Lower reservoir of planned Glyn Rhonwy PSH. Image credit: QBC.
A series of recent reports from the UK calls for commitment and effective policies to support energy storage deployment across the country.
In one report — Energy Storage in the UK: An Overview — the Renewable Energy Association (REA) observe that UK energy storage capacity stands at a total of 3.23 GW via some 35 grid-scale storage projects and over 1,500 residential storage systems.
James Court, Head of Policy & External Affairs at REA stated: “Storage is already a reality for the UK and right now there’s an opportunity to cement us as a global centre for investment, deployment, and research.”
Court acknowledged storage as a “critical technology for the decentralization of the UK’s energy system” and “long-term renewables deployment,” but added that “policy is the single greatest barrier to the industry’s growth, and reform is needed.”
REA’s position is supported by a report from the House of Commons’ Energy and Climate Change Select Committee (ECCC) — The energy revolution and future challenges for UK energy and climate change policy — which highlights that, the “ongoing energy revolution [is] grounded in technologies such as energy storage” but “a number of challenges to its deployment remain.”
Kilroot Advancion Energy Storage Array, Northern Ireland. Credit: AES
In this context, ECCC highlight a “lack of clarity on the legal and commercial status of storage” and “insufficient incentives for investors” as dominant barriers.
Frank Gordon, senior policy analyst at REA, told Renewable Energy World: “Most [current storage] capacity is in the form of pumped hydro storage and has been in place for some decades in Scotland and Wales. A smaller proportion comes from lithium-ion batteries, and then various other technologies.”
In an exceptional upturn in capacity, REA’s report highlights procurement of 200 MW of new storage capacity through an enhanced frequency response (EFR) auction, which concluded in August.
“The tender was technology-neutral, but the majority of contracts awarded are based around lithium-ion battery technologies,” Gordon said. “In general the industry views the EFR prices as very low, especially considering they run only over a four-year contract. There’s very little risk for the consumer, or for the National Grid, so this is a win-win for the consumer.”
The auction is relevant to forecasts for the UK energy storage market as Gordon explains, “Encouragingly, there was an additional 1.2 GW of additional capacity that entered into the auction but didn’t win. These projects were of a highly advanced stage of development, and projected to be ready for commissioning within the next two to four years.”
How much of this capacity comes to fruition remains to be seen, but the report notes some 453 MW in capacity outside EFR auction capacity is expected to come from new projects. Gordon added that “a series of other projects are more speculative” and “in the multi-gigawatt range.”
Considering the auction’s apparent popularity, it seems an opportunity may have been missed here. Asked why the auction didn’t pitch for a higher capacity target, Gordon said: “The 200 MW target was chosen by the National Grid; it’s a significant amount, but relative to the total EFR market, of 3-4 GW, it’s not going to massively disrupt the functioning of the market. It was likely deemed a safe number to run the auction with, especially considering this was the first auction of its type, I believe anywhere in the world actually.”
While another storage auction may come in the future, in the more immediate term REA and the ECCC are calling for efforts to support the energy storage industry — both for fledgling technologies, and pumped storage hydropower (PSH).
As both reports emphasize, the benefits of energy storage are clear.
“We consider there to be huge potential for the UK energy storage market,” Gordon said. “The benefits which could be delivered to the functioning of the grid through increased capacity are significant.”
According to Gordon, the UK National Infrastructure Commission earlier this year announced — through its Smart Power report — that the UK could save GBP 8 billion per year by 2030 through implementing sufficient energy storage and flexibility measures.
He added that “the fact that after the EFR tender the National Grid said that capacity would save some GBP 200 million speaks to the potential of further growth.”
Potential and Challenges for Pumped Hydro Storage
Against the background of increased calls for energy storage, particular attention has been directed toward PSH.
A study recently released by Scottish Renewables — The Benefits of Pumped Storage Hydro to the UK — outlines the case for investing in the technology.
“It is widely acknowledged that greater flexibility is required in the electricity system of Great Britain to decarbonize at acceptable cost to consumers,” the report said; adding that in this context, “pumped storage hydro is one of the best proven technologies at scale to provide the required flexibility.”
The report notes savings through PSH could be worth GBP 10 billion per year to the UK economy by 2050. By all accounts, however, the climate for encouraging new PSH is not ideal, and future development is uncertain.
Presently, the UK operates just four operational PSH schemes: providing 2,828 MW of generation capacity and approximately 24 GWh of energy storage. These plants were commissioned between 1963 and 1984, but since 1984 there have been no new developments.
A pipeline of potential development does exist, however. Scottish Renewables report there are three new potential projects in planning and four that have been proposed or discussed. One scheme under development is the 700 MWh Glyn Rhonwy project, located on the edge of Snowdonia national park, Wales.
Aside from likely being one of the first new PSH schemes in decades, the project is interesting for the ways in which it provides insight on the challenges and circumstances facing the PSH industry.
Of the current state of affairs with the scheme, Holmes said: “We’re currently in a due diligence phase, looking for a strong project partner to build and operate the scheme. We’re hoping to close successfully in the next six months or so.”
While initial planning permission was granted in late 2013, SPH has since applied for expansion of the scheme’s output, from 49.9 MW to 99.9 MW — a decision is expected in March 2017.
On his perspective of the future of PSH in the UK, Holmes said, “Forecasts over new pumped hydro vary depending on your view of the market. We take a fairly bullish, optimistic view on how pumped hydro will be able to trade energy as the UK installs more renewables. As storage technologies stand at the moment, pumped hydro is unique in its ability to offer real depth of storage.”
According to Holmes PSH is not quite as fast reacting as batteries, but it is still quick enough to sell fast response support. Where PSH really scores is in duration of output, Holmes said.
“While a typical 100-MW battery array might manage 10 MWh of output before needing to recharge, our Glyn Rhonwy scheme will deliver some 700 MWhs,” he said. “Britain needs both types of storage, short and longer duration, so we see no conflict.”
Regarding PSH potential, Holmes said that “on a pure capital cost compared to revenue assumption, we believe there are many gigawatts of pumped hydro storage that could be developed.”
Indeed, QBC’s in-house surveys have given them cause to believe there’s as much as 15 GW of PSH potential in the UK.
Potential and demand for PSH is assured therefore, but as Holmes said, this isn’t necessarily enough.
“Ultimately it’s about convincing banks and investment committees,” he said. “Unfortunately, there are several difficulties in establishing new projects of significant scale.”
One problem, according to Holmes, is that investors aren’t familiar with the complex dynamics of energy storage markets.
“The multiple manners in which energy is traded make for a complicated business model that can be hard to convince banks and investors of,” he said.
Other difficulties are more deeply rooted than those of convincing investors of the profitability of PSH schemes, and are manifest in policy and economic barriers.
One such obstacle to effective PSH development — and indeed all forms of energy storage — highlighted by the REA and ECCC report stems from a lack of appropriate definition for storage.
“The current grid system is clearly illogical [in that it] isn’t set up for handling energy storage,” Gordon said. “Everything is considered either generation or demand, with nothing in between.”
He added that “currently, in the UK, usage system charges are applied for either taking power from the grid, or supplying power to the grid. So by definition, if you’re an energy storage provider, you’re charged for both.”
A critical consequence of this lack of definition for storage concerns connection charges. Holmes said that so-called embedded benefits for small (<50 MW) and medium (50-100 MW) generators within the grid are one of the few remaining financial incentives for PHS.
“If you assist the local network in becoming more self sufficient, and less reliant on the transmission network, you can expect to receive embedded benefit payments,” he said.
Conversely however, large generators (>100 MW) must connect to the transmission network and pay considerable charges in the process; a situation that amounts to a major barrier to large-scale storage.
“[It] means that if we were to build the [Glyn Rhonwy] scheme at 101 MW rather than 99.9 MW, the difference in revenue would be about GBP 6 million per year. Clearly this is very significant,” Holmes said, adding that it’s one of reasons why aiming for small scale PSH makes most sense in the current climate.
This is unfortunate, as it risks restricting developments to ones that miss out on advantages of economies of scale.
“It’s cheaper per megawatt to build a gigawatt of storage than it is to build 100 megawatts of storage,” Holmes said. “Small projects usually cost more per megawatt than large schemes.”
Considering the clear economic benefits, and practical necessity, of the provision of energy storage, Holmes asked, “Why then is there no sharing of grid connection costs, or way of returning charges to the developer over time?”
The situation becomes direr yet, as Holmes noted on forthcoming plans: “[These] embedded benefits are very important to our revenue strategy and the development of our scheme in north Wales and yet they have come under pressure to be removed entirely.”
The UK regulator OFGEM currently has a letter out saying they intend to reduce or remove embedded benefits.
“We have this perverse situation where OFGEM, Department of Energy and Climate Change and government are screaming for more storage to balance their renewable fleet, the national grid are worried over the capacity of the system at peak times, and yet embedded benefits — which schemes like ours rely upon — are looking to be removed,” Holmes said. “It’s one example of how incentives for storage developers really aren’t there.”
For REA’s part, Gordon said its position is that energy storage providers should only be charged on their net electricity consumption.
“For example, if they charge 50 MWh from the grid, then discharge 30 MWh back to the grid and 20 MWh is lost in the process, then their net grid charges should only be on that 20 MWh,” he said.
Together with other stakeholders, REA is calling for a legal definition for energy storage in the UK. It’s a solution says Gordon, that would pave the way for more substantial amendments that would facilitate development of storage.
Resolution on the issue of definitions and double charges on storage was anticipated to come from a government consultation (the Flexibility Call for Evidence); “Unfortunately those outcomes have been delayed,” Gordon said, “and they were expected around March — it’s very frustrating for the industry.”
Schematic of planned Glyn Rhonwy PHS. Credit: QBC.
Despite a seemingly uphill battle for the PSH industry, Holmes is confident for QBC’s project in Wales.
“Glyn Rhonwy — even though it’s not the first to gain planning [permission] — will perhaps be the first to get built of the new pumped hydro fleet in the UK,” he said.
There are a few reasons for this possible development.
“For one, the size,” he said, noting that with its planned extension to 99.9 MW it would be the maximum capacity possible still entitled to embedded benefits.
Further project characteristics are also cause for confidence. Holmes said that, as an abandoned quarry, the site is already excavated to all intents and purposes.
“There’s very little left for us to do to in order to make it large enough for our pumped hydro scheme,” he said. “This brings down costs, and reduces environmental impact. Altogether the site holds very low risk; this gives everyone confidence.”
Glyn Rhonwy is conceptually similar to the 1,728-MW Dinorwig pumped hydro scheme, also located in Snowdonia national park and established in an abandoned slate quarry.
“We’re building in exactly the same geology as Dinorwig; again lowering risk because of site planners know what to expect from the exposed geology,” Holmes said. “These attributes have allowed us to keep the price down. So although it’s a small project, we’re able to build it at the shallow end of the cost range, even of a large scheme.”
Describing expected investment costs, he said, “we’re in the region of GBP 160 million to build, so around GBP 1.6 million per megawatt. Considering pumped hydro is generally quoted between 1.5 to 3 million per megawatt, we’re clearly at the shallow end of that range.”
The rapid emergence of renewable energy in the UK has brought with it novel challenges for the electricity network. Within this context the demand for energy storage is paramount, and the potential value of PSH has heightened. It’s clear, however, that policy must evolve too, so as to nurture the solutions that are required.
“REA sees energy storage as a key missing piece of the UK’s energy policy,” the REA report said. “If there was more support from Government…it would stimulate more funding from private sector investors. This could be in the form of a high profile strategy or ‘visible’ commitment to storage.”
On this point, Gordon said: “We support a UK storage target in the region of between 3-5 GW of new storage capacity potentially as soon as 2020. Such a target would be valuable as it provides energy storage developers, and their investors, security in knowing that the government prioritizes and supports energy storage.”
A target — alongside other amendments to policy — is something Holmes encourages: “The UK has had ‘road maps’ for solar PV, for biomass and so on; in the past, they have helped those technologies get to where they now are — look at UK wind power, for instance — so why not energy storage? It is, after all, a crucial aspect to renewable energy.”