Blink and you might have missed it (although BusinessGreen didn’t).
I hope the new ministers in Department of Business, Energy and Industrial Strategy (BEIS) weren’t blinking when the news came out, but what with all they have on the plates at the moment I fear they were.
What is it I’m enjoining you to pay attention to? Well, the announcement at the end of August that National Grid has procured 200MW of battery storage through its first Enhanced Frequency Response tender. When you recover from the crushing sense of anti-climax that this obscure fact is what I’m asking you to attend to, I’ll then tell you what you need to know about this event and why it is (I think) quite significant.
What you don’t need to know is that the tender was to support National Grid’s Frequency Response system aimed at keeping electricity supply at a steady operational limit. Changes in the operational range must be dealt with and with more distributed generation coming onto the grid, changes are more frequent. Hence the tender, which may be just a part of a larger establishment of plants able to provide instant response to frequency difficulties.
What you do need to know is that the tender prices came in at a quite unexpectedly low price – half of what National Grid had anticipated. This means that battery storage has effectively now become competitive on price with other forms of storage and by modest extrapolation can be seen to now be ready to occupy a whole range of important energy niches – not in the medium term, but very soon.
The prospect for inhabiting the Frequency Response system is perhaps limited and there are indeed other forms of storage like compressed air that can provide the speed of response equally well, but the prospects for areas where batteries can really make a mark are much more substantial. For example, operating in conjunction with existing renewables to convert intermittent output into effectively dispatchable output, or load shifting by storing output at low prices during the night and then releasing it at peak hours, which, by the way, has a price range difference currently of about £55/MWh.
Based on the sort of prices now deemed investable by contractors to the AFR tender, the prospect also opens up of battery-based Capacity Market bids for essentially limited amounts of supply each year, coming in when capacity margins are tight. Those contracts otherwise might go either to existing amortised gas plants, or even to new CCGT plants being built largely for the purpose of not actually producing much electricity. The likely price premium envisaged by the Capacity Market to ‘clear’ new capacity is, on the evidence of the prices for supply revealed by National Grid’s tender, well within the margin at which larger battery installations might clear.
So I think we might come to see August 29th, the day the tenders were announced, as the day on which batteries really came of age.
That is remarkable in the light of what has been received wisdom over some time that batteries were something for our future mix but not to be seriously addressed for the medium or short term.
The prices show just how wrong that assumption has been, but perhaps underline why the obvious measures that need to be taken to eliminate rule-based distortions in battery deployment have not yet taken place. Distortions like the double taxation of output from batteries depending on whether it is regarded as generation or consumption, or on the restraints on holders of existing licences such as Distributed Network Operators in owning or developing battery-based plants because of the separation of function built into licence provision.
The distortions to batteries operating to best advantage in the market are easy to fix and do not involve new levies or subsidies. It seems more likely that government has been in no rush to sort them out because it is simply felt that they can safely be placed in the long-term inbox because nothing much would be appearing over the next period. Well, all that has changed. Batteries look like they are here now, and with a little regulatory assistance can probably now quite rapidly develop a strong presence on the energy landscape. That prospect looks to be wholly necessary as the revolution in supply and in costs of renewables continues to roll forward. Time for the regulatory environment to get with the programme.