctions Provide 15-Year Income Visibility

Portugal initially postponed a 700 MW solar power capacity auction scheduled to start in spring this year due to the COVID-19 pandemic, awaiting stabilization before proceeding.

The auction eventually commenced in early June and will accept bid applications until the end of July. The auction includes three options, as depicted in the image below provided by Clean Horizon. Solar + storage system projects can participate in investments but will receive fixed payments, hence, they cannot leverage the advantages of price volatility and spikes when the electricity system experiences interruptions or emergency supply events.

As Tanguy Poirot explained, this auction allows solar + storage projects to competitively bid alongside standalone solar projects. The payment scheme involves paying a certain capacity fee for solar + storage projects. Therefore, winning projects will receive fixed annual payments to protect Portugal’s electricity system from the impacts of price spikes during interruptions or emergency supply events.

He stated, “Thus, when the wholesale market prices reach a certain threshold (referred to as the execution price), solar + storage projects must reimburse the difference between this execution price and the actual wholesale market price.”

The purpose is to shield the electricity system from these emergencies and overly high market prices, yet this complexity diminishes the competitiveness of storage systems in auctions alongside standalone solar deployment.

The reference payment price for the auction is approximately €33,000 per MW per year (equivalent to $37,430 USD), including solar and storage facilities. As highlighted by Clean Horizon’s market analysis director Corentin Baschet, this is roughly 1.5 times the level of capacity market payments in the UK.

Tanguy Poirot added that energy developers need to stack revenues from multiple channels to make their projects more competitive, particularly revenues from ancillary services markets and other available sources, as payments alone are unlikely to be attractive.

However, Clean Horizon has already seen significant developer interest in these projects, and there should be opportunities to gain income in other markets. Tanguy Poirot stated that the capacity payment mechanism for the auction also offers a 15-year contract, providing developers with some visibility into future income.

Spain: Impressive 2.5 GW Storage Deployment Target, but Pathways to Achievement Remain Unclear

Tanguy Poirot stated, “Spain has set a target for energy storage deployment in its National Energy and Climate Plan, and fundamentally, every European country has published strategic goals for achieving decarbonized electricity systems. Spain has thus set a target to deploy 2.5 GW of storage systems by 2030, and Spain is the only European country so far to announce a storage deployment target that excludes pumped hydro energy storage facilities. Therefore, it will deploy battery energy storage systems, hydrogen storage, or thermal storage facilities.”

Despite the impressive storage deployment target, achieving this goal is nearly impossible under current market conditions, as today’s electricity market lacks attractiveness to drive large-scale storage system deployment. Clean Horizon’s map of existing battery energy storage systems in Spain demonstrates that the Spanish storage market is still in its infancy.