#TheGrid: Storing up problems for the future

Energy storage already plays an important role matching electricity supply and demand, providing grid services and equipping the system for higher penetration of renewables. Much more is needed, but it won’t be delivered without an injection of pace.

Sadly, the opposite it happening. Investors are running into labyrinthine complexity, unfathomable risks, and unhelpful rules and regulations. Big policy decisions have been kicked into the long grass, leaving the next government with a bulging in-tray.

E-FWD members convened in Aberdeen in June at the latest in-person event, The Grid, to discuss how to remove barriers and deliver a multiplicity of storage technologies at the pace and scale necessary to decarbonise the grid this decade.

• Simplicity: Policy must provide clarity of purpose and appropriate market structures.
• Decisions: The time for consultation is over. The next government must move decisively.
• Missing money: Unhelpful rules create a ‘valley of death’ that few investors can fill.

Energy storage technologies of all stripes and durations will be required no matter how quickly or successfully the UK grid is expanded to accommodate new forms of generation. The painful reality is that the grid is already a blocker to decarbonisation and congestion is becoming acute.

This means there’s an even more pressing need to roll out short, medium and long duration storage assets to fix some of the shortcomings of the grid itself. But for those bringing new technologies to market, the current policy and regulatory environment leaves a lot to be desired.

Navigating complexity

For investors, energy storage is an opaque asset class. Contemplating market entry requires pulling together diffuse strands: not only understanding each technology’s strengths and weaknesses, but also the way these characteristics are rewarded or penalised in each of the markets where they might operate.

Business models can and are being developed by stacking revenues and subsidies. But this is happening almost exclusively for well-established short-duration technologies such as lithium-ion batteries. As a result, this market segment is well on its way towards saturation.

The big challenge is to repeat this for medium and long duration energy storage. Here, the task is much more daunting because the technologies are less developed and the providers have less commercial experience. At the same time, the UK energy market is on the cusp of huge changes.

Those two factors combined – commercial immaturity and policy upheaval – are a recipe for stagnation. To break the logjam and guide investment, policy clarity is required to help investors identify commercial opportunities and navigate the complexity of the investment landscape.

Death by consultation

Energy policy under the last parliament was characterised by a frenzy of consultation. Many helpful ideas were floated, and industry responded in good faith. But the silence since then has been deafening. Once the general election is done and dusted, the next government will be faced with a series of big decisions.

For energy storage, the biggest missing piece is the overarching vision: what is energy storage solving for, exactly? Is the idea to replace the role of back-up gas-fired power plants at peak times, and if so for how many hours?

Is it needed to fill in the supply-demand gap over multiple consecutive winter days? Is it system services like inertia and other grid stabilising services, which we currently get as a byproduct of fossil fuel generation? Or is it a combination of all of these, and everything in between?

Once the purpose of each storage duration category is clarified, government must design technology-neutral markets that deliver the most cost-efficient outcomes for the required volume of capacity. Then, investors can make their decisions about which technologies to back within those frameworks.

Mind the funding gap

The current suite of commercially viable technologies will not be able to deliver government targets for 55 GW of short-duration and 50 GW of long-duration storage. So, innovation is required. But the current regulatory environment actively discourages innovation by erecting unnecessarily high thresholds to entry.

For example, DESNZ is proposing that a first-of-its-kind technology – i.e. anything other than li-ion – must be deployed at a minimum of 50 MW to gain support. The same goes for innovative new use cases of established technologies. But there are a lot of new storage concepts that need to be tested in real-world settings at smaller capacities first before scaling up, and few investors will take on technology risk alone until that has happened.

As a result, innovative storage technologies developed in the UK are being taken overseas for small-scale deployment because those markets offer more viable routes to commercialisation. One example cited in the discussion pod was a subsea battery storage technology developed in Aberdeenshire that is being field tested in Denmark as a contribution to the non-price factor support criteria in the Danish offshore wind tender.

A simple rule change would allow promising British technologies to be commercialised at home, and for the economic benefits to remain in the GB market. Unless government decides that the UK can meet its storage needs with mass deployment of two-hour li-ion battery installations, it will need to encourage a multiplicity of technologies, and that means supporting innovation from proof-of-concept all the way through to commercial deployment.

The UK is in a global competition and cannot expect to attract private capital when there is much more generous support available from the US Inflation Reduction Act or via EU subsidies. But removing unnecessary barriers to entry would be a welcome step in the right direction.