Industrial Investment and Operation of Energy Storage for Mitigating the Risk of Power Outage

Abstract

The addition of decentralised, renewable energy generation to the electric power system helps reduce the overall carbon intensity of electricity; however, the variability in energy supply also creates operational challenges within the electricity network and can increase the risk of power outage if not properly managed. Electrical energy storage has the potential to provide back-up supply as well as other electricity services. Here, the value of back-up energy is quantified by calculating the difference in expected cost of outage provided by given energy reserve, a novel contribution in the field of energy storage optimisation. For the case of a small aluminium smelter in Australia’s National Electricity Market, considering the risk of power outage has little impact on the private investment decision or on operating strategy except in the most extreme cases, such as where the smelter were uninsured and the network degraded ten times beyond currently forecast conditions. This conclusion was reached using a linear programming optimisation model and consistent for the 12 technologies tested, including when accounting for forecast technological developments. Nonetheless, for cases where energy storage is available, minimal changes to the operating strategy could provide significant reductions in the expected cost of outage. This finding has novel implications for insurance providers, who could benefit from risk reduction across their portfolios by requiring small operational changes during high-risk periods. Generally, the study underlines the importance of a reliable energy supply in transitioning Energy-Intensive Industry (EII) from on-site thermal generation to network-based electric power supply and highlights some of the outstanding challenges inhibiting such a change.