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2017: The Year Of The Battery

David Oliver, Senior Energy Consultant at Inenco Group

Battery storage is one of this year’s biggest buzz words in the industry, and for good reason. Its potential to provide flexible and responsive capacity could transform the industry, leading some to suggest that it offers a credible and more cost effective alternative to the £18bn Hinkley Point C.

An army of highly flexible and responsive batteries connected to the Grid could negate the need to build enough new power plants to meet peak demand on the system. In fact, National Grid’s Future Energy Scenarios predict that up to 18GW of batteries will be installed in both commercial and domestic properties across the country by 2040, more than five times the capacity that Hinkley would provide. Beyond their role in the future supply mix, a fall in price and the introduction of schemes to incentivise uptake means that batteries could also be a feasible option for many industrial and commercial businesses in the near future, enabling businesses to switch from import during periods of peak demand and potentially selling additional capacity. A recent survey suggested up to 60% of I&C businesses are investigating storage. So what’s changed and is any action recommended?

Powering down prices

This predicted rise in the viability of batteries is in part due to the dramatic fall in the cost of Lithium-ion batteries, dropping by over 80% in the last five years alone and predicted to fall further. Aurora predict that the cost per kWh of capacity will fall from today’s prices of £250/kWh to £110/kWh by the end of the decade. China has boosted battery production and Tesla is investing huge amounts into building large scale facilities: its ‘Gigafactory’ aims to produce 35GW of batteries annually from 2017, combining economies of scale and efficient processes to drive down the production cost by over 30%.

Storage contracts secured

Earlier this summer, National Grid announced its first contracts for energy storage: whilst over 1GW of storage projects bid into the Enhanced Frequency Response tender, four of the eight contracts were awarded to battery storage projects, delivering 200MW of capacity. Grid predicted this will deliver a £200million cost saving by balancing the system as efficiently as possible.

This is a significant step: as more batteries connect to the Grid, participation in demand and frequency response schemes will greaten, potentially reducing the balancing costs for consumers and strengthening the business case for businesses looking to invest in batteries.

Changing economics

The economics of batteries is also evolving as network charging structures change.

Ofgem is currently reviewing distribution charges (DUoS) for consumers connected at voltages below 22kV and this is expected to lead to reductions in peak (‘red-band’) charges, but increases in other charges (‘amber’ and ‘green’ bands).  Such changes will reduce some of the benefits from battery systems and the industry is waiting for details to emerge of the new charging methodology.

At the same time, Ofgem is also reviewing the way that embedded benefits are paid to generators connected to distribution networks and it is not yet clear what impact this may have on batteries that are used for electricity export. However Transmission Network charges (TNUoS) applied to consumers are unlikely to change.

Greater clarity over these charges from 2017 will help build a more accurate business case and reduce the risk of investment in batteries.

Full Capacity Market charges will begin in winter 2017/18, increasing the cost of consuming energy during winter peak demand and generating payments for those able to participate. We will also see further significant increases in TNUoS charges and any changes in DUoS charges will probably not happen until 2018/19 or later. This means that peak charges for consumers at the end of next year will be significantly higher than for winter 2016/17.

2017: the year of the battery?

From revenue streams to falling prices, batteries are becoming an increasingly viable option for businesses looking to invest in new technologies to offset rising costs.

In 2017, we expect that a number of large scale battery projects will go live in the UK, giving us a better picture of the technologies (and suppliers) that provide the best offering for businesses. The opening of Tesla’s Gigafactory in 2017, ramping up production, could also have a beneficial impact on battery prices.

The early projects are expected to be installed in areas where the highest peak charges occur and so the roll-out will probably start in the south-west and the North Wales and Mersey regions first.

It will of course be some years before batteries enter the mass market but a surge in storage projects in operation, greater clarity over schemes and charges reducing risk from the business case and falling prices all mean that for the next 12 months, the spotlight will remain on storage and its role in our energy system and in a business’ energy strategy.

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