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27 February 2020

UK energy sector blind beyond the immediate allure of Lithium

The dawn of energy storage in the UK will start in 2020 – with 2019 dubbed as “year zero” at Solar Media’s Energy Storage Summit in London this week. But the conference as a whole reinforced two things about the sector’s mentality: the early days will focus almost entirely on in-front-of-the-meter lithium-ion; and beyond that, no one really knows what’s coming.

This was abundantly clear by the players exhibiting at the conference.  Almost all the major high voltage EPC firms were in attendance, as well as ‘scalable battery solution’ companies like Pixii, Fluence and Samsung – all with Lithium offerings for ancillary services, but outside this there was very little room for innovation. Throughout the event, a large focus was placed on the agility of these firm frequency response (FFR) batteries.

The reason for this is not just due to the relative maturity of Lithium batteries compared to long-duration storage alternatives, but also the loosening of regulations and incentives in the European markets.

While there is some discrepancy in whether storage should be defined separately to generation, developers of storage projects generally have the same objective as usual – maximize financial returns. Analysis of current markets indicates that the optimum duration for storage systems lies between 1.5 and 2 hours, where 25-year investment return rates have risen to 13%. This has been chiefly facilitated by the intraday and day ahead balancing markets, where current renewable capacity and demand for flexible balancing are high. Because of this, short-duration storage can enter these markets at scale, without having to aggressively drive down margins or appeal to investors.

The National Grid launched its first Enhanced Frequency Response (EFR) tender in 2016, allowing lucrative long-term contracts for short-term storage players. Similar moves have been made in Ireland, with the DS3 program allowing battery owners to capitalize on a three-times-multiple for energy supplied within 20 milliseconds of triggered demand (this can reach 6.7x during peak demand hours).

The DS3 program in particular has been introduced to improve Ireland’s capability of running a large share of renewable in its electricity mix at any one time; it aims to grow the system non-synchronous capacity (SNSP) to 95% by 2030. This will rely heavily on wind power, which is more volatile to short-term fluctuations than solar – thus increasing the need for agile storage. The resultant market conditions have been noted to massively favor storage with a duration of between 20 and 30 minutes.

These incentives have seen tenders heavily oversubscribed. Only 7 of the 64 projects were selected for the EFR tender in the UK, while the DS3 regime is currently seeing a large number of projects accruing in the backlog of the country’s TSO Airgrid, having to wait for approved grid connection.

But rather than looking for markets elsewhere, the size of future tenders will grow, and looking to longer duration storage is not something on the immediate agenda for the UK storage market. Most of the conference’s discussions about the long-term, floated vague promises of hydrogen “some 15 to 20 years away” according to Lightsource BP’s technical director Chris Buckland, but plans to address the middle-ground in the meantime are lacking.

In fact, while several mentioned ideas of sodium and flow batteries, compressed air and pumped hydro storage, no one seemed to know how this could be funded. One represented for the newly green-labelled EIB, responded “I don’t know what you mean about long duration storage,” when probed by Rethink Energy about how innovation in the field will be funded, with lithium ion as the only mass market that the organization currently had its eyes on.