Utility Week

UTILITY WEEK | MAY 2021 | 11 Countdown to COP when electricity is cheap and discharge it back to the network at peak times. However, the wider electricity system is not sufficiently well tailored to encourage consumers to switch to such tariffs, says Buckland: "At the moment on a domestic level, it's quite difficult without smart meters and half-hourly settlements to get full value from that storage by providing services to the grid as a consumer. You need the regula- tory system to adapt to really support those half-hourly settlement and potentially other changes." And while these individual EV batteries will potentially add up to a massive amount of storage, they cannot be depended on to keep the lights on, says Hull: "The advantage of large-scale storage is that you can assure its availability. EVs are not as reliable as pur- pose-built storage plants." Here there is good news with total oper- ational battery storage capacity having increased from 0.7GW to 1.1GW in just over a year, according to figures published by RenewableUK in February. Cara Dalziel, policy manager at Scottish Renewables, says: "We're seeing batteries coming through in quite big numbers." The capacity market has contributed to this growth, says Buckland: "That part of the market is developing quite quickly on a mer- chant and capacity basis, which is brilliant because it means a lot of storage can come through without additional support. "The battery market should take care of itself to some extent, there is no strong case for additional subsidies." Market structures Renewable UK's statistics also show that around 16.1GW of battery storage is in the development pipeline across the UK – an eightfold increase since 2012. Of the total pipeline, while just 0.6GW of capacity is under construction, another 8.3GW is consented. "It's not far off what is needed but we're not seeing it come through to development because we haven't got the market structures right," says Barnaby Wharton, RenewableUK director of future electricity systems. He believes it is "critical" that storage continues to play a role in the capacity mar- ket because this technology enables the grid to access power at crucial times. However, the capacity market can't be relied on to deliver the volumes of storage required to aid the transition of the energy system to net zero, says Wharton: "It's not what it is designed to do. The capacity mar- ket has a very specific role and is not going to bring the levels we need." The "key barrier" to getting schemes from consent to construction is the network charg- ing regime, which applies essentially the same set of rules to storage and generation. These incentivise the development of infrastructure close to where demand is greatest. But this approach makes less sense for storage, where it is important to locate facilities at pinch points on the network. Says Wharton: "At a time when we are trying to deploy storage in areas where there are grid constraints, we are seeing network costs that will discourage that. "We should be incentivising storage to go to places where there is high congestion and enable generation that can't get through the grid to be stored for later. "You are disincentivising storage in areas of high generation and high congestion where you want to use it to avoid congestion on the network. "The most important thing is to get the charging regime fit for the future and the current regime isn't going to do that." Pumped hydro These locational problems are amplified when seeking to develop pumped hydro pro- jects, which remain the most tried and tested form of storing electricity long term. Due to their scale and nature, such facili- ties can be developed only in a few parts of the country, including the Scottish High- lands and Snowdonia. "You can't incentivise changes in loca- tion, because they are fixed," says Wharton. While batteries are useful short term, the technical limits on how long and how much power they can accommodate means longer-term options will be required for those periods when wind speeds are low or non-existent. Other long-term storage technologies, such as liquid or compressed air, show "great potential" but are still at an early stage of development with challenges likely to emerge as they scale up, says Hull. This means hydro stations, which work by pumping water uphill when power is cheap and then releasing it to generate elec- tricity when required, look set to play an important role in maintaining the stability of the grid (such as Drax's 440MW Cruachan plant, pictured). Increasing the number of these plants from the current total of four could replace the gas plants that currently play a valuable role during times of high demand, says Hull. However, pumped hydro projects, like nuclear and tidal lagoon power stations, involve heavy upfront capital expenditure. They typically take around five to eight years to build, according to the Scottish Renewa- bles report. "To get those price signals for such a huge capital investment at merchant risk is diffi- cult," says Hull. And with electricity prices expected to become more volatile, it will be difficult to provide the guarantees investors want in order to raise the hundreds of millions of pounds such projects require, he adds. The "biggest barrier" to the development of pump storage is investment, says Dalziel: "The current market design means that we don't have long-term signals to give that certainty." "We haven't built any for a long time: at the moment, we don't have financial framework to bring forward storage," says Buckland. In his recent report for Scottish Renewa- bles, Hull suggests that long-term energy storage could benefit from a similar support mechanism to that available for interconnec- tor projects. This would provide operators of pumped storage projects a minimum level of income, says Hull: "If it went below that, there would be a top-up." This support may never have to be trig- gered but would supply a level of guaranteed revenue to give investors confidence that the project is financeable, he says. "This is more about price stability than outright subsidy," says Dalziel. In turn, customers would benefit from the lower cost of capital that would be realised from putting these guarantees in place. Where this gets complicated for the gov- ernment is how the value for money of such a mechanism compares to other options, says Buckland. For example, a big breakthrough in bat- tery storage that enabled this technology to be delivered much more cheaply at large vol- umes could erode the economics of pumped storage. Tim Lord, senior fellow at the Tony Blair Institute for Global Change, worries that technological development means new financing mechanisms could create another set of "perverse incentives" that are difficult to anticipate. Hull, though, hopes that the government will develop a tailor-made support mecha- nism for long-term storage when its "Smart Systems and Flexibility Plan" is updated later this year. Given the long lead in times for building hydro projects, he warns that the risk of inhibiting the rollout of renewable generation means there is no time to lose. David Blackman, policy correspondent

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