Electricity storage on the cusp

Technological advances and the growing need to balance renewables mean electricity storage is on the verge of widespread take-up, say Elisabeth Blunsdon and Edward Humphries.

For many years, electricity generation has been dominated by large, centralised fossil fuel power stations connected to high-voltage transmission grids. A step change in the model that controls the nation’s electricity supply would be momentous. As the world has woken up to climate change, that shift has edged ever closer with centralised, baseload plants giving way to smaller distribution-connected renewable technology.

Movement was slow at first, but soon these smaller generators were making up five, then ten, then 20 percent of national generation. With the rapid advance of energy storage technology, the fairy tale of mainstream, clean, efficient energy production is becoming much more than that.

For years, energy storage was put in the “too expensive, too difficult, too risky” category. After all, if you have a strong baseload generating fleet and an experienced transmission operator, why would you need it?

The catalyst turned out to be the increasing success, availability and efficiency of intermittent renewable generation. While energy storage is not a magic bullet, it does offer an irreplaceable solution for a burning industry challenge: peaks and troughs in generation levels, and grid stability issues.

The end of August saw National Grid announce the results of its first tender for enhanced frequency response (EFR). Eight successful bidders have been awarded EFR contracts totalling 201MW, and will be capable of delivering frequency response in under a second. What differentiates the EFR tender from previous frequency response tenders is that all the contracted plants are batteries. This is in itself groundbreaking for the UK, but what is even more interesting is that when the tender was first announced, 72 companies responded. Energy storage has well and truly woken up.

While the EFR process is to be welcomed, storage is not without its challenges. It is still expensive to develop a storage project, and financing projects is not straightforward. Part of the problem is that in the UK energy market there is no clear classification of what storage is. Historically, to the extent that it has been categorised at all, it has been seen as generation, but storage does not fit well into the definition of generation under the Electricity Act. While it has some features that are similar to generation, it has others that are significantly different. Storage can perform multiple physical and commercial functions and part of the challenge is how to capture the benefit of this versatility.

Commentators talk of “stacking” benefits – by which they mean being able to provide, for example, ancillary services, arbitrage power prices, network support and demand-side reduction, all using the same piece of kit. There is no other technology currently in use on our electricity system that has these characteristics, and it seems logical, therefore, that there should be a separate licensed asset class to cover storage. Coupled with this, we need a contractual framework that allows for full commercial exploitation of storage assets, with long enough contractual terms to give financiers comfort with regards to future revenue streams.

In recent years, there has been a move towards the unbundling of functions within the electricity industry, driven largely by competition concerns. When it comes to the development of storage, however, collaboration is the key to success.

Ofgem has been working for some time with various distribution network operators (DNOs), universities and energy suppliers on projects to develop storage technologies and test them in different scenarios. The results of these projects provide valuable, and sometimes surprising, insights into how best to commercialise storage. Renewable developers and large industrial users are also keen to tap into the potential benefits of storage, particularly in “behind the meter” arrangements, which allow active on-site management but also the potential for interaction with the wider grid.

California is seen as the poster child for storage, ever since the California Public Utilities Commission mandated the state’s grid operators add 1.3GW of battery storage to their systems by 2020. California has a very specific characteristic – namely huge amounts of solar generation – which gives rise to some very specific grid management problems. Since the enactment of that mandate, the California storage industry has gone from strength to strength, with several projects being financed on the back of long-term contracts and the recent announcement of a 300MW facility being developed by AES, which will replace a combined CCGT with a gas-fired plant and battery array.

Will the EFR tender do the same thing for UK storage? Probably not, although it is a welcome step in the right direction. What is needed is a firm steer from the government that storage will be supported in future energy policy. That support does not need to be financial, but it must be agreed that storage will have a clear role in the UK’s future energy strategy. Coupled with that, the regulatory and commercial arrangements need to be set out, and soon.

Energy storage is getting cheaper, and rumours are crossing the Atlantic that storage will soon be able to deliver at $100/kWh. The nature of the energy sector and the capabilities of storage make it highly likely that in the future, storage will play an important role in our energy systems. Right now, Lithium ion batteries lead the charge, but the potential for energy arbitrage across different types of devices and equipment means that the possibilities for innovation and creative solutions have never been more exciting.

Elisabeth Blunsdon, of counsel, and Edward Humphries, partner, in Orrick’s Energy & Infrastructure practice