The UK-based Renewable Energy Association’s (REA) Energy Storage and Connected Systems conference that took place in London on Tuesday and Wednesday reinforced the view that the country offers great potential for the development of energy storage, either behind or in front of the meter, and at all levels (local, regional and national).
The event’s presentations, however, showed yet again that government is struggling to align with energy storage technological progress and investors’ needs. Policy support, said Alexander Berland, policy advisor at the Department of Business, Energy and Industrial Strategy (BEIS), will not arrive in the form of subsidies, as is the case of Germany. Instead, Berland said, BEIS is looking at the U.S. case, where storage deployment is unsubsidized. This unmoved the U.K. storage stakeholders present, all of whom are struggling with the country’s complicated and rather outdated regulatory framework.
“I am not an expert in foreign energy storage markets,” said Mark Howitt, chief technology officer of Storelectric, a developer of compressed air energy storage systems, who spoke in the same panel with Berland. Germany’s energy storage services framework is much simpler than in the U.K., Howitt remarked, hinting that complexity is one barrier that investors are currently facing.
Storage business models
Nevertheless, Jonathan Cohen, head of energy storage at global law firm Eversheds Sutherland, said that there are three broad energy storage business models currently evident in the U.K.
The first is built around supporting the grid. The second model targets projects that are co-located with renewable power projects, thus supporting renewable energy generation. And the third business model concerns projects behind the meter, where presently, Cohen said, his firm sees a strong interest among industrial power users that want to complement their renewable power systems, which are usually solar PV.
A point of great policy uncertainty concerns the second business model, where the interplay between existing renewable energy support schemes (e.g. Renewable Obligation Certificates or Contracts for Difference) and storage projects remains unclear. This uncertainty affects revenues and business planning.
Moreover, Cohen and other stakeholders argued that several storage projects that fit into the first two business models are not currently bankable due to the lack of appropriate and up-to-date regulation.
Defining energy storage
All conference presentations agreed that defining energy storage in the U.K. legislation will be a crucial step towards the deployment of utility-scale storage projects (addressing the question: is energy storage an asset or a service?).
Currently, the principal legislation governing the U.K. electricity sector is the Electricity act 1989, which does not refer to electricity storage. Effectively, this means that storage facilities are treated like a generation asset, and since the electricity market is regulated, storage projects need a license.
The exemption to this is storage projects with an output of no more than 10 MW, or 50 MW in the case of a generating station with a net capacity of less than 100 MW.
The definition of storage will also affect ownership of storage projects by grid operators. Both transmission and distribution grid operators are currently barred from owning storage assets, although there are some exceptions for the distribution networks. So, it is imperative that the new U.K. legislation reaches the correct storage definition to boost rather hinder the market.
Rooftop PV and storage
While the first two business models await a plethora of regulatory changes to offer them greater clarity and bankability, the third business model is built around the end consumer and is more clearly defined.
“Solar has kick-started the [residential] storage market but smart meters will create the ‘mass market’,” Joe Warren, managing director of Powervault, a U.K. manufacturer of residential batteries, told the event.
Ed Gunn of Moixa, another U.K. battery manufacturer, added that the company received a license in the past few days to offer financial solutions to households and businesses that want to install their battery system alongside PV. The company launched last year a solar plus storage kit for the retail price of £4,995.
Warren insisted though that companies like Powervault and Moixa need to move away from the current business model that targets mainly solar PV owners to a new model that includes anyone who has installed a smart meter in their home.
Utilities in the U.K. offer to install a smart meter for free to all their customers, and the government wants all households to be equipped with a smart meter by 2020. This target is highly unlikely to be met, but the trend is clear.
The downside is that some utilities have begun increasing their electricity prices and put the blame for this partly down to the smart meter roll-out program costs. Given that electricity costs are set to rise, more consumers will be prompted to install solar PV and battery systems.
Set tariffs lock in the value that customers could get via the flexibility offered by smart solutions, added Warren. Therefore, the market for storage behind the meter also faces regulatory challenges, although perhaps less so than the first two categories.
The U.K. Government will announce the outcome of its recent call for evidence for a smart electricity system in the spring.