With the upward surge of intermittent variable renewable energy sources, Energy Storage has become one of the most pressing and talked about solutions in the energy industry today. In addition, increased ‘electrification’ in our society, and the rise of distributed generation and prosumers all have paved way for further growth of this market. For energy storage solutions of the electro-chemical variety, decreasing battery cell costs have made these technologies more competitive. Combined with improved and targeted policies, this decade has seen a progression in growth of energy storage with transition from pumped hydro, to flywheels and batteries. All major countries are trying to determine how much of the value chain they want to control while meeting their country’s electricity goals. The United Kingdom, in particular, has risen to the occasion and is one of the top countries covered in PTR’s storage research.
Mixed market signals
The UK government, eager to meet its 2050 net zero carbon targets, has seen massive and rapidly accelerated growth in the number of storage projects in 2019. As such, operational battery capacity in the country currently stands at 800 MW with nearly double that in planning applications submitted. However, more is still needed as a recent study launched by UK’s Energy Systems Catapult (ESC), concludes that the UK will still need significantly more energy storage to meet its carbon goals.
The announcement by the Department of Business, Energy and Industrial Strategy (BEIS) in October 2019, introduced changes in planning regulations for projects over 50 MW, made it considerably easier for large storage projects. The changes remove significant time and cost implications; however, uncertainty remains due to the suspension, then subsequent reinstation of the capacity market mechanism.
The closure of Feed in Tariff (FiT) subsidy for small-scale generation in 2019 created a lot of uncertainty for the residential market. After a nine-month policy gap, the new Smart Export Guarantee (SEG) replacement scheme came into effect on January 2020. While PTR believes this is a step in the right direction, it is considerably less impactful than its predecessor. The reason lies in the lack of guidelines set by the UK Government for SEG whereas FiT had clear payment guidelines. In the new scheme, suppliers now have more authority on rates and the only requirement put in place by the Government is for the tariffs to be above zero, despite the campaigns by various organizations to set a minimum floor price. The UK government’s own Impact Assessment for the Smart Export Guarantee shows that SEG will only lead to a very small amount of additional installed capacity and installation of around 3,000 extra systems.
Moreover, the regulatory environment of Commercial & Industrial (C&I) applications is also impeding the market growth. Specifically, the Targeted Charging Review (TCR) from UK’s National Regulator, Ofgem, has provoked a backlash in the renewables sector. Many believe the plan will damage the economics of distributed energy resources and prove to be a setback for UK’s Behind-the-Meter market.
Market participants remain positive
Utilities are increasingly relying on energy storage to assuage volatility in wholesale markets as well as support additional renewables on the grid. Despite the uncertainty, many new entrants and energy storage companies are positive on the UK market, trying to gain a foothold. The number of companies involved in this sector grew from 300, to more than 450 in 2019, according to a new report by RenewableUK.
Among these energy storage companies, project developers play a critical role. The current market leader in project development is Anesco, with an operational battery storage portfolio of 147 MW. Anesco installed UK’s first utility scale battery storage unit in 2014 and has progressed steadily since then. It was also the first one to contribute to UK’s Balancing Mechanism. Statera Energy, a fully integrated developer and operator, follows closely behind with two large projects totaling nearly 100 MW. The later company’s ambitions; however, outweigh Anesco’s with 12 contracted energy storage projects totaling 600 MW, more than any other developer. One of the reasons for Statera’s pipeline prowess, despite being a new entrant founded in 2015, is the backing of global investment manager InfraRed Capital Partners and its new 15-year partnership with Statkraft, with plans to integrate some of its storage projects into Statkraft’s Virtual Power Plant (VPP) and advanced trading platform. This partnership, in turn, will be effectively used by the Norwegian company to deliver market optimization and trading and risk management services. Similarly, EDF Energy, the global energy storage giant, is not to be left behind either with its 550 MW of contacted projects, 49.9 MW each, marking its entry in UK market and having recently acquired the start-up Pivot Power and its colossal project portfolio. It has further teamed up with tech firm Wärtsilä to deliver two 50MW batteries in Oxford and Kent by end of this year. Statera and EDF, altogether, make up 32% of the confirmed pipeline capacity.
Currently, mechanical projects like pumped hydro and flywheels make up about 80% of the UK market. Within the battery segment, which PTR defines as ‘Electrochemical’, lithium-ion dominates with a staggering 91% market share in 2019. Despite this recent Electrochemical dominance, new approaches are continually appearing from both new and established competitors. A few examples of this include: Siemens and Highview Power who are developing hydrogen, ammonia and compressed air technologies; Gravitricity who is developing gravity-based storage; and RheEnergise who is developing dense liquids as an improvement to traditional pumped hydro. In all cases though, these new technologies’ market penetration will require competitive pricing and more importantly, hinge on their ability to get developers and utilities championing their technologies.
COVID-19 will only shift, not disrupt progress
In the short-term, COVID-19 has delayed most generation projects with companies like Gore Street Energy Fund halting work on April 4. More broadly speaking, it is no surprise that electricity demand is down due to lowered commercial and industrial activity. This has resulted in reduced appetite for most energy storage use cases. PTR currently believes that these current market conditions will improve toward the second half of the year, shifting trends expected in early 2020, roughly 6 months. As the market returns to normalcy, PTR anticipates three trends to occur in the UK market:
- A surge of utility scale projects, now shifted towards 2021, as utilities’ needs shift from frequency response to other services like UK’s Balancing Mechanism (PTR defines this as a capacity application) and to electricity trading.
- Shift towards higher penetration of multi-revenue-stream projects over the same time period. These projects would, for example, be able to serve both frequency and peak shifting applications in the same project.
- Average MW size of the projects will increase, with several mammoth projects in the immediate pipeline in 40-50 MW range.
Mike Sheppard – Lead Analyst, Energy Storage Market Monitor
Sasha Munir – Business Development Switchgear