Battery storage is set to play a key role in National Grid’s (NG’s) balancing act of ensuring energy supply and demand matches the daily needs of UK homes and businesses.
While an accepted frailty of renewable energy has been the intermittent nature of the source (eg solar and wind), advances in battery technology and cheaper components have led some observers to view battery storage as the Holy Grail, which can propel renewable energy to centre stage of our energy mix.
Storage can create an extra revenue stream for businesses and homes
Excess renewable energy held in storage batteries can be supplied to NG within seconds at times of peak demand; and it is able to offload surplus electricity to battery storage for later use. While the focus is on commercial operators, battery storage can also create an extra revenue stream for businesses and homes which contribute to NG’s balancing services matrix.
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Against this background NG has launched its System Needs and Product Strategy (SNaPS) consultation to look at how the network balances the country’s energy needs and to rationalise the numerous product suites which compete to readjust capacity and frequency across the network. SNaPS and other reviews will examine battery storage issues, including barriers which are holding back the widescale adoption of battery storage and which could act as a deterrent to potential developers and financial investors.
Current regulation treats battery storage facilities as “generation assets” which, on exceeding a specific capacity, require a generation licence. This classification attracts additional charges – a double whammy for the operator – which has to pay when the battery is charged and again on deployment of the electricity. The regulatory position was not designed to be anti-storage but it undermines the financial model.
A rethink is needed on the length of contracts offered by NG to battery storage operators – typically from one to four years. Such short-term contracts lack the certainty provided by the typical 20-year terms offered as part of renewables subsidy packages for solar and wind projects. This creates a disconnect in the market and provides little comfort to investors who view long-term revenue streams as necessary for a viable return on the assets.
Although investors are beginning to adapt to this new market and the concept of “revenue stacking”, where different revenue streams are secured for a single asset, it may be that five to 10 year contracts are required to firmly establish the battery storage sector and attract necessary finance.
Battery storage is not confined to large-scale operators and on the domestic front the government could do more to incentivise the switch to the new technologies which could help reduce consumers’ electricity costs.
Incentives could include cash back or 0 per cent interest loans to homeowners who install solar panels with battery storage technology. The government could also promote “rent-a-roof” solutions, where the cost of solar and battery technologies are covered by a third party in exchange for a commitment by the homeowner or tenant to buy the electricity generated and stored and assign any renewable subsidies to the third party.
Solar panels together with battery storage technology has the potential to enable homeowners to generate enough electricity to power their own home and even sell stored excess electricity to others in their area.
Battery storage has progressed much quicker than anyone predicted, partly due to a dramatic drop in component costs. Policy makers and regulators are being challenged to keep pace with developments and the SNaPS consultation is recognition that the legal and regulatory position needs to accommodate the nascent battery market.
Becca Aspinwall is an energy specialist at legal firm Pinsent Masons