Keen to shift the political message onto tangible good news stories for the UK economy, July 2017 saw an announcement from the UK Government and Ofgem...
...to give homes and businesses more control over their energy use. Business and Energy Secretary Greg Clark announced what he called an
“epochal transformation…[to] move to a world where energy is clean and abundant” in the UK.
Underpinning this transformation is a commitment to invest £246m into battery storage technology in a bid to make the UK a world leader in the design, development and production of battery storage. This four-year investment, commonly to be known as the Faraday Challenge, will form a key part of the government’s overall industrial strategy, aiming to increase productivity and driving growth across the country. The strategy is funded by the £1 billion Industrial Strategy Challenge Fund (ISCF).
Within the £246m planned investment is a £45m research competition into battery materials, technologies and manufacturing processes to be followed by research and development projects, scale up and rollout. The Advanced Propulsion Centre will also work with the automotive sector to form a National Battery Manufacturing Development facility to harness battery technology for electric vehicles.
“Today is the starting gun for the UK to become the world-leader in innovative battery storage technologies” Executive Director, RenewableUK
So, why would the UK want to become a world-leader in battery storage and what will this mean for energy generators, distributed network operators, battery manufacturers and the consumer? Let’s take each one in turn…
Why do we need battery storage technologies?
The UK’s energy mix is evolving due to a number of factors;
- By mid-June 2017, wind power consisted of 7,613 wind turbines with a total installed capacity of over 15.6 gigawatts: 10,275 megawatts of onshore capacity and 5,356 megawatts of offshore capacity
- Tariffs have incentivised distributed generation over the past few years including solar PV in the domestic market
- The last UK coal power stations are expected to close in 2025
- Greater development of low carbon generation will be needed to meet the UK’s various EU mandated targets
As a result, energy networks will need ways to address the intermittency of greater renewable generation. Whilst baseload generation will help (such as the planned new nuclear investment starting at Hinkley Point and other advances in Carbon Capture and Storage) there will still be a need to increase maximum generation capacity above demand and reliable generation needed to balance wind. The UK distribution network was largely designed for electricity generation flow from small numbers of very large power stations. The increasing deployment of distributed generation creates headaches for the network, not least challenges in new grid connections from areas reaching capacity.
So, why electricity storage?
Energy storage (at an affordable price point) has tended to be seen as the missing link to solve the intermittency problems of renewable power generation and allow utility companies to mitigate challenges at peak usage. Grid connected battery storage will help to smooth out load variations and give greater flexibility to the grid; absorbing or releasing stored battery energy to match demand requirements.
A study in 2016 that has informed the UK Government’s current policy position, found that energy storage could result in savings of around £2.4 billion per year in 2030 for the
UK electricity system and if 50% of this saving was passed on to domestic customers, it could reduce the average electricity bill per household by around £50 per year.
Energy storage is typically one of three types: bulk (pumped hydro or compressed air); distributed (various battery technologies, liquid air storage or pumped heat storage); and fast (capable of a rapid response). Distributed storage (typically lithium-ion batteries and sodium sulphur batteries) are seen as the greatest potential for grid connected storage and could be viable home storage devices.
What will it mean for energy generators?
There are a range of barriers to the adoption of energy storage including policy, market structure, operating model and of course the cost of the technology itself. For energy companies the large-scale deployment of energy storage could be a disruptive factor to traditional energy generation models.
Bulk and baseload generators are unlikely to be directly challenged but faster cycle, peaking plant and ancillary services (used to smooth out discrepancies or satisfy short peak demand) could be displaced by the uptake of storage. For energy companies investing in renewables integrating electricity storage with solar PV or onshore wind could present benefit but more work needs to be done to make the business case stack up.
There may be scope for generators to use battery storage deployments to provide short term operating reserve services to National Grid, although its current tenders for such services are for four years, which may not incentivise the investment required. It is more likely that batteries are used to smooth power output to obtain a viable grid connection for example.
What will it mean for utility companies?
Utilities companies are rapidly looking for ways to develop propositions in the energy storage market. For example, E.ON launched its subsidiary E.ON Solar and Storage as a vehicle to install residential and utility-scale solar and battery energy systems. Anesco has announced its partnership with Limejump for the development of an 185MW battery energy storage system. The system will be completed by August 2018 and used to store energy generated from virtual power plants for provision into National Grid’s grid network during peak.
It is also reported that Centrica is financing the construction and integration of red-T’s 1.08MWh energy storage plant with two utility-scale solar plants. National Grid itself has also partnered with NEC Energy Solutions and VLC Energy to build two energy storage plants, including a 40MW battery energy storage plant and 10MW energy storage to enable increased integration of renewable energy resources to grid. National Grid and renewable energy company RES also announced in May that they had signed a contract for to provide 20MW of power from battery storage for frequency response to be operational by November 2017. The energy storage market is starting to change rapidly for utilities and companies are scrambling not to be left behind.
What will it mean for network operators?
Licencing rules restrict distributed network operators from holding generation licences (operating assets greater than 10MW). They are also restricted in the amount they can invest in (or receive from) non-distribution activities. Until this is changed it makes DNO-side energy storage much less viable, unless sub-contracted to third parties or via aggregation of many small-scale deployments. Third parties could either be an independent entity or another DNO (ring-fenced from engaging in such activities), but these types of arrangements are complex to arrange and hard to administer.
DNOs could clearly provide a range of services using energy storage, including: uninterruptible power supply to consumers and businesses; management of networks (network frequency and voltage); balancing services and electricity management services. At present, little is known about the impact of deploying storage on the electricity market since very little storage has been deployed overall.
What will it mean for battery manufacturers?
We’ll consider separately the electric vehicle market and the UK Government’s latest proposals to ban new diesel and petrol sales by 2040. In terms of the commercial and residential battery market in the UK, analysis from Ofgem (based on EDRP) suggests that the median value for current commercial batteries is around 2 kW maximum power output and 5 kWh of capacity for daily cycle applications. This compares favourably to the typical household power requirement of 0.4 kW and 0.1 kW respectively at peak time, demonstrating that current battery technology is already capable of shifting the entire peak consumption. Ofgem also notes, however, that half hourly averaged demand figures disguise large fluctuations from consumer home appliances, so in reality batteries would have to be shared or interlinked between groups of households to be able to reliably smooth power demand.
There is no doubting that the UK storage market is growing rapidly, presenting a major opportunity for manufacturers. In 2016 20MW of batteries were in operation (largely commercial contracts) but capacity could be around 30 to 100 times greater by 2020. Contracts have already been awarded that will see 558MW in place by 2020 and over 150 projects are in planning, representing up to 2.3GW in total.
Growth is being driven by falling technology costs (one of the main blockers at present) and the availability of new revenue streams, including the award of contracts from National Grid in the capacity market. The Early Capacity Auction for 2017/18 showed, however, that revenues aren’t certain and a shift in market economics will be needed to allow battery storage to compete.
The majority of the contracts were awarded to existing generators such as CCGT (22GW), coal / biomass (10.4GW) and nuclear (7.8GW). Whilst almost 13GW of demand side response capacity had pre-qualified for the auction, the reality of the lower-than-expected price of £6.95/kW meant that only 209MW was awarded to demand side technologies, around 0.4% of the total awarded capacity.
The issues this highlights for battery manufacturers include:
- Cost – These are falling but batteries are still expensive and consumers are unlikely to tolerate upfront costs, or indirect energy bill increases
- Battery Life and Size – Every time batteries are uses their efficiency is reduced and they can be bulky.
- Manufacturing – This is still a complex process involving some toxic and flammable components. The process itself is also resource and emissions intensive.
- Recycling – Many components of batteries can’t be recycled and can be difficult to extract in the first place
Manufactures from Bosch and Sonen to Moixa, Edison Power and Toshiba will need to address these issues within their processes and supply chains to help fuel future domestic market growth. Manufacturers migrating from the electric vehicle market such as Tesla (Powerwall2) and Nissan will also continue to aim for market share, supported by their prominent brand profiles. The current hardware cost of nearly £6,000 for Powerwall2 may still price consumers out of the market.
What will it mean for consumers?
As detailed above, domestic applications of battery storage are already being developed and increasingly viable when combined with solar PV (around 850,000 homes). The UK Government also announced that new rules will aim to make it easier for consumers to generate sell stored energy to National Grid, estimating consumers will save between £17bn to £40bn by 2050.
Batteries will also make it easier for consumers to take advantage of time of use energy tariffs, incentivising avoidance of energy demand peaks, for example. Whilst the ongoing rollout of smart meters is expected to drive development of time of use tariffs, it is worth noting that use cases of the adoption of demand side management technologies work best with a high differential between peak and off-peak prices, usually driven by infrastructure constraints.
In the UK, this market price driver is not currently present and consumers only have experience of operating within standard or Economy 7 type tariffs. Customer engagement will be critical if consumers are to understand not only the basics of their home consumption data but also incentivise the longer term behaviour change that HHS and demand side technologies could bring. Decisions still also need to be made as to how such tariffs will be constructed and more detailed modelling is needed to demonstrate what scale of sustainable behaviour change is realistic.