2024
Energy Storage Report
Key Regional Markets
Spain
The Spanish energy market is gradually emerging as the frontrunner in decarbonising power generation segment. The energy crisis of 2022 helped reinforce the policy resolve. The government’s draft climate strategy plan document aims for an over 80% renewable energy penetration by 2030. The grid operator’s network planning factors in a similar estimate, at about three-quarters’ share of renewable by 2030, to expand the capacity. Energy storage might be a vital missing piece in the upcoming energy frame. A rising share of renewable energy generation faces either curtailment or price cannibalisation in the absence of storage capacity operating in the power market. Of late, the rise in storage-linked renewable generation projects has been encouraging progress.
GDP (Current Prices) USD (2022) | 1,419bn |
GDP Growth Forecast (constant prices) (2023-2027) | 2% |
10yr Govt Bond Yield (12-month rolling average) | 3.47% |
Country Credit Rating (S&P) | A |
Battery Storage Capacity | NA |
Pumped Hydro Storage Capacity | 73GWh/3.3GW |
RE share of Total Electricity Capacity | 58.2% |
Battery Storage Outlook | 22GW by 2030 |
Source: IMF, Fred Economic Data, S&P Global, MDPI, Energy Institute, Reuters
For pumped hydro storage: (energies, 2020)
Energy Mix and Case for Storage
Source: The Energy Institute Statistical Review of World Energy
Solar PV generation is driving renewable energy penetration in the grid (Red Electrica, 2023). The total solar power generation for 2023 registered a 34% year-on-year growth. A rapidly expanding solar project pipeline is straining the approval process, besides adding to the transmission connectivity queue. At the same time, there is a policy approval to phase out coal-based power generation by 2025, five years ahead of the original plan (Euro News, 2023). The country’s largest coal-fired power plant (1.4GW) is confirmed for closure by the end of August 2024. Retiring such baseload generation capacity adds to the urgency of strengthening grid infrastructure.
In the absence of preparedness in the grid, the rise in renewable energy share makes curtailment a strong likelihood. IEA’s estimates indicate that renewable energy curtailment has risen in Spain – from 0.2% in 2019 to 1.5% by 2022 (IEA, 2023). The fast clip of wind and solar generation capacity addition means that in the absence of storage capabilities, the grid could disincentivise potential investments with a cutback in generation. Already, the power market faces cannibalisation in short-term prices – the influx of new solar capacity has been causing prices to dip in the daytime due to excess supply (S&P Global, 2023). Without storage, as studies indicate, Spain’s renewable energy curtailment rate could reach 5% during 2025-2035 (Montel, 2023).
Capacity: Status and Trend
Policy and Regulation
The regulations provide a basic definition of energy storage, its ownership, functions, and participation in providing services in the energy market. Further, the regulatory norms also describe the grid access for such capacities (in line with power generation) and allow for co-location with new or existing generation capacities. Standalone capacities are thus subject to similar requirements of permits and related procedures to seek transmission access toward the injection of power (Lexology, 2023).
While the basic regulatory outline is in place, the comprehensive framework for grid integration of storage capacities is yet to be developed or clarified. The potential standalone storage units need to consider the business models to sell the power back to the grid in specific time slots. The existing power market regulations need to be more well-defined for such business models as arbitrage pricing, frequency regulations, etc. However, the rules refer to hybrid renewable projects with co-located energy storage capacities. In effect, the laws allow co-located energy storage units to capture energy from the renewable generation project at a time point when the grid price may not be economically viable and discharge the same later when prices are higher (CMS, 2022).
The policy scope of utility-scale storage capacity in Spain is limited to hybrid renewable power projects. This implies challenges in the viability of private sector standalone grid-scale storage projects. The policy stance appears to be encouraging the hybrid storage model. In December 2022, the government announced a grant-based funding scheme for 600MW worth of storage capacity, which must be combined with renewable power generation (PV Magazine, 2022). The scheme allocated €15 million for each project by a developer and will be valid till December 2025. In late 2023, the Spanish government launched its first PERTE tender for energy storage co-located with renewables. About 1.9GWh was awarded for storage projects co-located with renewable technologies (Energy Storage News, 2023). This covers 40-50% of the project costs, with a total funding of €160 million. Under the PERTE tender, Iberdrola received a total of €37.5 million in funding towards their deployment of six BESS projects in Spain with a total of 150MW/300MWh, co-located with existing solar PV plants (Energy Storage News, 2024). In December 2023, the Spanish ministry unveiled state aid of €150 million to incentivize hybrid projects across Spain for 36 energy storage projects co-located with renewable energy totalling 905MW (Renewables Now, 2023). The highest was allocated for 632.4 MW of storage projects located at Castile-La Mancha and Extremadura, with a total aid of €95.4 million. The hybrid storage project in the Balearic Islands received €28 million with 4.6MW of solar PV and 53.5MWh of storage (Renewables Now, 2023), and Statkraft received €2.5 million for developing a BESS at its solar farm in western Spain (Renewables Now, 2023). State aid towards encouraging hybrid or co-located storage projects is surging in Spain, leaving behind an urgent need for policy packages for developing grid-scale storage projects.
Support for standalone storage projects came through in July 2023, with the Spanish Ministry for Ecological Transition launching two funding schemes aggregating €280 million to promote energy storage projects (Renewables Now, 2023). About €180 million is allocated towards standalone and thermal-based storage projects, while the rest is for pumped hydropower projects. The funding allocation for each standalone storage project is capped at €50 million.
Market Developments and Opportunities
The co-located capacities will likely lead to the growth of the Spanish storage market in hybrid renewable generation projects. Storage-based hybridisation is also gaining traction in the Spanish market due to rising price cannibalisation in renewable energy (Power Engineering, 2023). In March 2023, Naturgy Energy Group announced its planned investment of €117 million across eight energy storage projects aggregating 290MW (WSJ, 2023). Seven of the planned projects are to be linked to solar farms. Among other notable projects is Soto Solar’s 1GW solar farm, integrated with battery storage and hydrogen electrolysing plant (ICEX, 2021).
Battery projects are slowly gaining traction in Spain, primarily supported by the aid distributed by the Ministry for the Ecological Transition. One such is Spain’s largest Escuderos BESS project, developed with 18% state aid. In November 2023, Grenergy unveiled its plans to invest €2.6 billion in Spain to develop solar and storage projects during 2023-2026 (Power Technology, 2023). In December 2023, the company announced the construction of an 87.6MW/175MWh two-hour battery storage capacity in its 200MW solar farm in Cuenca (El Periodica de la Energia, 2023).
The upcoming auctions present a significant opportunity for developers and investors. In June 2022, the Spanish Ministry for Ecological Transition’s draft order indicated the planned auction of 5.8GW of grid access for renewable energy generation and storage at 17 nodes across the Spanish mainland’s transmission network (Renewables Now, 2022). The public comments for this auction will be received till June 2024. The auction rules incentivise projects meeting specific criteria, such as storage co-location, share of self-consumption, hybridisation, repowering and commissioning schedule.
Pumped hydro is the other important sub-segment for Spain’s grid-scale storage capacity. While fraught with challenges in environmental clearances and development delays, pumped hydropower storage is vital as a long-duration energy storage resource in the Spanish grid. The 200MW Salto da Chira at the Gran Canaria Island is one significant project presently under construction. In this case, the grid operator is the developer, investing about €400 million (PV Magazine, 2023).
Outlook
The Spanish transmission system operator’s network development plan has projected renewable energy to contribute almost three-quarters of grid-connected generation by 2030 (Red Electrica, 2021). Battery-based storage plays a small role in the transmission operator’s projected energy scenario – about 500MW worth of grid-scale battery capacity was provisioned for the Spanish mainland network plan’s energy study projection 2026. Other planned battery projects include two storage units, aggregating 140MW, to strengthen the transmission interconnection between the Spanish mainland and the Balearic Islands. The interconnector capacity addition, while critical, will take over a decade to commission.
The grid constraints, meanwhile, could intensify with an accelerating renewable energy project pipeline. In December 2022, the government notified rationalisation in grid approvals for renewable energy projects (DLA Piper, 2023). Over 30GW in wind and solar power projects awaited grid access permits as of September 2023. The need for grid-scale energy storage will be far higher than the TSO’s latest long-term plan indicated. The government’s draft climate strategy document has pointers in this direction (Reuters, 2023). About 22GW of storage is targeted for 2030 to accommodate the 81% renewable energy share aimed for by then. Post consultation, the climate strategy plan could be finalised for implementation by June 2024.
The successful realisation of grid-scale energy storage capacities would hinge upon conducive regulations. Following the examples in leading energy storage markets globally, Spain’s grid-scale storage targets must be followed through with the regulatory framework for standalone storage units to participate in power trading markets. The incentives in such power market reforms will likely have a more significant impact than government budgetary allocations.