Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/571465
UTILITY WEEK | 18TH - 24TH SEPTEMBER 2015 | 11 Policy & Regulation ever, the hardware and soware in a smart grid provides greater control and automa- tion over the way the grid is managed. It not only helps regulate and balance the grid, but also reduces energy consumption. We can- not replace the grid, but we can make it more intelligent, matching supply to demand in real time and within network constraints. While UK energy regulatory policies are in need of serious overhaul, the UK is in many ways leading in demonstrating how energy storage systems interact with the grid. An energy storage test bed and smart grid lab facility at Newcastle University, part of Newcastle's £250 million flagship project in urban sustainability, Science Central, are currently examining how energy storage and smart grids might work to best effect. The programme is testing grid-connected electrical energy storage, including redox flow batteries with DSR and other smart grid innovations. Cost If we compare the annualised cost of new- build PHES at £154/KW against the capacity market closing price of £19.40/KW, then stor- age appears expensive. However, offshore wind, tidal lagoons and solar photovoltaics have an annualised cost many times greater than PHES, with offshore wind the most expensive at around £343/kW. PHES allows for more effective and efficient use of these renewable installations and so provides value for money. By 2020 Britain is likely to have deployed some 28GW of wind. Imperial College antici- pates that with 30GW of wind and no new storage, some 27 per cent of wind output will have to be effectively thrown away. If, as under the government's current strategy, wind build-out continues to 40GW, then the additional 10GW will add annual- ised costs of £6.3 billion including curtail- ment of up to £2.7 billion. The alternative strategy of deploying a 10GW/50GWh fleet of storage enables bet- ter use to be made of wind, cutting curtail- ment from 27 per cent to around 7 per cent and allowing 31.4GW of wind to produce the same overall output as the 40GW wind fleet. This strategy has an annualised cost of £2.7 billion, saving £3.65 billion a year while also cutting carbon emissions and increas- ing energy security. Over the 25-year life of a windfarm it saves £91.3 billion. PHES is physically and commercially durable. Lasting a century or more, it has a breakeven sales cost currently of £45/MWh. This is lower than open cycle gas turbine, on a par with combined cycle gas turbine, and it is set to fall lower still as more renewa- bles suppress off-peak prices. Storage is also naturally hedged against all fuels because it trades in electricity rather than any single fuel type. Further savings not factored in or calcu- lated by the model would result from storage lessening the need for costly grid upgrades and reinforcement, and from a reduced reli- ance on energy imports via interconnectors, which would improve the UK's balance of trade. Building the flexible grid In order to stimulate the building of storage to get a more flexible grid, storage must be redefined as a distinct asset class. It is not generation, yet it is currently treated as such by the market. It is not classed as renewable so does not qualify for contracts for difference (CfDs), and the capacity market as it currently works cannot reward storage for the way it offers a more reliable and lower carbon alternative to spin- ning thermal reserve. Extending to storage the same guarantees as provided to strategic infrastructure pro- jects and renewable investments would send a powerful signal to investors, resulting in a sea change in attitude. Longer-term ancillary services contracts, locked in and extended scope embed- ded benefits, revised capacity mechanism arrangements or CFDs designed for storage would lower the cost of borrowing. Since distributed storage both reduces the need for costly network reinforcement and makes hosting districts more self-sufficient, another positive move would be for grid con- nection and transmission costs to be revised for storage. Storage below 100MW can be connected at a distribution network level, but a facility with an output of 100MW and above must be transmission connected. The former receives embedded benefits via a share of Triad pay- ments, but the latter receives no embedded benefits and pays substantially more for transmission. The 100MW break point was devised to help manage the extra grid stress resulting from new thermal power stations, but it is inappropriate for storage, which lessens grid stress. The loss of embedded benefits and the increase in connection and transmission charges over the 100MW break point casts a long shadow, with the result that smaller- scale storage, otherwise perfectly viable, is less likely to be built. Finally, while there is planning guidance in the form of National Policy Statements for roads, reservoirs, wind and solar, there is none for storage. This leaves nationally sig- nificant infrastructure storage projects with- out the framework of relevant supporting policies. It is yet another element of uncer- tainty that deters would-be investors and developers. Subsidies are not necessarily required to stimulate the build of new PHES, but changes to UK energy policy most certainly are. The UK needs to recognise, incentivise and reward storage, rather than ignore stor- age, and it needs to do so now. Dave Holmes, managing director, Quarry Battery Company; and Professor Phil Taylor, Newcastle University £160 £150 £140 £130 £120 £110 £100 £90 £80 £70 £60 £50 £40 £30 £20 £10 £0 Existing With CM@ With GIB With clear With free With free UK infrastructure outlook £20 low rate loan policy connection transmission guarantee Storage cost (£/kW/year) THE CUMULATIVE EFFECT OF POLICY ACTIONS ON UK PUMPED STORAGE COSTS Government policy actions £153 £126 £102 £93 £76 £67 £43 Source Quarry Battery Company