In the rush to develop new battery storage technologies to ease the growing strain on the UK's electricity network, are we in danger of overlooking the large-scale storage assets we already have?

A report, The Benefits of Pumped Storage Hydro to the UK, thinks so and suggests a solution.

Pumped storage hydro

Pumped storage hydro (PSH) is a technology that has been around for a long time (since the end of the nineteenth century) and is still by far the most common energy storage technology currently available – over 97% of worldwide storage capacity in fact.  Yet in the UK there are only four operational PSH schemes, commissioned between 1963 and 1984, and three in the planning stage, with four more that have been proposed or discussed (one being an upgrade to an existing scheme). 

The four operational schemes together provide 2,828 MW of generating capacity and can store approximately 24GWh of energy.  But if just one of the new schemes (SSE's Coire Glas in Scotland, which got planning approval in 2013) goes ahead, it would more than double the total UK storage volume.

Benefits

The benefits of energy storage are well known.  As the amount of intermittent renewable energy on the electricity system increases (and under National Grid's Future Energy Scenarios 2015, installed wind and solar capacity will increase by a factor of 2-4 over the next 15 years and conventional thermal generation could shrink by 11-13%), there needs to be more flexibility in the system.  PSH can provide this by pumping water from a lower to an upper reservoir at off-peak times and releasing the water from the upper to the lower reservoir through turbines that generate electricity that is injected into the grid at peak times.

PSH can respond to a request for power response within seconds, but unlike battery storage, can continue to provide reserve power for tens of hours at a time.  This means it can take advantage of the various frequency response services offered by National Grid, along with energy arbitrage (using energy at low-price periods and generating it at peak periods) and the capacity market.

Issues

Although PSH can "stack" various forms of revenue as detailed above, this is not enough to make a worthwhile business case to build a new PSH scheme.  All these revenue streams are not certain and are not long term (most are less than four years).  The major risks for PSH investors are not technical (it is an established, proven technology and the planning process in the UK is well understood) but revenue risks, because PSH projects are major infrastructure projects with long construction periods, high capital costs, a long life (over 50 years) and low operational costs.  This is why SSE have not yet reached a Final Investment Decision on the £800 million Coire Glas scheme, as the market currently does not provide investors with the necessary certainty.

Potential solution

The report recommends that a cap and floor mechanism, similar to that used for interconnectors, could offer investors the necessary certainty.  It is a risk mitigation mechanism rather than a subsidy, as consumers share in the gains if revenues are above the cap, but there is a floor so that revenues will not fall below a set amount, which limits the risk to investors and reduces the cost of capital.

What next?

The Energy and Climate Change Committee recommended that the Government commission a study on the future of large-scale storage in the UK.  The Government responded that as part of its work on a smart, flexible energy system, it would continue to assess the case for flexibility at all scales, including large scale storage, in delivering benefits for the UK's electricity system.

The Government has since issued a Call for Evidence on a Smart, Flexible Energy System which amongst other things looks at how policy and regulatory barriers to energy storage could be removed.  This is open until 12 January 2017 and is another chance for PSH investors to make their case for a cap and floor regime to the Government.