Energy changes are speeding our way
Opportunities on energy storage are significant but there are still issues to solve, says Martin Whiteford
Readers may have had their attention drawn recently to headlines offering the tantalising possibility of cost-free driving.
By offering your new Nissan electric car as a storage battery, and allowing an energy supplier to trade power from the battery, the savings may roughly equate to the annual charging costs of running your small electric car.
Energy storage is one of the great challenges of our time. As we move to a fully de-carbonised economy, there are a number of converging factors requiring a flexible and dynamic approach to electricity supply. Our energy networks need to be reconfigured to deal with the variability of wind and solar. Historically, power flowed from huge centralised power stations to us as consumers. Power networks are increasingly now a twoway street, as storage allows suppliers and network operators to smooth out inconsistencies in energy supply.
Your car may soon be moonlighting as a battery but storage is also being developed on a larger scale commercial basis. With the withdrawal or reduction of incentive schemes, such as the Feed in Tariff, developers and investors are looking at storage. Technologies include battery storage, compressed air, hydrogen gas and pumped storage hydroelectricity. Many of these technologies are only recently available on a commercial scale (lithium-ion batteries have seen a rapid reduction in manufacturing costs) but others are substantially older. Pumped storage is the technology used in the Cruachan power station in argyll& bute which celebrated its 50th anniversary in 2015.
The regulatory regime around electricity is complex. The principal UK legislation on energy, the Electricity Act 1989, makes no mention of storage. Developers of storage projects sit slightly uneasily within the category of “generator” with consequential requirements on them to comply with a wide range of regulations and industry codes of practice.
The Westminster government acknowledged the regulatory regime needed to change to meet new demands on our power network. In July 2017, The Department for Business, Energy and Industrial Strategy, and Ofgem published proposals to increase energy storage and allow it to become a “genuinely viable proposition”. Ofgem will consult on a modified licence requirement for storage and the Westminster government will consider whether the English planning regime could be streamlined for storage projects. The UK government also announced substantial investment in battery development, lauding it as a critical part of a modern industrial strategy. Last month, Ofgem said commercial scale solar with co-located storage would be capable of claiming financial support through the ROCS (Renewable Obligations Certificates) scheme on all generated power.
Where does this leave potential developers and investors?
Certainty, revenue stream is critically important. Pumped storage is only viable for those with a pre-existing location that allows for pumping water from a lower level elevation reservoir to a higher one. However, taking battery storage as an example, what is the revenue stream for a potential investor? Storage projects can provide (1) a response service, reacting quickly when required; (2) a reserve service, providing a backup capability in times of scarcity; or (3) storing energy to be then supplied at times of higher price, essentially benefitting from price differences between on and off peak supplies. It is this price shift service your car will perform as it is plugged in overnight. Multiple revenue streams (revenue stacking) may be relied upon. As in any emerging market, getting good professional advice on commercial
opportunities and technical considerations will be critically important.
Our electricity grid is under strain. To address its current limitations, new energy generating projects might receive offers to connect to the grid that restricts export during certain times or to certain agreed limits. By integrating storage into such proposed projects, schemes that may have been considered unviable may now potentially be resurrected.
Combining storage with renewable generation is likely to be a key issue. Any addition to an existing operational renewables project would require careful consideration of the project structure, grid connections and need for additional land rights. The terms of any existing lease will be relevant to a proposed co-location of storage. If the storage is to be separately funded, how will this interact contractually with the existing renewable technology?
The opportunities on storage are significant but like any nascent market there are issues to be addressed in relation to regulatory policy and project risk. Free driving might be many people’s first experience of modern battery technology but we will very soon see other major storage projects speeding towards us, fundamentally changing our relationship with energy supply. Martin Whiteford is a partner, Anderson Strathern