Thursday, 9 July 2015

Where is the financial incentive to develop energy storage capacity in the UK?

Storage is vital for energy security but our renewable subsidies work against it 

The ability to match power demand and supply is vital for our energy security but integrating larger proportions of low carbon energy makes this more difficult. Renewable energy can be made more grid friendly in various ways such as incorporating storage - but flat price subsidies don't encourage them to do so.

The problem is balancing power supply and demand while weaning ourselves off fossil fuels:

Power demand is variable (daily and seasonally)
Most renewable energy is variable and/or not reliable
Nuclear power is reliable but not variable, at least not without extra cost (see Nuclear power is not just for base load)

The solution to this problem has to include storage, because there isn't enough biofuel to keep us going through periods when the weather is against us. Theoretically, this doesn't all have to be integrated into the grid - some could come from domestic and commercial consumers, given appropriate incentives. However in practice the supply side has greater potential.

For rooftop solar, time-of-use pricing would encourage consumers to add battery storage but the overall potential is small.
For consumers with solar electricity panels on their roof, adding battery storage already has some financial benefit because they can use more of their own generation and buy less from the grid. This is especially good for domestic consumers because their exported power is not metered. Households in the UK save the full retail rate for all the electricity they generate and use. However this is still barely enough to make battery storage financially viable. The battery storage market is largest in places such as California and Australia where there are tariffs with big differences between peak and off-peak prices [1]. Storing the energy to use over peak time increases the financial benefits and tips the balance to make it viable. With the right time-of-use (TOU) pricing, battery storage to go with solar could be popular here too. However, rooftop solar is only a small fraction of our renewable energy capacity so this can only ever contribute a small amount to our overall storage needs.

Time-of-use pricing can also promote thermal storage - such as ICE Energy
On the other hand, given TOU pricing, storage doesn’t have to be tied to generation. For example a great deal of our energy is used for heating or cooling and either can be stored:  ICE Energy installs systems that make ice when power is cheap for use later in cooling systems [2]. Similarly, for buildings that need heating rather than cooling, heat banks can be used to shift the time of demand. In both cases, instead of storing electricity directly, cheap-time power is used to make an energy intensive product that can be used later when power is expensive. The IEA considers distributed thermal storage to be ‘promising’ though ‘a degree of uncertainty exists regarding its full potential in real-life applications.’ [3]

But thermal storage is impractical for domestic use – most homes don’t have space for a 2600 litre water tank
One limitation to its potential is that it needs a lot of space. This isn't a problem in some commercial situations but for domestic use it is a killer. For example, a study by UKERC showed that a typical home built in 1980 would need a thermal store of 2600 litres to provide energy for 3 hours heating during the winter. This is 20 times the size of a typical hot water tank of 120 litres and would weigh 2.6 tonnes. [4]

Theoretically the tank could be shrunk to only 6 times the size of a hot water tank by using phase change materials, and for a new home built to a higher standard the tank could be as small as 200 litres. But older homes with higher heat loss would need bigger tanks, not smaller ones.

It is sometimes practical to install thermal storage system in district heating networks. The UKERC study mentions one in Pimlico. However, few homes in the UK use district heating and this is unlikely to change – because district heating is very expensive to retrofit into existing homes and for new homes the heat demand is so low that the extra capital cost is rarely justified.

Supply side storage has greater potential but has even less incentive
In practice it should be much easier to install storage on the supply side, especially integrated with renewable energy generation. As the IEA says:
[Variable renewable energy] power plants can contribute to their own system integration. But they need to be asked and allowed to do so. The common view of integration sees wind power and solar PV generators as the “problem”. The solution has to come from somewhere else. However, wind and solar PV power plants can facilitate their own system integration. [3]

In fact the IEA did not have storage in mind when it wrote those words. It was referring to technical options that make renewable power more reliable at the cost of delivering less overall power. For example wind turbines can be optimised for generation at low wind speeds. Also fixed tilt solar arrays can be tilted for more winter sun rather than overall maximum yield. However, since our Feed in Tariff prices, Renewable Obligation Certificates and Contract for Difference prices are all flat rate through the day and through the year, there is strong incentive to maximise yield rather than reliability or flexibility.

The only advantage currently for integrating storage is if the installation is constrained as to how much power it can deliver by the local grid. In that case, instead of wasting the excess power it can be stored and delivered later. However, our renewable subsidies are just enough to make the generation equipment financially viable – storage would need extra investment not supported by the current pricing.

In fact there is one financial incentive for storage integration with renewables – the triad payments – see box ‘When does it cost £1.50 to boil a kettle? However, this isn't really an incentive for flexibility, so much as a way to game the market. Also it only applies in the winter time.

When does it cost £1.50 to boil a kettle?
Large power consumers on half-hourly meters are encouraged to reduce peak demands by extra charges for their power use during three 30 minute periods in the winter. These charges are called Triad payments. No-one knows in advance when they will be – National Grid declares when they were in March, based on the data collected. These charges are passed onto the suppliers who pass them onto their consumers and the payments are usually around £30/kW. A 2 kW kettle running for 2 minutes over the 3 x 30mins is an average 0.044kW so would get charged about £1.50. [5]

This is a penalty for consumers but on the flip side there are benefits to generators – if they commit to delivering power at peak times they can get Triad payments, either from the National Grid or from the network operator through their supply contract [6]. Industrial scale batteries are now less than £250/kW [7]. At £30/kW/year for the Triad payment, that gives payback in less than 10 years. For a solar farm, this means it can be more cost effective in the winter time to store up their power during the day and deliver it all in the evening to catch the Triad payments. We now have two such installations in the UK [8]. This just goes to show that battery storage can make renewables more grid friendly with the right incentives.

Supply side storage can be delivered by regulation rather than market forces.
Rather than relying on markets to deliver storage it would also be possible to simply regulate. For example, in California, utilities are required to deploy 1325 MW of energy storage by 2024. They now have 17 storage projects of at least 1 MW in various stages of implementation including the Alamitos Energy Storage Array – the largest in the world at 100 MW [9]. Of course there is still a cost that will ultimately be passed onto consumers.

Energy storage is vital but it gets even less attention than energy efficiency
Energy storage is vital to enable us to meet our carbon emissions targets without endangering energy security. There are associated costs, but as with renewable energy there are potential economic benefits too, including jobs and economic growth – if we don’t allow ourselves to get left behind in the race to market. I recently posted on the relative lack of attention given to energy efficiency compared to generation – Is Energy Efficiency the poor relation?. I pointed out that DECC’s report ‘Delivering UK Energy Investment’ gives efficiency only 17 pages compared to 62 for energy supply and infrastructure. However, it doesn’t mention energy storage at all [10].

[1] Three out of four new solar households to add battery storage. (Renew Economy, Australia) June 2015
[2] 25 MW Of Ice Energy Storage For Southern California Edison (CleanTechnica) Nov 2014
[3] The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems (IEA) 2014
[4] The Future Role of Thermal Energy Storage in the UK Energy System (UKERC) Nov 2014
[5] Triads – why three is the magic number (National Grid)
[6] Triads: Embedded Generation (KRRProStream) Nov 2013
[7] Tracking Clean Energy Progress 2015 (IEA)
[8] Anesco extends storage roll-out with second commercial-scale battery installation
(Solar Power Portal) June 2015
[9] DOE Global Energy storage database
[10] Delivering UK Energy Investment (DECC) July 2014

1 comment:

  1. Another really interesting piece. Thanks for putting it together Nicola.