24 May 2016

We have seen a flood of grid connection applications for electricity storage over the last few months. Western Power Distribution stated at our event: ‘Maximising the value of solar assets’, that they had received a staggering 8.7 GW of speculative storage applications since National Grid invited expressions of interest in provision of Enhanced Frequency Response. And similarly Scottish Southern Energy Power Distribution has had over 1,000 applications in the last few months.

Storage business models are not just limited to grid side services, but are also available for co-locating with generation and for commercial, industrial and domestic end-users. The technology has been tried and tested, but in most cases the finances don’t quite stack up… yet. However we do believe it is just a matter of time.

Battery costs are a significant system component and are still expected to fall dramatically. Li-ion battery costs are predicted to drop from US $500-700/ kWh to US $200-300/ kWh by 2020.

Regen is currently working with Green Hedge, TLT and Triodos to explore the business models for storage in our next Pathways to Parity report. It is clear that in some circumstances it is possible to line up multiple revenue streams, and consequently the finances can stack up. Nevertheless, in most cases, regulatory and cost barriers still exist.

We recently ran a roundtable event with some of the UK’s leading storage providers to inform our report. The general consensus was that the market currently works best for those that are already players – either generators, large energy users or large suppliers, as there is not enough ‘fat’ in the market for new or multiple players.

Ofgem also provided an update on their work around storage at the roundtable event. They are currently focusing on the definition and licensing, network tariffs, final consumption levies on imports, connection process and how they fit with other policy areas. They are also looking at the potential role of a Distribution System Operator (DSO – essentially a Distribution Network Operator (DNO) with responsibility for distribution system balancing). Ofgem is working jointly with the Department of Energy & Climate Change (DECC) to publish a call for evidence on smart energy issues (to include storage) in July.

The sector was clear that subsidising storage was not the way forward and that they wanted to find a way to compete in the market. Instead, the key policy issue is a clear mechanism to redistribute value from avoided reinforcement costs to flexibility providers. Currently there are many different auctions for frequency, capacity, voltage optimisation etc. making it very difficult to build a viable business model. If DECC, National Grid and DNOs could organise all their auctions under the two services they want: ‘response’ and ‘reserve’ – it would create greater certainty for investors as well as a better price for the System Operator.