Post - Blog
By Ian Larive, Investment Director, Low Carbon
EM-Power 2024
The past few months should leave little doubt the UK government is firmly in support of demand response for the grid.
Demand response technologies played a major role in the Clean Growth Strategy, with a government commitment to more than a quarter of a billion pounds to support smart systems and demand response technologies. Essentially, ensuring the grid can operate as efficiently as possible, while meeting consumer need, and increasing its already significant reliance on low-carbon forms of electricity generation, thereby lowering carbon emissions.
That commitment to demand response was then reiterated in the Industrial Strategy White Paper. Meanwhile, the Department for Business, Energy and the Industrial Strategy (BEIS) has launched a consultation on building a market for energy efficiency – and let’s not forget also launched the Faraday Challenge earlier this year, while the first tranche of funding has just been announced to support a national EV battery innovation facility in Coventry.
These publications and initiatives have clearly shown that ministers recognise the importance of electricity storage and the necessity of developing battery technologies to realise their ambitions for clean growth – one of the four ‘Grand Challenges’ of the Industrial Strategy White Paper. And, while recent announcements may prompt some questions over the development of some storage projects, 2018 will continue to see a push to develop storage capacity – either at utility-scale or, as we have seen across the country, to support renewable technologies and smaller – even domestic – installations as consumers consider moving ‘off grid.’
The catalyst for the development of UK storage was of course last year’s National Grid Enhanced Frequency Response (EFR) auction of 200MW of capacity, prompting the development of storage across 61 sites around the UK, numerous of which have or will benefit from Capacity Market contracts. Since then, National Grid has announced that alternative auction models to EFR will be used to develop additional capacity – but there is still a clear understanding of the need for further sites.
Of course, the storage sector has and will be influenced by the recent BEIS decision to lower the de-rating for so called “short duration” batteries. This will mean that storage sites will secure less in the way of subsidy through Capacity Market contracts, which will require alternative models for funding of projects and generating a meaningful return on investment.
But while the BEIS decision will alter how projects are progressed in future, the next 12 months will see the pursuit, development and completion of additional capacity – at small and utility scale – across the UK.
Why will this be the case? In short, it’s because of need and opportunity.
The need for additional storage capacity is likely to become more pronounced over the next 12-24 months. At a national level, Brexit will be key, and while discussions on the future relationship with the EU are yet to begin, there are significant questions as to whether the UK will remain part of the EU internal energy market and will have the opportunity to import as much electricity as we currently do to meet consumer need. This means that, while we won’t necessarily need to seek energy independence, the UK will need to be more self-reliant on its own resources. That in turn necessitates greater harnessing of renewables (extending beyond even the record contribution they made to the grid earlier in the year) and the development of storage capacity to meet consumer demand if imported electricity is not available to the same degree.
The second point of need will be at local levels. Individual consumers or local communities are increasingly recognising opportunities to drive down their utility costs by reducing or even ending their reliance on large providers. This is already leading to consumers going ‘off grid’ courtesy of small renewable installations backed by demand response technologies and storage capacity. With energy prices remaining high on the government agenda, and with perhaps an unprecedented level of scrutiny of utilities costs, going off grid could well be a growing trend in 2018 and beyond.
Which brings us to opportunity.
The Government narrative, particularly over the past two months, but back to the start of the year has been highly supportive of battery technology and demand response. Central to this has been the launch of the Faraday Challenge to position the UK as a world-leader in battery technology. Add to this the Government’s clear support for the development and proliferation of EVs, and there is a drive to develop new batteries that in turn will help in reducing their costs. According to a Green Alliance report earlier this year, battery costs have already been reduced by 65 percent in the last five years and the Government’s current impetus could prompt further reductions in cost.
So, while there will have to be changes, particularly given the BEIS decision on de-rating, the future should still be considered bright for utility and smaller scale storage. There is an evident need, and reducing costs of technology will help in encouraging further investment in projects. And the greatest benefit will be to local communities, who should see reduced costs and greater use of low-carbon electricity generation backed by storage – ultimately reducing carbon emissions.
Ian Larive is Investment Director at Low Carbon, a privately owned renewable investment company. In partnership with VPI Immingham, Low Carbon is delivering 50MW of storage capacity as part of the Enhanced Frequency Tender auction.