Investment In Energy Storage Is Set Out In New Report

A new report published today will decode complex market opportunities for UK energy storage for the first time and explain what is key to driving cost-effective investment.

The report makes a series of far-reaching recommendations to level the playing field for rapidly developing energy storage technologies – some of which are locked out of current market arrangements.

And it tackles head-on the primary risk holding back the roll-out of energy storage: securing a bankable revenue stream.

The report’s publication comes a day before a National Grid tender for 200MW of ‘Enhanced Frequency Response’ closes – with 60 companies representing six times the advertised capacity having submitted applications, the vast majority for storage projects.

The document – Cracking the Code: A Guide to Energy Storage Revenue Streams and How to Derisk Them – was commissioned by Scottish Renewables from Everoze, with assistance from RES and the University of Strathclyde’s Power Networks Demonstration Centre.

Recommendations include:

• Longer contracts from National Grid for support services like frequency response and fast reserve – to help get banks on board
• Designing revenue streams to enable them to be ‘stacked’ together more easily, addressing ‘revenue interface risk’ and ensuring they line up technically, commercially and legally
• Unlocking new revenue opportunities within the distribution network
• Exploring the introduction of a ‘cap and floor’ mechanism for storage assets with long lifetimes – similar to the mechanism which already supports investment in connections to other countries.
• By pushing down revenue risk and the associated cost of finance, the emerging storage sector can help deliver the £2.4 billion of consumer savings previously highlighted by the Department of Energy and Climate Change, Scottish Government and others.

Jenny Hogan, Director of Policy at industry body Scottish Renewables, said: “Energy storage is an essential part of the transition to a cleaner energy mix, for delivering an energy system for the 21st century and for reaching our climate change targets.

“While batteries today are 94% cheaper than they were in 1990, and a range of pumped storage projects are ‘shovel-ready’ or in the planning process, the current market arrangements are at risk of favouring more expensive sources of flexibility for our network.

A whole series of changes are needed if we are to ensure that the cheapest and most efficient technologies provide the services that a modern clean electricity system requires.

“These range from ensuring that service contracts are procured in a way that supports investment in low-cost technologies, through to encouraging aggregators to ensure that people already deploying in storage in their homes are able to realise the full benefits it can bring.”

Felicity Jones, Partner at Everoze, told how reducing investment risk was key to the success of the growing storage sector.

She said: “If the overwhelming challenge for the solar and wind sector has been cost reduction, the key challenge for storage is getting financiers comfortable with the merchant risk of revenue streams.

“Yes, continued reduction in the capital cost of storage is needed, but the bigger challenge lies elsewhere. Renewables developers eyeing up storage must flip their attention from cost to the other half of the profit formula: revenue.”