Britain has a fundamental problem with its electricity generation and supply system. Unlike many other countries with aggressive carbon reduction and renewables programmes, the UK has not increased grid-scale storage in line with its rapid build-out of wind and solar farms.
The country now has a yawning storage gap, leaving the system unable to absorb all the output of these intermittent sources of generation for release when demand is high, or the wind fails blow or the sun to shine.
The result is that National Grid is finding it increasingly difficult and costly to balance supply and demand. There are real concerns about the possibility of blackouts, and the challenge will be even greater by 2020 when renewables are due to have doubled. Blackouts would be costly and hugely damaging. Studies by the Department of Energy and Climate Change (Decc) and Ofgem estimate a cost of £17,000 for every megawatt-hour of lost load, with an incident lasting an hour resulting in £680 million in lost economic activity.
While some emerging alternative storage technologies look promising, they are, even by optimistic estimates, some years away from being realisable on a scale useful to the grid. Pumped storage is the only currently viable and proven grid-scale storage technology, and that is why it is being deployed so widely in countries with more joined-up energy policies than the UK.
New pumped storage takes about seven years to get from conception to operation, so the UK has a closing window of opportunity in which to start building if spiralling energy costs – driven by constraint payments and grid reinforcement costs – are to be avoided.
Imperial College London, in collaboration with the Carbon Trust, predicted that if Britain meets the challenge head on, by 2050 storage could be delivering £10 billion a year in value and cutting £400 a year from household electricity bills, all while delivering security of supply from a predominantly de-carbonised system.
How much more storage does the country need? Portugal has calculated that its optimum balance for security and evenness of supply is 1GW of storage for every 3.5GW of renewables. Apply the same formula to the UK and it suggests that our existing 2.8GW of storage capacity should be around 4.8GW, and that we should plan to have deployed 9GW of storage by 2020.
However, storage has a cost, and returns on investment vary from country to country. The Imperial College and Carbon Trust study concluded that by 2030 Britain should aspire to between 4.1 and 14.8GW. It could not set a definitive number because of the economic variables. Few sites will be viable if returns stay as they are. But if returns improved, the cost per megawatt to developers would fall and new storage would be encouraged.
There are encouraging signs that the government understands this. Storage will be able to participate in the capacity market, accessing more certain revenue streams over and above those from trading in the balancing market alone.
It is a very significant step, but the government needs to go further. Investors want to be confident the government will not change its mind and leave them high and dry. Britain needs a target for the capacity of storage required, and by what date.
The country also needs a national policy statement for storage, just as windfarms and gas-fired power stations have, making explicit the importance the government places on storage and charting more clearly its route through the planning process.
Then we come to the value chain dynamic. The Imperial College and Carbon Trust report says storage creates substantial externalised value that the market fails to recognise and reward. More storage on the grid would mitigate the peaks and troughs in supply and demand, reducing the need for costly reinforcement. But the benefits would go to those that shoulder none of the financial risk and make no contribution to the construction or operation of new storage. This is a classic failed market.
So what can be done? Subsidies are not required. At the moment, new storage must pay to connect to the distribution or transmission network, and then pay again to transmit energy. These charges are designed to penalise those that overload the system and force costly upgrades. Connection and transmission for storage should be free.
Triad payments are another area of inequality that discourages new storage. Unlike storage connected via distribution network operators, transmission-connected storage would get no Triad share, even though it benefits the network as a whole. If the government is serious about storage it needs to encourage Ofgem to change the rules so that Triad payments are made to transmission-connected storage assets too.
Storage is not demand-side response. Both can play a useful role in mitigating demand peaks or supply troughs, but only storage can do it without asking people to turn the lights out or the air conditioning off. There is a further crucial difference: only storage can absorb excess power and release it later. This makes storage a versatile balancing tool for the system operator.
The creation of the capacity market gives Decc a real opportunity to go further still and make available the full and unique benefits of storage. Capacity market rules should ensure the system operator can call upon storage at times when its contribution can have impact. Storage must not be fined for running out of juice.
There must be recognition too within the capacity market that storage can generate levels of output up to its rated output. It can sit awaiting instructions, poised to deliver a burst of power, and it can absorb excess power. If the capacity market defines only generation at the nameplate capacity as qualifying, then storage will be penalised for the way the system operator will undoubtedly want to use it at times of system stress.
The cumulative effect of these actions would be to reduce the cost per kilowatt per year of pumped storage by around 70 per cent, repairing the failed market and catalysing investors, entrepreneurs and civil engineers to deliver the grid-scale storage we so desperately need.
Dave Holmes, managing director, Quarry Battery Company