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UK’s reconfigured Capacity Market targets 50GW to 2023

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The UK’s transmission system operator National Grid’s redesigned Capacity Market targets around 50GW of reserves up to 2023 and could be an early step towards longer duration energy storage batteries.

Our sister site Current, which looks at clean energy industry issues in the UK and beyond, reported yesterday that National Grid is seeking to procure 46.3GW of reserve capacity in the forthcoming T-4 2022/23 auction and 4.6GW in the T-1 2019/20 auction. Those plans have just been approved by Britain’s energy minister, Claire Perry and subsequently confirmed by National Grid and the government's Department for Business, Energy and Industrial Strategy (BEIS).

Both auctions have been set a price cap of £75 (US$99.52) per kW-year and a price taker threshold of £25/kW-year, while the target capacities for the auctions are subject to change. The auctions themselves are to take place on 29 January 2019 (T-1 2019/20) and 5 February 2019 (T-4 2022/23), with the pre-qualification window opening later this month.

While the Capacity Market (CM) presents an opportunity for battery energy storage projects to participate, in some cases over 15 year contracts, the rules were changed in December 2017 to introduce a new de-rating factor for batteries. This meant that while battery energy storage assets with as little as 30 minutes of duration were not ruled out of involvement, revenues that can be gained are significantly lower than for longer duration systems. The changes were made following a consultation which found so-called ‘stress events’ for the UK’s energy networks are typically around two hours long and often longer.

'UK storage currently dominated by short-duration batteries'

In a blog published this morning on Energy-Storage.news, Solar Media Market Research analyst Lauren Cook wrote that the changes to de-rating factors had “derailed” the CM opportunity for many developers. A few months after the changes were announced, strong views were heard from industry players at Solar Media’s Energy Storage Summit in London. A representative of developer UK Power Reserve argued back that while the de-rating did remove opportunities for some developers, it had been “holistically the right thing to do”.   

Lauren Cook’s blog today, which focuses on an expected 500MW of storage that could come online in the UK during 2018, also mentions 60MW of projects by technology provider Fluence that have CM contracts in place. The contracts for these projects were awarded in 2016 and are ‘grandfathered’ to remain in place, a Fluence spokesman confirmed to Energy-Storage.news this morning.

Marek Kubik, a market director for Fluence, which mainly works with lithium-ion batteries but increasingly uses them to deliver longer durations of energy storage for capacity projects in regions such as California, Arizona and Australia, said that despite the short term impact, the de-rating is probably a positive move for the technology agnostic auction process.

“In the short term, the de-rating rules have been a setback to one of the most bankable aspects of an energy storage project that we see our customers pursuing - but National Grid’s analysis was in line with similar assessments arrived at in places like Ireland or California, that about 4 hours of capacity is optimum from a system security perspective,” Kubik said.

To date, Lauren Cook said in a statement given to us today, the UK has overall favoured short duration battery storage in its early stage markets such as ancillary services.

“UK energy storage is currently dominated by short-duration batteries, as the market has focused on accessing revenue streams for providing grid services such as frequency response. Under current market design rules many of these services can be served by half-hour duration batteries,” Cook said, meaning that developers have had no real drivers towards longer durations, unlike market dynamics seen in those aforementioned US regions and Australia.

Call for clarity

One of the few companies in the UK already working with longer duration batteries, Scotland-headquartered redT, which makes and supplies vanadium redox flow energy storage and creates attendant business models, firmly welcomed the changes.

Company CEO Scott McGregor said that the new rules were the implementation of “reality based policy looking at embracing the correct technologies for services which they can perform”, as he highlighted the flexibility of flow energy storage systems to “perform all services in one system”.

According to McGregor, this versatility might be “much better for investors than specialised battery technology for short term policy which in our view is gambling,” adding that the CM is “one service of many that the UK grid needs” and that this need will only increase as renewables scale up further.

Lauren Cook pointed out that although the CM design might favour longer duration batteries, it did not mean the UK industry as a whole is already moving in that direction.  

“The Capacity Market forms just one part of a ‘revenue stack’ and while the de-rating changes will certainly cause some developers to look into longer duration batteries, it will take time for these business models to become mainstream and will require changes to how [energy] storage is used,” Cook said.

Fluence’s Kubik meanwhile said that as well as clarifying the CM market’s rules and desired outcomes, there is still work to be done before it is exactly clear how the grid-connected energy storage will be valued.

"What the industry is waiting to emerge is clearer direction on what anchor revenue streams can underpin longer duration assets to be built; in particular in non-wires alternatives to transmission and distribution infrastructure, where typically 2-4 hour duration systems are ideal for peak shaving of constrained lines or substations.”

Fluence’s Marek Kubik and RedT’s Scott McGregor took part in Energy-Storage.news' recent round table video feature on energy storage education, myths and mainstream acceptance. Watch the video to find out what Kubik, McGregor, Sonnen’s Jean-Baptiste Cornefert and InnoEnergy’s Emilien Simonot thought about topics including: how to gain long-term certainty for investors with ‘stacked revenues’, why the industry has been ‘lazy’ in developing effective business models, what the obvious and not-so-obvious roles for energy storage are in decarbonising the grid and more.   

Additional reporting by Liam Stoker.

This article has been amended from its original form to reflect that while de-rating does not rule shorter duration batteries out of the auction process, revenues are lower for such projects than for longer duration systems. 

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