A closing window of opportunity

No new grid-scale storage has been built in Britain since the 1.7 GW Dinorwig plant 30 years ago
No new grid-scale storage has been built in Britain since the 1.7 GW Dinorwig plant 30 years ago
Credit: Denis Egan

Britain has a substantial gap between the storage it needs and the storage it can call upon. Without concerted action that gap will widen and impact security of supply and energy costs, writes Dave Holmes of Quarry Battery Company

Britain’s electricity grid currently finds itself in an awkward place, due primarily to the oversight of successive governments over the last 20 years.

Enthusiastic commitment to bold carbon reduction targets has already seen the closure of much of the existing large coal and oil generation fleet, with a further 21 GW due to be decommissioned between 2011 and 2020. At the same time, and stimulated by highly attractive subsidies, the buildout of renewables has been relentless and means that wind and sun are likely to contribute 36 per cent or 41.7 GW of generation capacity by 2020. While thermal generation is consistent and generally predictable, renewables are neither.

As a result, the UK’s system operator is facing an increasingly difficult task balancing supply against demand. This volatility will only increase as the percentage of renewables grows, and there is a real risk of blackouts unless more non-wind backup generation capacity is brought into play to replace decommissioned fossil fuel-powered stations.

The most likely conditions for blackouts are during winter when high pressure weather systems can sometimes sit over the UK for days. No wind, coupled with clear skies and low nighttime temperatures, would mean electricity demand for heating is very high right at the time when wind farms are unable to generate any output.

Blackouts would be costly and hugely damaging. Studies from the Department of Energy and Climate Change (DECC) and energy regulator Ofgem estimate a cost of à‚£17,000 ($29,000) for every MWh of lost load, with an incident lasting an hour resulting in à‚£680 million in lost economic activity. The role of storage in such a volatile de-carbonized environment is both clear and well proven in the UK and many other countries. Not only can grid-scale storage help meet demand peaks by delivering energy in around 10 seconds, it can also absorb excess energy at times of glut, and hold it for later release when it will be most useful – either for quick reaction, short-term balancing, or as a longer-term measure to maintain supply.

Unaccountably, then, the provision of more grid-scale storage to partner renewables has been notably absent from UK government action since the nation’s first commercial onshore wind farm was commissioned in 1991 at Delabole in Cornwall. While other countries have increased storage capacity in line with the growth of renewables, the UK has not.

This is particularly puzzling because, at an intellectual level, Britain ‘gets it’. Among informed governmental, academic and power industry circles there has long been a consensus that the UK’s renewables programme needs to be partnered with the provision of more grid-scale storage.

This understanding has inexplicably not been translated into action. No new storage has been built since Dinorwig (1.7 GW) began operating more than 30 years ago. Britain’s total storage capacity – all of it pumped hydro or pumped storage – currently stands at just 2.8 GW.

While some emerging alternative storage technologies look promising, they are, even by optimistic estimates, some years away from being realizable on a scale useful to the grid. Pumped storage therefore is the only currently viable and proven grid-scale storage technology, and that is why it is being deployed so widely in countries with more joined-up energy policies than the UK.

The Portuguese scheme, The National Programme of Hydroelectric Potential Dams, has calculated that the optimum balance for security and evenness of supply is 1 GW of storage for every 3.5 GW of renewables.

Apply the same formula to Britain, and it suggests that our existing 2.8 GW of storage capacity should be around 4.8 GW, and that we should plan to have deployed 9 GW of storage by 2020. In other words, Britain already has a substantial gap between the storage it needs and the storage it can call upon. Without concerted action that gap is set to widen still further, with all that this implies for security of supply and energy costs.

New pumped storage will take some seven years from conception to operation, so Britain has a closing window of opportunity in which to get building if spiralling energy costs, driven by constraint payments and grid reinforcement costs, are to be avoided.

A study by the energy futures laboratory at Imperial College London and the Carbon Trust predicted that, if Britain meets the challenge head on, by 2050 storage could be delivering à‚£10 billion ($16.8 billion) a year in value and cutting à‚£400 a year from household electricity bills, all while delivering security of supply from a predominantly de-carbonized system.

The lower reservoir of the 600 MWh
The lower reservoir of the 600 MWh Glyn Rhonwy pumped storage facility
Credit: Quarry Battery Company

Flexibility and security

National Grid, too, shares a positive assessment of storage. In its paper Operating the Grid Beyond 2020, the system operator observed that large-scale pumped storage could provide flexibility and make a significant contribution to security of supply. But, tellingly, it concluded that it was hard to see how the investment required would work within the current market framework.

Just how much new storage the UK should build was looked at in an Imperial College and Carbon Trust study for the Department of Energy and Climate Change (DECC). It concluded that by 2030 the answer lies somewhere between 4.1 and 14.8 GW. The authors’ difficulty with arriving at a more definitive recommendation was due to the impossibility of predicting the impact of potential changes in the energy market on the viability of new storage over time.

Put simply, if the overall cost per MW for electricity delivered by storage remains as it was at the time the report was published, then only a modest buildout of new storage will be commercially viable. Britain’s storage gap will not be crossed. If, however, substantive amendments are made to the way value flows around and through storage, then the cost per MW will fall and a more ambitious buildout of new storage fleet can be contemplated.

This value chain dynamic has indeed proved to be the major obstacle to the building of new storage. Britain’s existing storage sites are unburdened by borrowing, their original build cost long since discharged and written down. New storage will have to raise development and construction funds in the open market and then service the borrowings from trading in the system operator’s Balancing Market. Would-be investors have followed the money and concluded the risk vs reward profile of such an endeavour is not encouraging for all but a handful of the most favourable potential storage construction sites in the UK.

However, there are now encouraging signs that the British government is beginning to revisit the way this particular dynamic has, until now, deterred developers from creating the storage that is so desperately needed.

Storage will be able to participate in the Capacity Market, the new mechanism intended to encourage the buildout of a modern reserve generation fleet, and the provision of other services such as demand-side response that are needed to replace flexibility lost through the decommissioning of old plant. The Capacity Market will allow storage to access more certain revenue streams over and above those from trading in the Balancing Market alone.

This is a very significant step, but the government needs to go further. It must foster belief. If investors are to be encouraged to get involved in what will inevitably be expensive and long-term projects, they will want to be confident that the government is not about to change its mind and leave them high and dry. The UK must do as others have done and set a target for the capacity of storage required, and by what date.

Storage creates substantial externalized value that the current market structure is unable to reward
Storage creates substantial externalized value that the current market structure is unable to reward
Credit: Emerson Process Management

A further confidence-building move would be a National Policy Statement on storage, making explicit the importance the government places on storage and charting more clearly its route through the planning process.

And then we come to the value chain dynamic surrounding storage. The Imperial College and Carbon Trust report states clearly that storage creates substantial externalized value that the current market structure is unable to recognize and reward. Who are those who make no contribution to storage, but gain from the externalized benefits? They are principally the district network operators and National Grid.

More storage on the grid will mitigate the peaks and troughs in supply and demand, making both the transmission and distribution elements of the electricity network more self-sufficient, and reducing the need for the costly reinforcement programme that consumers are currently paying for.

In other words, as the market currently operates, much of the financial benefit created by new storage will go to those that shoulder none of the financial risk and make no contribution to the construction or operation of new storage. This is an almost textbook example of a broken market.

So what can be done? At the moment, new storage must pay to connect to the distribution or transmission network, and then pay again to transmit energy. These charges are designed to penalize those that overload the system and force costly upgrades. Yet storage lessens the need for network reinforcement and reduces costs. Waiving these fees for storage would put right a glaring inequality and help encourage more storage providers.

Triad payments currently made only to DNOs to encourage self-sufficiency are another area of inequality that discourages new large scale storage. New generation fleet with an output of up to 100 MW – and in the context of Triad payments this includes storage – must be DNO connected. It therefore receives a share of valuable Triad payments. However, fleet over 100 MW must be transmission network connected, meaning that by default it receives no share of Triad payments. Just as DNO-connected storage would receive payment for improving a region’s self-sufficiency, should not grid-scale storage be rewarded for improving the transmission network as a whole?

The fact that storage is being encouraged to participate in the Capacity Market is to be welcomed. But the creation of the Capacity Market gives DECC a real opportunity to go further and make the full and unique benefits of storage available to the system operator.

Storage is not demand-side response. Both can play a useful role in mitigating demand peaks or supply troughs, but only storage can do it without asking people to turn the lights out or the air conditioning off. There is a further crucial difference: only storage can absorb excess power and release it later. This makes storage a versatile balancing tool for the system operator. It is to be hoped that the Capacity Market recognizes that storage only has a finite amount of energy to deliver before it must be recharged. Capacity Market rules should not mean that storage operators are compelled to hold back valuable balancing services in the runup to a stress event in order to avoid being fined for breaking their obligations. If they do, the system operator will be unable to call upon storage at the very times when its highly flexible contribution could have maximum beneficial impact.

There must be recognition too within the Capacity Market that storage can do more than simply generate a rated output of energy. It can sit awaiting instructions, poised to deliver a burst of power, and it can absorb excess power. If the rules are set so that only energy generation at the nameplate capacity qualifies against an asset’s Capacity Market obligation, then storage will be unhelpfully penalized for the way National Grid will undoubtedly want to use it at times of system stress.

At QBC we see signs that Britain’s storage gap has been recognized by the government and that storage is now being given the recognition it deserves. The cumulative effect of the actions we propose would be to reduce the cost per kW per year of pumped storage by around 70 per cent, repairing the failed market and enabling investors, entrepreneurs and civil engineers to step up and deliver the grid-scale storage Britain so desperately needs.

Dave Holmes is Managing Director of Quarry Battery Company, Britain’s only active developer of grid-scale pumped hydro.

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