There is “great appetite” within the commercial battery storage market, however far more investment certainty is needed over pricing and regulatory hurdles such as double-pricing for it to realise its potential.
Those are the findings in SmartestEnergy’s ‘Making the commercial case for battery storage’ report, published today and available to download via Energy Storage News sister publication Clean Energy News, here.
In the build-up to the results of the Enhanced Frequency Response battery storage tender, expected in the next fortnight, business energy supplier SmartestEnergy consulted with 45 stakeholders to assess the current state of the commercial energy storage market and what’s required for it to take off.
The company found that while the majority of respondents (70%) considered grid services – such as frequency response and grid stabilising – to be the main revenue stream for battery storage installations, around two-thirds said demand side response (DSR) schemes would add complementary revenues.
Of those stakeholders, almost half (47%) said they expected to partner up with another entity – including big businesses and large off-takers – to provide DSR services.
Speaking to Clean Energy News ahead of the report’s release, James Graham, head of direct sales at SmartestEnergy, said that the storage market, while possessing undoubted potential, was still “very much at a crossroads”.
“Universally, people can see that it makes sense for a future smart energy system. But energy's built on economics, so it has to make economic sense as well and there are still challenges on the cost of the technology. For investors this is a new business model.
“They've been used to the renewable energy model which has provided very secure, long-term returns, so this is a real big change in mind-set,” he said.
Until such a time that the technology costs experience the same kind of fall witnessed in solar PV, Graham said that pricing signals included in the upcoming enhanced frequency response (EFR) tender will be all the more important.
The government is expected to offer contracts under the tender for as much as 200MW of battery storage projects. The initial auction was grossly over-subscribed and follow-up tenders said to be in planning. A governmental call for evidence on the battery storage market is also expected in the coming months with the intention of identifying and removing regulatory hurdles.
Clearing the track
One such hurdle Graham said would be crucial to the financial feasibility of commercial storage is the current issue of ‘double charging’. Currently battery operators pay renewable energy levies attached to electricity both when charging the battery and using the electricity.
SmartestEnergy collaborated with UK Power Networks and other parties on the Leighton Buzzard storage demonstration project, and Graham said it made the problem “pretty stark”.
“When you actually sit down and look at the economics, and the charges that were levied which - on the face of it - look arbitrary in certain cases, and you look at the revenues battery storage could receive from just off-peak arbitrage, you're giving away a huge amount of that revenue to the government, effectively unnecessarily.
“I'm not saying that by taking away this double charge that there would be sufficient revenue from just operating a battery in the wholesale market, but it definitely does change the investment case,” Graham said.
SmartestEnergy’s report ultimately concludes that while 200MW of storage projects will go ahead under the EFR auction, with an estimated pipeline of “at least 1GW” there will remain a significant amount of capacity that will go untapped. This, the company says, places at risk the future development of the market at what is a decisive time.
Additional revenue streams, such as aiding big businesses with demand side response, could be hugely beneficial to projects unsuccessful in the EFR auction, and some investors could well attempt to make the business case work on that front – as long as regulatory hurdles such as double-charging are amended.
“It's a really exciting opportunity with lots of challenges, but also lots of people willing to face those challenges. The financial hurdles are difficult ones to get over, but the more practical ways of supporting that the better, and we try to play a particular role within this space. We're keen on working with all people who can help further a sector with a lot of promise,” Graham said.