Before the introduction of the feed-in-tariff (FIT) in 2010, the only interaction that a housing developer or resident might have with electricity would be as a consumer of electricity supplied to the development from the grid.
Since 2010, many developers or residents (or in some cases, third parties they have contracted with) have also become generators of electricity; most commonly by way of roof-mounted solar panels.
As we head towards the 2020s, how many developers will also become involved in the storage of electricity using batteries?
Why might battery storage be considered?
Whilst the cost of lithium-ion batteries has fallen hugely over the last few years, the rationale for incurring the additional capital cost involved in installing a battery needs careful consideration.
The following may be a potential driver for the installation of batteries at particular developments:-
Maximising the use of on-site electricity generation
Installing a battery may increase the amount of electricity that can be consumed on-site from a source of on-site generation. For example, storing the electricity generated via solar PV during the afternoon when residents are out for use when residents return home.
Depending on the lease or other arrangements governing the development, this may result either in:
- a benefit solely to residents where they receive solar generated electricity for free, or
- a benefit to residents and the owner of the solar installation where solar generated electricity is cheaper than what a resident would pay for grid supplied electricity, but higher than prices that the installation owner could achieve from exporting electricity to the grid.
There may be a case for adding batteries on a retrofit basis in relation to existing solar installations, where the consumption profile for the development shows low day-time usage.
For new solar installations, it is likely that storage will be considered as part of a combined solar + storage package. There may also be some potential value from oversizing the solar and associated storage capacity relative to the demand for electricity at the housing development itself. This will enable the developer to look at providing electricity on a private wire basis to other nearby electricity users.
The value that might be derived from being able to maximise on-site / private wire consumption of on-site generated electricity is hard to predict over the long-term. One of the components that make up the overall price applied to electricity supplied from the grid is the cost of maintaining local and national grid networks, as charged to electricity suppliers. The way the relevant charges are calculated is also currently under review.
However, where wholesale electricity prices are expected to rise and become more volatile over time, a combined solar and storage solution may increase the scope. This would be via flexible pricing deals with electricity suppliers for taking electricity from the grid and storing solar generation when prices are lower. This stored electricity would then be used to reduce imports from the grid or even export to the grid when prices are higher.
Mitigating grid constraints
In some locations, there may be a challenge in securing, at an acceptable cost, a grid connection that provides either:
- the required export capacity for planned on-site generating installations or,
- the required import capacity for the development generally. This would include capacity required for electric vehicle charging points, which may be included as part of the development.
The addition of battery storage may enable the peak periods of export or import to be reduced and smoothed out. If this means that the local grid company does not need to carry out reinforcement or upgrading works that might otherwise be required, this could reduce the costs and connection timescales associated with the grid connection.
Accessing additional revenue streams
For battery storage projects, there is no equivalent to the FIT scheme that can underpin the business case for making the capital investment in a battery. Consequently, for those developing battery storage projects, there is far more uncertainty about how to generate sufficient income to achieve an acceptable return on investment.
Batteries can be used to provide services to third parties, such as National Grid, in return for payment. This includes payments for providing "frequency response" services required by National Grid to maintain the stability of the grid. Also, payments for providing extra capacity at times when there is a risk of demand exceeding supply.
In the case of smaller scale batteries best suited to many housing developments, developers will only be able to generate revenue where the capacity of the battery is grouped together or "aggregated" with other assets.
This is likely to mean that the developer has to enter into a contract with an "aggregator" in order to access relevant revenue streams. As things currently stand, it may be difficult to secure any kind of long term guarantee of minimum revenue under a contract of this kind.
Looking to the future, increasing demand for electric vehicle charging facilities will be something that developers need to consider. This increase in demand is likely to be one of the main reasons why the use of batteries to manage the grid will also need to increase.
However, if there is a widespread adoption of smart, "vehicle to grid" technologies that allow the aggregated use of batteries in parked electric vehicles in much the same way as separate batteries, this may result in electric vehicles acting as competitors to separate batteries. This would have an adverse impact on the scope for securing revenue from the use of separate batteries. .
Depending on the characteristics of a particular system, a battery may also provide some short term protection against power cuts. For most housing developments, the maintenance of back-up power generation and storage facilities is unlikely to be viewed as critical. Nonetheless, it may still be perceived as adding some extra comfort value to residents.
What is the impact of connecting a battery to an existing FIT accredited installation?
Where there is potential for adding batteries on a retrofit basis to an existing installation accredited under the FIT scheme, it will be critical to ensure that eligibility for receiving FIT payments on electricity generated by the existing installation is not adversely affected.
In practice, this will mean giving careful consideration to the way in which relevant electricity is metered once the battery has been added. Ofgem has recently published draft guidance on this issue – http://www.tltsolicitors.com/insights-and-events/insight/ofgem-publishes-draft-guidance-on-co-location/.
Who should own/operate the battery?
A housing developer may choose to fund and own the installation of the battery itself. Alternatively, there are likely to be third party suppliers or developers willing to provide funded solutions of one kind or another under an equipment lease model. For larger batteries, this might be an arrangement with similarities to "rent a roof" solar models, where the battery developer is granted a lease of a space at the property and agrees to install and operate the battery itself using this space.
Whatever funding / ownership model is adopted, the legal agreements with the relevant battery supplier or developer will of course need careful consideration.