A source of flexibility and independence
Electricity is a high quality form of energy. Unfortunately, it cannot be easily stored as such, but must be produced at the same time of consumption. Moreover, demand is pretty variable over time and in order to be satisfied a wire made by a conductor material like copper must be laid down between the generation unit and the load. These fundamental technical aspects of electricity contribute to explain why it is a very peculiar commodity and why electricity systems have been developed in the 20th century usually according to the model of the public utility, where the firm providing electricity receives monopoly rights over a given area but is obliged to guarantee continuity and security of the electric service for whoever asks it.
Traditionally, electricity companies have tried to minimize costs by increasing the load factor of their generating units and developing large networks for the connection of many different customers, potentially characterized by not synchronized consumption patterns. Generation was arranged in a way to follow the load expressed by customers usually not sensitive to variations in production costs, because charged by fixed rates. Demand management was foreseen only in case of severe risk for system security (load shedding and curtailment of interruptible industrial customers) and where pumped hydro-power plants were built like in Alpine countries.
Indeed, pumped hydro has been the only significant form of energy storage used at a utility scale until recently and in the world there are around 145 GW of installed capacity (source: US Department of Energy), which allows excessive electricity generation to be converted into potential energy and stored for later use .
Fig. 1 Grid-related energy storage technologies deployed or in the demonstration phase.
source: MIT, The future of solar energy, 2015, p. 289.
However, electricity systems are changing today at an unprecedented speed. The liberalization process launched in several countries in the 80s and 90s has been transforming the public utility model described above and introducing competition in the industry. But this is not the only factor at work. Public support for the penetration of renewable energy sources – some of them non dispatchable – in the electricity mix; the disappearance of economies of scale in many generating technologies; the necessity to heavily invest in transmission and distribution grids in order to replace aging infrastructures, accommodate distributed generation, take advantage of ICT developments and foster consumers participation into the market; the extremely relevant fiscal burden on energy purchased from the grid, etc. are all creating renewed interest for energy storage by utilities, large consumers, independent generators and prosumers, i.e. by households and small-medium enterprises that are both consumers and producers of electricity.
Without the intention to be exhaustive, we can say that energy storage can be used to: 1) shift energy consumption, i.e. absorption of energy from the grid, from moments of underproduction to moments of overproduction, thereby allowing price arbitrage, relieving congestions and flattening the load curve; 2) smooth the output of intermittent renewable energy sources and reduce imbalances between planned and effective production by individual power plants; 3) provide ancillary services (frequency and voltage regulation, secondary and tertiary reserve, black start capacity, etc.); 4) reduce the need for grid expansion or upgrade of substations; 5) increase the quality and reliability of power for specific types of sensitive customers (hospitals, data centres, food industry, producers of electronics, etc.), especially if located in areas with a weak grid and interested in back up capacity; 6) allow full disconnection from the grid for those who also own distributed generation capacity.
Storage devices, in short, are expected to provide flexibility, a precious resource in today electricity systems, and eventually enable some users to be less dependent on the grid for the satisfaction of their energy needs.
In the meantime, technological research and learning by doing are making new solutions available and reducing the costs of the older ones at a rate of 10-30% per year. Among the most promising technologies there are batteries. Even if adopted since a long time for portable devices (watches, radios, cars, etc.), only recent advances have made batteries an interesting possibility for stationary devices permanently connected to the grid, both on the utility and on the customer side of the meter.
Batteries are an attractive storage technology for several reasons. Even if there are differences depending on the specific chemistry adopted (lead-acid, lithium-ion, sodium-sulphur, nickel-cadmium, etc.), they are generally pretty flexible and can be used both for power intensive and energy intensive applications. Moreover, they can be located in a place independently from its geographical characteristics, as it is the case for pumped hydro, and do not need a lot of space and time for installation. In case of necessity, batteries can be often moved to a different location, allowing their “recycle” for another use. Finally, they are usually “scalable” or “modular”, i.e. depending on the specific energy need you have, you can install just a module of limited capacity or put together many of them, thereby raising total capacity until you are satisfied. A bit like solar PV panels, electrochemical batteries can be installed by families that need just few kWh of storage capacity and by utilities that are interested in MWh .
The Italian regulatory framework
In Italy energy storage applications are traditionally represented by thermal storage in households or commercial facilities and by pumped hydro storage, developed since the 60s and 70s by ENEL in order to optimize the functioning of its oil fired power stations . In 2013 Italy had around 7.7 GW of installed pumped hydro capacity, one of the largest in the world, mainly located in the north (Piedmont and Lombardy) and with annual output that in 2002 reached its maximum at about 8 TWh .
Until today electrochemical batteries and other types of storage technologies have had a negligible role in the overall electricity system. This situation was reflected in the sector legislation that mentioned only pumped hydro and no other forms of energy storage.
However, the difficulty in developing the Italian grid at a satisfactory pace, the presence of structural congestions in some areas of the country and the challenges brought by the growing number of intermittent energy sources (addition of wind capacity in the south was significant already in 2008 and 2009) led to a first change in the legal context. During the revision of the franchise contract of Terna, the Italian transmission system operator (TSO), it was declared in 2010 that Terna can develop and manage storage facilities in order to ensure the security and good functioning of the electricity system, the maximum exploitation of renewable energy sources and the procurement of resources for energy dispatch .
The unplanned boom in PV installation between the end of 2010 and the beginning of 2011 rapidly increased the stress and the risks faced by the Italian network. Therefore, the Italian government, while transposing Directive 2009/28/EC on renewable energy into the Italian law, stated in art. 17, par. 3 of the Legislative Decree no. 28 of March 3rd 2011 that the TSO, in its Grid Development Plan, can include storage systems finalized to the better dispatch of intermittent (“non programmable”) generation plants. AEEG, the national regulatory agency, was then entrusted with the duty to define specific regulation and ensure proper remuneration of grid investments, taking into account the efficacy in the collection of production from renewable sources, the rapidity in the development of those investments, and differentiating according to the location and the technology adopted.
Few months later the Italian legislator was even more explicit. In art. 36, par. 3 of the Legislative Decree no. 93 of June 1st 2011 it was written that the TSO can develop and manage distributed storage facilities by means of batteries in line with what foreseen by the Grid Development Plan, which it must formulate each year and get approved by the Ministry for Development. The same can be done by distribution system operators (DSO) on their own grids. Interestingly, this is considered not to be against the full unbundling of generation and transmission/distribution activities along the electricity supply chain .
In the following two years AEEG has partially done its duty and provided legal ground for pilot projects with batteries connected to the transmission grid, in order to assess different solutions and improve public knowledge on the issue, before taking long term binding decisions . On this basis Terna has launched a major investment plan of about 200 million Euro, testing battery technologies in five areas of Italy with energy and power intensive applications (see Fig. 2). Capacity already installed or under construction is equal to 50 MW and will receive extra-remuneration via tariffs for 12 years (look here for some details).
Fig. 2. Pilot projects concerning electrochemical storage systems connected to the Italian transmission grid.
As far as DSOs are concerned, the situation is less developed and no specific pilot project has been adopted. However, some distributors like Enel Distribuzione and Acea have installed batteries connected with the distribution grid within the smart grid pilot projects foreseen by AEEG already in 2010 . Moreover, in some cases like on the island of Ventotene the distributor is moving ahead autonomously because of the apparent advantages of battery adoption.
Anyway, even less defined, until very recently, has been the legal framework for storage solutions connected to the grid by non-regulated subjects, i.e. by energy producers or by end-users. As discussed above, the potential applications of batteries in this respect are significant, especially when associated with intermittent energy sources (wind and solar), in a context of decreasing feed-in tariffs, an extra-remuneration legally provided for self-consumption, proposed imbalance charges for electricity producers that use renewable energy sources and potential further electrification of final uses (heat pumps and electric vehicles).
The Decree of the Ministry for Development of July 5th 2012, the so-called Quinto Connto Energia, while providing the last and less generous round of subsidies for electricity generated by PV panels, declared in art. 11, letters c) and d) that with the aim to ensure the development of solar PV in a way compatible with the security of the electricity system, AEEG, ensuring also coordination with decisions having the same aim and concerning other renewable energy sources, shall define i) the way in which responsible subjects can use storage facilities in order to better manage energy production and store it in case of imposed disconnection or limitation to power output; ii) the way in which system operators can make available to responsible subjects, possibly in substitution to the former possibility, storage capacity at the distribution primary substation.
Despite the growing interest on the topic by the industry, in particular by Anie Energia, the association of Italian firms operating in the field of electrical components and machines, AEEG has been slow in taking a decision, while the Gestore dei Servizi Energetici (GSE), the public body that manages subsidies to renewable, declared openly that any alteration to the design of a generating unit, in particular the installation of a storage system to units using subsidised renewable energy sources, was not allowed until the definition of the rules by AEEG and that energy producers doing that might lose their right to incentives.
To be fair, AEEG published at the end of 2013 a document for consultation with its first ideas on the topic, but for several months uncertainty ruled and, while Germany launched an incentive programme targeted at families and small firms, investments in Italy were put to a halt.
After significant pressure from the industry and the adoption of new technical standards by the Comitato Elettrotecnico Italiano (CEI) , AEEG finally came out with its new piece of regulation in November 2014, which confirmed much of what was already in the document for consultation one year earlier. In the Delibera 574/2014/R/eel, integrated in the following weeks by Delibera 642/2014/R/eel, the regulator recognised the presence of a normative void on energy storage, with the exception for pumped hydro and for transmission and distribution companies. In particular, the regulator confirmed the necessity to define a temporary set of rules for the integration of storage facilities into the electricity network, pending a full assessment of the effects of storage on the entire system.
AEEG adopts in the Delibera the following definition: a storage system is a set of devices able to absorb and release electric energy, foreseen to work continuously in parallel to the grid or able to modify the energy exchange with the electricity grid. The storage system may or may not be integrated with a generating plant. Systems that enter into function only in emergency conditions like during a black out are not considered to be a storage system. No specification about technology is introduced.
In order to define the main conditions for the integration of storage systems, the regulator draws an analogy between them and pumped hydro plants. According to existing legislation, the latter are considered as power generating plants with negative minimum power. As a result, AEEG states that the value for the energy taken from the grid and used only as an auxiliary service for charging the storage system and then feed it back into the grid is equal to the hourly zonal price (transmission, distribution and other general system charges are not to be paid). However, if the storage system is connected also to a consumption point, the energy taken from the grid and used for satisfying final consumption (even if later in time) is valued at the National Single Price (PUN), plus transmission, distribution and general system charges.
In short, with the installation of a storage system we have an active connection that must be registered according to the TICA, i.e. the integrated code for active connections. In order to keep things simple at least during this initial phase, AEEG says that economic conditions and procedures valid for high efficiency combined heat and power plants apply (forfeit charge for connection to medium and low voltage grids).
Like a pumped hydro plant, a storage facility is considered to be a generating group that can work alone or together with other groups. It is up to the producer to define the organisation of its own generating groups within units of production that are covered by unit commitment rules. Interesting to note, as a temporary solution, AEEG states that a unit of production formed (also) by a storage system can be considered dispatchable or not on the basis of the nature of the generating groups different from the storage system that form it. As a consequence of that, a unit of production composed by a wind turbine or a solar panel plus a battery is still a non dispatchable unit of production (at least for the moment) and benefits of some advantages over dispatchable units of production like coal power plants or CCGT.
The Delibera by AEEG also states that the installation of a storage system requires the proper metering of the energy absorbed and injected by it. This is essential when a subsidy scheme to production or special commercial regimes are in place. Technical rules by CEI must consider this aspect and provide for it. For a similar reason, installation of storage systems is not allowed for those PV power plants that are subsidized under the 1st Conto Energia, have a power of less than 20 kW and benefit from net metering (scambio sul posto) .
Finally, AEEG concludes by saying that the participation of storage system to the market for balancing services is under review and will be part of the broader reform of the electricity markets that the regulator wants to deliver in the next months.
With the further amendment in December 2014 by CEI of the technical standards, which basically extend to storage facilities the same requirements introduced in the previous years to distributed generation units , and with the adoption in April 2015 of the new implementing procedures by GSE, the market for batteries in Italy is finally ready to take off, at least according to the wishes of the industry and of some financial investors.
The economics is improving but not yet enough
As discussed in the previous paragraph, the Italian regulatory framework for batteries connected to the electricity grid is today much clearer than it was only a couple of years ago. Pilot projects are under way at the transmission and distribution level and there are now rules for batteries owned by energy producers and final consumers.
The favourable context existing now in Italy and in other countries like Germany or California has generated a lot of expectations by the industry and many analysts think a huge revolution has already began that will turn up-side down the electricity industry and undermine the role of traditional utilities. The Rocky Mountain Institute talks about massive grid defection by customers endowed with PV plus battery systems, while IHS forecasts a tenfold expansion of the market for batteries between 2014 and 2018. In a similar fashion UBS Bank announced last summer that the combination of solar PV, batteries and electric vehicles represents a cocktail that will re-shape the industry. Finally, Tesla has came out last May with its new product, a 10 kWh lithium-ion battery for households that will be sold for just 3,500 dollars .
A lot of talks have followed in the last weeks but for the moment the reality seems not so bright for electrochemical storage. Indeed, a recent analysis prepared by Ricerche di Sistema Energetico (RSE), an Italian public research centre, shows that electrochemical storage has a long way to go. Batteries are still expensive (investment costs are around 400-2,000 Euro per kWh of storage capacity) and do not last enough time before degradation (a lead-acid battery can perform 1,000-2,000 cycles while a lithium-ion battery 5,000-8,000) . As a result of that, for many applications batteries do not represent today a viable economic solution. According to RSE, batteries can be profitable only if applied to a thermal power plant that is obliged to provide by law frequency regulation free of charge, or if applied to generating units in small and not interconnected islands, where expensive diesel engine is the default technology for electricity generation today. In the former case, batteries can provide capacity for frequency regulation, allowing the thermal unit to run at full rated capacity, while in the latter, batteries can reduce the need for diesel capacity and allow an increased and reliable utilisation of available intermittent energy sources like wind and sun.
Interestingly enough, the application of batteries to residential PV systems is not considered to be economical at all, at least for the moment. For batteries being really interesting for prosumers, RSE says a cost reduction of around 50% should be achieved. Uncertain is the economic return even for a TSO installing large sodium/sulphur batteries for energy intensive applications, as in the case of Terna .
An important conclusion that can be drawn from the analysis by RSE is that multiple applications of storage systems should be considered, in order to make their economic case stronger by combining several different benefits. To use batteries just as a back-up tool or just as a way to increase self-consumption of energy produced from PV panels makes no economic sense today.
Therefore, it should not be a surprise that sales of batteries recorded world-wide in 2014 were larger than in 2013 but still in the magnitude of tens of MW of power, something pretty small when compared with the tens of GW of newly installed generating capacity just in renewable energy sources. A bit like solar photovoltaic panels five or six years ago, growth rates are remarkable but the starting point is extremely small and many investments are just demonstration projects that require financial support to be economically viable.
After a lot of discussions and debates a broader legal framework for energy storage is today available in Italy. Significant investments in storing capacity by Terna and some DSOs are under way, while new commercial offers of battery systems for households with PV panels are now available.
Nevertheless, the economics of batteries is not yet right. If you are an end-user, for instance, batteries make sense only if: i) you value extremely high the continuity and quality of service or your independence from the grid; ii) you are located in remote areas like on mountains or islands; iii) you are a fanatic environmentalist; iv) you like technological innovation and want to be an early adopter of new gadgets; or v) you are receiving a subsidy.
Before a massive deployment of batteries is possible and desirable from a societal point of view, costs must then be dramatically cut down and performance improved. Producers of storage technology are optimist and think that they could do that in the next 3-5 years .
Maybe they are right and by 2020-25 batteries can really make economic sense in many applications. However, two things must be born in mind. First, the business case for storage in the next years is dependent not only on technology development but also on regulatory choices like the reform of electricity tariffs and of ancillary services. Indeed, the full extension of imbalance charges to intermittent renewable energy sources and the possibility for them to sell services to the system could enhance the economic value of storage systems, especially of batteries, which can provide ancillary services in a very flexible way.
Second, interactions with other technologies and market developments should not be forgotten, since they can reduce (or improve) the case for storage systems. Look for instance at the output of pumped hydro, the traditional way in which energy is stored in the Italian electricity system. After a peak in 2002, it has been on a shrinking path and in 2013 less than 2 TWh of electricity has been injected into the grid from those facilities. Indeed, changes in the price profile of electricity, due in part to the boom in PV panels, have reduced the profitability of storing energy at night and releasing it during daytime. A similar self-defeating development can occur to batteries, when massive deployment will start.
Interesting times are ahead of us. New technologies and business models are re-shaping a more than a century old industry. Let's stay focused, track the change and avoid to be stuck in the flux until things are a bit more clear (especially if the money of rate-payers is involved) .
 In terms of capacity pumped hydro represented in 2013 around 98% of all grid-related energy storage devices deployed worldwide.
 Storage devices can be rated both in terms of the instantaneous power they can provide in normal working conditions (kW) and in terms of the total amount of energy they can store and release (kWh). Both pieces of information are important and should be disclosed in order to really understand the potential applications of a given storage device.
 By increasing demand during night and by reducing the peak during day, pumped hydro allows to run thermal plants at almost constant power, thereby achieving a higher thermodynamic efficiency. Plans developed in the 70s and early 80s for the development of nuclear energy in Italy increased further the interest for such solutions.
 However, since that year energy consumption by pumped hydro facilities has declined and in 2013 it was around 2.5 TWh (source: Terna). Given an efficiency of 75-80%, this means that those same facilities generated around 2 TWh of net energy.
 See Decree by Ministero dello Sviluppo Economico of December 15th 2010, art. 7, letter k).
 With the batteries at the direct disposal of Terna, the distinction between the transmission system operator and the generation companies becomes blurred.
 See Delibera ARG/elt 199/2011 of December 29th 2011 and Annex A; Delibera 288/2012/R/eel of July 12th 2012; Determinazione 8/2012; Delibera 43/2013/R/eel of February 7th 2013; Delibera 66/2013/R/eel.
 See Delibera ARG/elt 39/2010 of March 25th 2010 and delibera ARG/elt 12/2011 of February 10th 2011. The main goal here is to test innovative technologies and solutions for “active” distribution grids, i.e. for grids where the significant presence of distributed generation, especially made by renewable energy sources, induces power to flow from lower to higher voltage segments of the network during at least 5% of the time.
 CEI is a non profit private association established in 1909 and recognised by the Italian state and the European Union. It is responsible for the definition of technical rules in the field of electro-technical engineering, electronics and telecommunications. It represents Italy in international forums where standards and technical rules are established.
 The 1st Conto Energia was introduce by Decreto Ministeriale of July 28th 2006 and of February 6th 2007. According to GSE the number of plants fitting into this category is rather small: less than 4,000 with total capacity lower than 26 MW.
 See Norma 0-16 concerning connections to high and medium voltage distribution grids and Norma 0-21 concerning connections to low voltage distribution grids. In particular see Variante 1 and Variante 2, firstly adopted at the end of 2013 and then amended in December 2014. They define minimum technical requirements that storage units must satisfy in order to provide grid services.
 To be precise this will be the wholesale price for the storage device. Commercialisation and installation costs are likely to double final price for consumers.
 By combining this information with the investment cost in a new battery, you can compute a levelised cost of storing energy of about 0.4-0.6 euro per kWh (the cost of generating the energy stored is not included). This alone is definitely more than the 0.1-0.3 Euro per kWh that electricity customers usually pay for the energy coming from the grid.
 This is recognised even by AEEG, which endorsed the pilot projects proposed by Terna notwithstanding a negative net economic return computed over the entire life cycle of the investment.
 In this they may be helped by the existing tax allowance for investments by households in energy efficiency and building renovation that covers the installation of a PV panel plus storage system.
 In the Strategic Framework for the period 2015-18 (Delibera 3/2015, Annex A), AEEG expressed a similar position, underlining the rapid and difficult to forecast development of storage systems. This technology represents, according to the regulator, a source of dynamism that may impact the security of the electricity system. Therefore, a technology neutral approach that does not discriminate such technology should be adopted, but a careful monitoring of pilot projects is necessary as well, in order to be sure that system security is not undermine and that only deserving (selective) investments are made by regulated subjects.