The opportunity

On 22 September 2015, National Grid issued an Invitation for Expressions of Interest from industry providers to provide Enhanced Frequency Response (EFR): Invitation to Tender Packs are due to be issued on 15 April 2016. This new service is to provide capacity in the electricity network to cover historic stability that is being lost from the system as the number of large scale fossil-fuel-based generating turbines in use across the country decreases.

Historically these large turbines ticking over enabled the grid to cope with rapid peak demand for power (as occurs at half time in a Cup Final or at the end of EastEnders). The new service called for 200MW of power over a duration of nine seconds that could be instantaneously and automatically called upon should the need arise.

Energy storage facilities provide an increasingly attractive answer that is capable of supplying this need.

The ultimate goal is to create a sustainable tendered market for the provision of such services through the use of technology.  Services developed for the purposes of SMART frequency control would provide a route to market for existing and new providers, regardless of technology type with the potential to realise the benefits of competitions in the procurement of these services. Estimated savings to National Grid and its customers are anticipated to be worth up to £200m per annum.

In response to the initial call for interest in respect of the stated 200MW requirement, National Grid received responses equivalent to in excess of 1000MW of capacity. Whilst it is certain that not all of these options would currently be viable, the response demonstrates that there is both interest and potential capacity in this growing area.

Observers agree that storage will become more economically viable as fossil fuel based alternatives become less competitive either through emission reduction legislation or rising fuel prices.

The issues

A number of regulatory issues currently exist in the area of energy storage:

  • Even if transmission connected, the current position is that a supplier would also have to pay Transmission Network Use of System Charges. This position is being reviewed by DECC and OFGEM
  • Energy storage can currently be viewed as either an energy end user or as an energy generator; there is no clear policy and currently no specific licencing capacity[1].
  • The capital construction costs are high
  • Service level agreements are complex and often require achieving up to 95% availability based on the contracted service as is the case in the EFR invitation. This 95% includes scheduled maintenance periods
  • Planning conditions on, in particular, battery storage are likely to be very strict given perceived risks around some of the technologies (for example potential fire risk in the case of Sodium Sulphur batteries)
  • Behind the meter', there is a lot less regulation on domestic supply which currently could afford a competitive advantage to aggregate suppliers, so far there has been limited uptake of this opportunity.

Future

There is a clear and urgent need for technological advancement in the way that the grid operates and there will be an opportunity to provide services as this happens. An increasing number of opportunities for investors and service providers are likely to follow within this sector.

We see particular opportunities within the following areas:

  • Where connection agreements are in place but consent for existing projects has not been granted (for example solar or onshore wind projects)
  • Large scale housing developers have a unique opportunity to partner with aggregation energy suppliers
  • Existing wind projects have significant opportunity to augment their existing infrastructure with large scale storage, subject to planning, commercial and regulatory constraints.

The National Infrastructure Commission (NIC) reports findings on SMART Power also provide support for the huge potential for consumer savings by adopting a more flexible and storage orientated energy system. It is anticipated that it will add to the momentum in this sector that must see some government policy changes.