Reduced capacity payments for batteries ‘sensible’ and ‘overdue’

The lowering of capacity market de-rating factors for shorter duration batteries is “sensible and somewhat overdue”, a storage developer has told Utility Week.

Quarry Battery Company said the changes will help create a “flourishing and diverse home-grown storage industry” that meets requirements for both long and short-term storage.

Capacity market participants bid and receive payments according to their de-rated capacity. Different types of generation have different de-rating factors to reflect their expected availability during stress events. Battery storage projects currently have a de-rating factor of around 96 per cent, regardless of their discharge duration.

The Department for Business, Energy and Industrial Strategy (BEIS) announced plans in July to lower the capacity market de-rating factors for most battery storage projects due to concerns they were being overpaid.

It feared shorter-duration batteries may not be able to meet their obligations during stress events, which National Grid estimates will typically last for up to fours and around two hours on average.

Earlier this month, BEIS confirmed the new de-rating factors for batteries for the next four-year-ahead (T-4) capacity auction in February. Projects will split into eight different classes depending on their discharge duration.

Batteries in the lowest class (30 minutes plus) will receive a de-rating factor of less than 18 per cent, while those with a discharge duration of over an hour will receive a de-rating factor of at least 36 per cent. Only batteries in the highest class (four hours plus) will keep their original 96 per cent de-rating factor.

Dave Holmes, managing director of Quarry Battery Company told Utility Week that despite being “labelled by some as a blow to the emergent UK energy storage sector”, the changes represent “a sensible and somewhat overdue measure”.

“It indicates the government is, albeit painfully slowly, working its way towards a market framework that will help ensure a flourishing and diverse home-grown storage industry that meets the UK’s need for both short and long duration storage,” he added.

Holmes said the power grid requires storage for four main purposes – frequency regulation, system balancing, load shifting, and strategic supply.

He said lithium-ion batteries have become the “poster child” for energy storage, despite only being able to adequately provide frequency response due to their cost per megawatt hour, discharge capability, limited cycle life and degradation over time.

“The capacity market exists to ensure we have the machinery needed to keep the lights on during a long lull in renewable output,” added Holmes. “It is right therefore that it should most reward those technologies able to provide appropriate service.”

Quarry Battery Company is planning to repurpose two disused quarries at different elevations to create a 700MWh pumped hydro storage scheme at Glyn Rhonwy in North Wales.

The firm secured national planning consent for the project in 2016 and is aiming to begin construction next year. It expects to bid into one of the T-4 auctions in either 2019 or 2020.

Holmes said pumped hydro storage is best suited to meeting the four grid requirements he described, claiming it “offers by far the cheapest storage per MWh” and with less environmental impact than lithium-ion batteries.

The new de-rating factors have also been welcomed by consultancy firm N-ERGY. The firm’s managing director, David Bowman, said they will “promote the development of better technology and higher quality batteries, when reliable discharging into the grid for longer durations is needed the most.”

However, Bowman was also critical of the way in which changes were made: “Two things concern us – the constant changing of regulations and the timings of these changes – as that can deter potential investors in the capacity market, especially when the changes take place in the middle of an auction.”

Roughly 4.6GW (de-rated) of new capacity has prequalified for the upcoming auction in February 2018, although these figures were released before the updated de-rating factors were published by BEIS.