Economic Modeling of Compressed Air Energy Storage for Enhanced Grid Integration of Wind Power

 

Project duration: 6/2008 - 10/2008

  Filling level of the CAES system for operation optimization with consideration of the storage limits (Source: Latz and Madlener, 2009)

In this self-funded research project, we model the economic feasibility of compressed air energy storage (CAES) to improve wind power integration. The Base Case is a wind park with 100 MW installed capacity and no storage facility. In Variant 1 we add a central CAES system with 90 MW compressor and 180 MW generation capacity. The compressed air is stored in a cavern. The CAES system is operated independently of the wind park, such that profits at the spot and reserve power markets are maximized. Variant 2 is an integrated, decentralized CAES system, where each wind turbine is equipped with a compressor but no generator. The compressed air is stored in a cavern and converted into electricity by a turbine, again maximizing profit as a peak power plant.

The massive expansion of wind energy use and the resulting increased fluctuation of a larger share of power generation require measures for a better capacity utilization of the grid. One solution is the expansion of storage facilities in the grid. Apart from pump storage systems, which often have limited untapped potentials (at least in Germany), CAES systems are one of few alternative commercial largescale options that exist today.

Whereas diabatic CAES, which requires additional gas-firing of the turbine, is technically mature, adiabatic CAES systems are currently being developed that do not need any gas-firing. A further promising alternative are wind power plants with integrated, decentralized CAES. Instead of being equipped with generators for power production, the wind power plants are equipped with compressors for air pressurization that can then be stored decentrally.

In our study we investigate and compare the economics of different variants of such CAES systems. We find that while studies comparing conventional diabatic with adiabatic CAES systems and other storage systems exist, the concept of wind power plants with integrated CAES has not yet been scrutinized. For our investigation, we have developed an economic model that allows studying three different variants of systems: (1) a conventional wind park without CAES; (2) a wind park with conventional centralized CAES in diabatic or adiabatic use; and (3) a wind park with integrated CAES in both diabatic and adiabatic use. Also, we have compiled capital and O&M costs for each of these variants from the literature. By applying real data on the feed-in of wind power to the grid, spot market prices and the price of minute reserve for 2007, we have then developed an algorithm for the profit-maximizing operation of the different variants. This yields the net revenue streams that enable us to calculate the NPV, the ROI, the generation cost and the payback period of the different systems.

The results show that the economics of the systems depend strongly on how intensively the spot market and market for minute reserve is used. Only when the combined trade in the spot market and minute market is enabled by a sufficiently flexible market, the CAES plant can be operated economically and help to stabilize fluctuations from the largescale feed-in of wind power. Unsurprisingly, without support from the EEG, all variants turn out to be uneconomical even if such flexible market conditions prevail. Compared to the wind park without storage system, however, all variants with CAES lead to a higher NPV, so that we can conclude that CAES is economically viable in all cases. We find that a centralized CAES power plant is economically more attractive than a wind power plant with integrated CAES. Furthermore, diabatic CAES systems are more profitable than adiabatic systems, and the ecological disadvantage of fossil fuel (natural gas) use and related CO₂ emissions directly undermines the advantage of feeding in renewable (wind) power.

Whereas the feed-in of wind power from centralized CAES to the grid is remunerated according to the Renewable Energy Act (Erneuerbare-Energien-Gesetz, EEG), the EEG Act does not foresee any subsidization of wind power plants with integrated CAES, since the wind power is not directly fed into the grid and because the electricity price that can be achieved by the storage power plant is above the feed-in tariff according to the EEG Act.

We conclude from our analysis that under the present conditions on the minute reserve market no CAES power plant is economically feasible. However, as soon as hourly contracts can be concluded on the minute reserve market, as it is possible on the spot market, CAES becomes attractive for smoothing fluctuations caused by wind energy feed-in. The economically most attractive option today is a centralized diabatic CAES power plant, followed by the centralized adiabatic alternative. However, even if integrated, centralized CAES is promoted by means of a feed-in tariff, centralized CAES power plants remain economically more attractive.

Project publications

Madlener R., Latz J. (2009). Centralized and Integrated Decentralized Compressed Air Energy Storage for Enhanced Grid Integration of Wind Power, FCN Working Paper No. 2/2009, Institute for Future Energy Consumer Needs and Behavior, RWTH Aachen University, November (revised September 2010).

Supervised student research

Latz J. (2008). Ökonomische Bewertung der zentralen und der dezentralen Druckluftspeicherung zur verbesserten Netzintegration von Windenergie, Study thesis, Chair of Energy Economics and Management, Faculty of Business and Economics, RWTH Aachen University.