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A case study in the power of strong central government support for storage—and a warning.
Author''s note: This marks the third entry in our globetrotting series profiling the world''s top storage markets. The first entry explores how storage developers tackle the volatility in the U.K. market. The second installment delves into why Germany''s residential sector thrives as large-scale storage stalls.
South Korea proved itself the dark-horse winner of the global energy storage deployment race of 2018.
The nation had long been central to the storage industry as the home of two top lithium-ion manufacturers, LG Chem and Samsung SDI. But there wasn’t much to discuss on the deployment front.
Last year, a hearty government incentive kicked off a storage installation gold rush, which thrust South Korea ahead of the U.S. for annual installed energy storage capacity. It delivered 1.07 gigawatt-hours for the year according to Wood Mackenzie data, and is on track to beat that in 2019.
The peninsular country’s geopolitical circumstances make storage strategically useful in a way that few others countries have experienced. The presence of a domestic battery manufacturing base converts storage development into a national economic imperative.
With strong government involvement, South Korea accelerated its storage market in a way that sent ripples around the world. The deployment boom brought challenges of its own. Now policymakers must confront whether they rationed economic fuel for a long, sustainable burn, or doused the flames for a short-lived but brilliant burst.
South Korea''s physical landscape sets the operating parameters for the energy system.
The nation functions as an islanded grid, even though it’s attached to the mainland. The adversarial regime to the north precludes cooperation on electrical generation and transmission. The ocean surrounds the rest of the country, enveloping a number of islands, which have to balance even smaller grids.
As such, South Korea must provide for itself. If it follows through on commitments to build a high share of renewable electricity over the long term, this will create a strong driver for storage to balance intermittency internally (not unlike the U.K., or Israel, another grid islanded by geopolitics more than geography).
Renewables have not yet reached enough scale to make batteries a necessity. The government hopes to get to 10 percent renewable electricity in 2023 and 20 percent by 2030. In the meantime, the grid runs largely on nuclear power and fossil fuels, but the landscape has been stingy with ancient dinosaur juice. All of those fuels have to be imported.
As the eighth-largest energy consumer, South Korea had to become a top-five importer of liquefied natural gas, coal and crude oil, according to the Energy Information Administration.
Available grid capacity reaches nearly 100 gigawatts. Coal supplies the lion’s share of the grid with 40 percent of generation, nuclear follows with 30 percent and natural gas delivers 22 percent. Non-hydro renewables only produce 4 percent of South Korea’s electricity.
The upshot of this state of affairs is that the government has good reason to shift some grid services from fossil fuels to batteries, thereby freeing up the imported fuels for generation. Setting aside the relative economics of batteries and gas plants, minimizing reliance on imported fuels makes the country incrementally more energy secure.
Lastly, the economic landscape looms large in South Korea’s storage strategy.
Hometown heroes LG Chem and Samsung SDI supply batteries to many of the landmark grid storage projects in the U.S. and elsewhere, but they’re just part of the value chain represented in Korea’s industrial sector.
Another Korean battery manufacturer, Kokam, was acquired by SolarEdge as part of the inverter company’s expansion into other cleantech markets. Industrial conglomerate LS makes inverters, among many other devices. Doosan delivers a range of power products and services, and offers distributed energy management through its GridTech division. Korean automaker Hyundai committed to commercializing used electric vehicle batteries for stationary storage, through a partnership with integration specialist Greensmith.
The cluster of leading high-tech firms suggests an instance of the “what’s good for General Motors” principle of economic development.
“By promoting the market, creating a market locally, South Korea is providing revenue-generating opportunities for these companies to grow and capitalize these learnings and efficiencies and become more competitive in the global market,” said Ravi Manghani, energy storage research director at Wood Mackenzie Power & Renewables.
To the extent the government can jump-start a domestic storage market, it will enhance the fortunes of its storage tech cluster, in turn strengthening the South Korean economy and its industry’s position in the world markets.
The government has pursued this goal with a suite of policies, but we’ll start with the most dramatic.
The Renewable Energy Certificate (REC) program awarded a five-times multiplier to the offtake rate of wind and solar generators with batteries attached. That’s massive, although it steps down in the years following 2018.
Most systems tracked by WoodMac''s database feature power capacity of 20 to 50 percent of the generator, delivering 1 to 2 hours of energy at full capacity, Manghani said. They’re better suited to balancing minute-to-minute shifts in variable renewable capacity than bulk-shifting renewable generation for peak times.
This incentive launched in 2016 with the goal to get 800 megawatt-hours deployed and initiate a sustainable storage industry. The response of market actors moved faster than anticipated.
After deploying less than 100 megawatt-hours in 2017, Korea delivered 1.07 gigawatt-hours in 2018, more than any other country, according to WoodMac. In 2019, it will likely add another 1.26 gigawatt-hours, an increase in absolute terms, but a much smaller rate of growth.
The exact policy tool may be more dramatic than you see elsewhere, but this experience will prove instructive for many other jurisdictions grappling with how to help their young storage industries. Take New York, which long shied away from a storage mandate in favor of "market-based solutions," versus Massachusetts, which opted to boost the credits for solar attached to batteries.
Many states and nations are trying to find the right balance between speed of growth and long-term health— and we’ll discuss the pros and cons of this propulsive growth below.
A different South Korean government program wrapped up in 2018, installing 500 megawatts of storage for frequency and fast frequency response. Transmission grid operator Kepco identified substations and other grid nodes where fast-reacting grid services were most needed, and the industry got to building.
This program reflected a geopolitical need to be smart about fuel imports, Manghani noted.
“By relying on storage to perform these fast frequency response services, you’re freeing up traditional generators to provide energy services,” he said.
These programs don’t necessarily exclude foreign companies from participating, but the outcomes suggest that, practically speaking, they are destined for domestic companies. Korean batteries supplied Korean integrators to serve the Korean grid.
Two other initiatives round out the bunch. Public buildings have a requirement to add a certain amount of storage by 2025, for resilience and demand management. And commercial and industrial customers, especially large conglomerates, are encouraged to deploy storage to manage their demand.
There isn’t yet much to speak of in the tiny residential battery segment.
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