Chair: Lord Palmer
Parliamentary attendance: Lord Palmer, Lord Cameron of Dillington
David Capper, Head of Team, Electricity Systems, BEIS; Mark Howitt, Director, Storelectric Ltd; Stephen Marland, Manager, Emerging Technology and Innovation, National Grid; Deirdre Bell, Senior Policy Manager, Ofgem.
Lord Palmer opened the meeting, welcomed the speakers and introduced them.
David Capper, BEIS
This is an exciting time for storage, as you know the prices of batteries have been coming down significantly which has led to competitively-priced electric vehicles, etc. As Stephen will also no doubt tell you later, batteries will also be providing new services to the National Grid. So these are just some of the recent developments. BEIS and Ofgem has just put out a call for evidence considering areas related to storage and flexible technologies. There are five main areas:
- Removing policy and regulatory barriers to storage where they exist, including the issue of who can or should own and operate storage, appropriate network tariffs, etc.
- Improving price signals - there are already good ones for industrial users in the flexibility space but this is not true for domestic consumers. A set of enabling measures, e.g. smart meter rollout, half hourly settlement, automated cyber-security protection etc. should prove attractive to the domestic user and provide incentives for suppliers.
- Capitalising innovation - we hope that a lot will happen as a result of regulatory change, but there is also space here for public money (e.g. money for innovation in the smart area and storage mentioned in the March budget) to complement the money already with Ofgem
- Accessing value - can storage compete fairly with more traditional solutions? Are there missing markets where storage can provide a solution?
- Roles and Responsibilities, e.g. the role of the network operator and how it might shift to a DSO in the future; network planning; more local flexibility markets.
Deirdre Bell, Ofgem
To go into a bit more detail about the call for evidence, I’d like to give some background. In September 2015 we put out a flexibility paper which outlined five areas of focus to ensure flexibility in the energy market, all of which present a lot of challenges but also a lot of opportunities. A few months after that, BEIS produced their own document and since then we have been working together to produce this call for evidence. The storage chapter in particular is an area where we have collaborated closely.
Storage specifics - at a high level, we want to create a level playing field whereby storage can compete, so where we find barriers to this we are looking at what can be done either within the regulations or within government to remove them. It’s not necessarily putting forward a particular technology: more about identifying the barriers and seeing what we can do about them.
I would like to go into a bit more detail about the areas of focus in the call for evidence.
Regulatory clarity - There is no definition for electricity storage within the Electricity Act, and this does create some problems around how we treat storage within the system. In the call for evidence we outline four ways we could tackle this: 1) do nothing - just treat storage as generation, which is the existing status quo; 2) modify the generation licence without changing legislation and create a type of storage generation licence; 3) amend the definition of storage (through secondary legislation) as a sub-category of electricity; 4) create a whole new asset class for storage with its own licence regime. Anyone responding to the call for evidence should tell us the various effects those different options would have and how helpful they may or may not be. Please respond with as much evidence as possible.
On ownership of storage, we set out that as it is a type of generation, currently the unbundling rules that apply to network operators for generation will also apply to network operators who want to invest in storage. There is nothing to stop network operators procuring storage services and using storage services, but as regards ownership, they do need to comply with the requirements. We are seeking views on whether that is appropriate going forward or whether we need to consider changes.
Network charging - we don’t think it is an issue that storage is charged for network use on import and export, but we do think there are issues with the treatment of storage within charging methodologies, and it may be contributing too much to the overall cost of recovery to the network. We’ve identified some quick fixes with regard to charging but we are seeking views on how best to approach that problem.
Network connections - All rules were designed for on-demand customers, and storage customers have slightly different requirements. More clarity is needed for various situations, and we are also looking for views as to whether we have identified all the issues.
Consumption levies - this is a BEIS area. There are issues of policy charges (RO, FiTs, CCL) being applied to storage facilities. Currently storage is treated as an end-user whereas in reality it is not usually that straightforward and we question whether this is an efficient way of recouping those costs.
Planning - this also is more of a BEIS area and is about whether the planning rules that apply currently for generation should also apply for storage, recognising the fact that the rules were not developed with storage in mind.
Deadline for responses is 12/01/17. It is important to highlight issues not identified, and to back up responses with evidence.
Mark Howitt - Storelectic Ltd.
The question is how we can use storage to enable renewables to balance the whole grid. That’s because renewables are at the scale of 10s of gigawatts already, and are going to moving towards a scale of 100s of gigawatts. While they may be forecastable, for the most part, renewables are not “dispatchable”, i.e. it can’t be guaranteed to be there when needed. Under that definition we do not have dispatchable electricity to cover our needs, or we won’t have by next year. At the moment we have a surplus of 6% (for a number of reasons) but the usual capacity margin is <½%, which is far lower than we need to make up for any given plant, however small, tripping up or collapsing.
We need to balance all this renewable power with dispatchability at the scale of 10s of gigawatts, as illustrated in the handout entitled “decreasing dispatchability”, which shows the capacity of all the different energy types for the years up to 2040, where peak demand is expected to be 75.5GW. Looking at the graph, sources include a forecast of 18.6GW of nuclear power by 2040 and I think this is optimistic: we will get some of it but I don’t believe we will get all of it.
Also, it is hard to believe that 23.3GW will come from interconnectors by 2025: with French nuclear power stations being shut down for maintenance, breakdowns etc., we can no longer rely on electricity from France. At the moment we have a situation where if we bid enough we will get it off-peak, paying through the nose, but the only reason for that is that we are in the single market and the European Court of Justice says that if we want it, they have to sell it to us. Post-Brexit it will be a different story if we are not in the single market: the ECJ will have no jurisdiction and supplying countries will be able to prioritise other customers over the UK, regardless of how much we are prepared to pay.
Therefore interconnectors cannot be relied upon to supply dispatchable electricity because we cannot rely on it being there exactly when we want it.
Back to the graph we can see that they are banking on 11.2GW of carbon capture and storage (CCS). Based on recent experience, in my view this is a triumph of hope over experience. It will prove too difficult, and even if it were possible it would be far too costly. We need to find a cheaper way, otherwise we are going to be doubling or even tripling the price of electricity.
Depending on the scenario, the National Grid forecasts between 8 and 18GW of energy storage. The only contractual structures that exist are geared towards batteries, and batteries don’t exist above 10s of megawatts. Furthermore, there isn’t enough lithium on the planet to supply all the batteries, to balance the energy storage needs of the world. So I have severe doubts about whether we can build between 8 and 18GW of storage using MW-scale batteries. There is a great need for batteries, as illustrated in the next slide on the handout.
If we take the non-dispatchable sources of supply out of the picture, by 2020 we have dispatchable electricity for only four fifths of our needs. We are relying on happening to have enough wind and solar power to meet peak demand. By 2040, we’ve only got enough dispatchable power to cover 60% of our needs, under the “gone green” scenario. Looking at all of the different scenarios, there isn’t a scenario in which by 2020 we can generate all the electricity we need, when we need it.
We need some kind of solution that will provide dispatchable power to a scale of 10s of GWs.
A few years ago the Government did a TINA report (technology innovation needs analysis) to identify the various systems needed. Storage of 27GW - 128 GWh was identified. That 128GWh means that the average storage needed by the system is 5 hours duration. Hardly any batteries can provide more than 2 hours. The reason for this is that if you double the storage of a battery, you increase the cost by at least 85%. So batteries are not suited to this style of storage to supply the solution on their own.
Looking at the table on the TINA slide about how the needs might be met, there are a lot of assumptions, and even if we assume them all, there is still a shortfall of between 18.4 and 20.4GW - and where is that coming from?
One solution would be gas - but by 2030, if we are to meet our emissions targets, we should have no more gas than we currently have. So there is really no potential there and we need to find another way to fill the gap.
The only potential way is storage. Although I’ve said a lot against batteries, there is a very strong role for batteries, but we need a mix - we need all sorts of different technologies and different scales (domestic, local, regional, area, etc.) Batteries are brilliantly suited to domestic/local/area level but beyond that we need other technologies: we cannot address the issues just with distributed storage, because that has already been taken into account before the 75GW peak demand in 2040 figure in the first graph. We need the demand-side response, the flywheels and the interconnectors . . . but you also need the large-scale storage and at the moment there isn’t a single initiative being financed, developed, enabled or built at these higher levels. It’s only by developing and building all of these scales of storage and piloting the appropriate trading and marketing mechanisms, that we’ll be able to keep the lights on in 10-20 years’ time. Our grid shortfall is going to be enormous.
Stephen Marland, National Grid
The National Grid is more than a power transmission network: we own businesses in the United States as well as the United Kingdom. In addition to being the system operator for Britain we also own gas transmission assets in the UK, we jointly own interconnectors in France and the Netherlands, and we have a smart metering business.
I’d like to talk about what is happening and why storage has become so crucial. We’ve seen over the last few years how the system has been changing - we are integrating more renewable generation; coupled with that it’s becoming more decentralised, more is being embedded within distribution grids, and in the longer term we have also been seeing the uptake of electric vehicles and the electrification of heating. These are the sort of things that we have to believe in if we believe in decarbonisation. As everything evolves so should the grid system change and adapt. For us, this means increasing flexibility and capability. We have to be capable of managing a wider range of demands and to adapt to the operating environment of the future. Storage is seen as a core set of technologies to provide flexibility, along with interconnectors, and also adjacent markets and demand-side response.
In the scenarios alluded to by Mark Howitt we envisage demand rising to 18 GW by 2040. This is one scenario from a range of scenarios, all with different outcomes. As a system operator we see our goal as to facilitate the market and to gain access to the solutions in the most economical way.
We are technology-agnostic: we are very much focussed on the services, so we want effective markets and a level playing field across players and technologies, so we welcome the call for evidence by Ofgem and BEIS.
We are going to see technologies aligned to a series of applications. In the UK there are 18 different applications at present, which can be grouped into three areas:
- frequency and balancing services, targeted at the system operations side and in the future towards devolution of distribution
- asset deferral, removing the need for assets or substitute assets, which could mean investment in networks and finding alternative ways of managing some of those constraints
- wholesale arbitrage - a large and broad bundle of services covering generators, grids, and consumers
Within my organisation, I support the businesses with disruptive technologies, so I’d like to say a few words about some of those characteristics.
Storage is a broad term for a family of technologies, some mechanical, some kinetic, some thermal and some electrochemical. The challenge is to figure out what type of energy storage fits what application. We need more than one application to make the technology economical. It depends on the characteristics of those storage devices, some of which are very important to certain applications. Firstly, let’s not forget that it’s not just a storage system, but a fully-integrated connecting system. What I mean by that is that when we take an electrochemical solution, like a battery, it includes a transformer, an AC-DC converter, safety equipment, and some land.
The commercial aspects:
- Speed of response - how quickly can the service come on line to a signal?
- How much power is delivered and how much do we need, and how accurately does it deliver that power?
- Duration - how much can be stored, and for how long - half an hour? Storage for arbitrage purposes could be days? And it could be longer, e.g. weeks. And we could get to the position where we do inter-seasonal storage.
- Scale - requirements on power and capacity. Where is it - with the generator? behind the meter? on the grid? The scale of the appliance has to be fit for purpose for that particular application.
- Efficiency - meaning how much do you put into the system and how much do you get back. All energy systems will themselves consume energy.
- Cost - operational costs and actual costs are important in terms of application. Storage has increased globally, and the growth is currently associated with ancillary service growth and the demands of integrating renewables into the system. The costs of storage are falling and as we see more renewable generation integrated into the system we are may also see a wider spread of technology being adopted, largely for wholesale arbitrage and also between retail and wholesale prices.
We are very keen to see development of behind-the-meter storage, which could be on commercial or industrial properties, or it could be in residential properties. We’d like to see the prices coming down a little bit more than they have been doing, but they are projected to do that.
It is a very exciting time but we are still in the exploratory stage.
Questions and Comments
Question from Kate Garth, RWE npower: In the light of the winter package out tomorrow, to what extent will the call for evidence impact the UK and its partners, and the mix of different technology types?
Response from David Capper: This is the Brexit question. The winter package 2023, is post-Brexit, and the arrangements are subject to negotiation. We will look closely at and participate in the negotiations. For the definition of storage, we will look at theirs and compare with ours.
Response from Mark Howitt: In terms of definition, the best option would be to have an identical definition to our neighbours. We are part of ENTSO-E (European Network of Transmission Service Operators of Electricity), which is not dependent on EU membership, being 6 countries larger than the EU. In terms of which technologies, as per the TINA report, they all contribute but there is a great big hole as well. We need all the types.
Question from Damir Ahmovic: Stephen, you are technology-agnostic, but are there any cost-benefit analyses on the various technologies to identify which one is emerging as the winner?
Response from Stephen Marland: Yes, we do analysis for storage. In the electrochemical battery space, we have seen a transition from sodium sulphate and nickel cadmium, and lithium is the dominant player now. Other technologies are specific to a geographical region and scale, which has an impact on price, but we are tracking them. Is there a clear winner? Yes, for certain applications. We need to see how the market evolves and as we integrate more renewables into the system it creates a wider spread of dispatchability, which would create a need for greater levels of storage.
Response from David Capper: It is difficult to know what will win. In that uncertainty we are led down the path of market competition to reveal who is the most successful, as winners will emerge, rather than the Government or National Grid picking one.
Comment from Mark Howitt: There are different winners in different circumstances and no winner across the board. The main issue is that we are not allowing a level playing field. We are not putting appropriate price mechanisms in place to enable large-scale storage. To a commercial consumer over 50% of the cost is levies, etc., and that is moving up towards 75% in the future, which means that anything significant to balance the renewables will have to be subsidised by the Government or the Grid or something. If we have a proper market mechanism, storage can compete without any subsidy.
Question from Zoltan Zavody, Electricity Storage Network: Can you envisage a time when the National Grid would own their own storage facility?
Response from Stephen Marland: National Grid is prohibited from being a generator, so the answer to that question depends on the definition of storage and which part of the National Grid business you are talking about. In the UK I don’t see any need or opportunity on the system operator side - but never say no!
Comment from Mark Howitt: In regulatory terms, storage is seen as generation, but it isn’t. It’s like an interconnector: an interconnector displaces electricity by location and storage displaces electricity by time. I don’t see why a distributor shouldn’t be able to operate a storage facility.
Question from Lord Cameron of Dillington: How is the UK doing in R&D into storage, in comparison with elsewhere?
Response from Mark Howitt: America and Europe are spending more than 100 times as much as we are on development of storage. The UK is way behind with funding - £50M over five years will only pay for “tin-pot” development and not prototyping or proper development.
Comment from David Capper: I’m not sure I agree. I think we compare favourably, especially with parts of continental Europe. A lot of this, in the last five or six years, has been down to Ofgem and the leadership they have shown, e.g. with the low carbon network fund, the investment into Smart, and lots of other innovation has been going on recently. As many are aware, a colleague, Sally Benton, has heroically used the comparatively small amount of £20M and taken a whole suite of technologies further along the curve towards the point at which they can be deployed, and that was money extremely well spent in the last parliament, and it’s that on which we hope to build.
Comment from Mark Howitt: The definition of what that funding goes to says that the project has to build something that can operate at pilot scale, and the complete project cost must be £3½M or less. Compressed air projects cannot be scaled down, and will cost £350M for 500MW, £45M for 40MW, £35M for 20MW, even if you come down to 50KW, it’s still £2M: you cannot scale it down to build something for £3½M.
Question from Cameron of Dillington: Which academics are leaders in the field?
Response from David Capper: There are several but I don’t want to name them in case I miss one out.
Response from Stephen Marland: Don’t share the view that we are that far behind in primary research. I think you have to bear in mind what is the context, what innovation are we trying to achieve? Obviously there is more to be done.