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UK: Call for Evidence: Large-scale and long-duration electricity storage

  • United Kingdom
  • Energy and infrastructure - Clean energy

26-07-2021

On 20 July 2021 the UK Government’s department for Business, Energy & Industrial Strategy (“BEIS”) published a call for evidence in relation to the role of large-scale, long-duration energy storage (“LLES”) and the potential approaches that could be taken to support the deployment of more electricity storage.

Caroline Clapham, Partner, comments: “LLES has been a challenging asset class for attracting investment due to the large capital costs coupled with revenue uncertainty over the asset’s life. While there are forecasters who believe the market will regularise the position on its own as short duration storage starts to suffer price cannibalisation, many of those forecasters continue to believe that could be over five years away. Long duration storage is a key part of the energy transition, and like short duration storage, may need government incentive to unlock its investment potential in the short term.”

Set out below are the key items that BEIS is calling for evidence on, including some considerations outlined in brief of BEIS’s current stance or understanding on matters relating to LLES. The response deadline for any of the questions posed in the call for evidence is midnight on 28 September 2021.

Definition of LLES

LLES projects are considered by BEIS as those which are able to store and discharge energy for over 4 hours and deliver power of at least 100MW when required.

Developments under Existing Market

BEIS has highlighted some developments within the existing framework which could be stacked along with other existing revenue streams to incentivise LLES. The below are all undergoing various reforms, which LLES projects could potentially benefit from:

  • Stability Pathfinders and other ESO services. These are pilot programmes run by ESO which have included multi-year revenue contracts, which may support financing for LLES projects
  • UK Investment Bank, whose mandate could include investing in LLES projects
  • Capacity Market developments which could accommodate LLES construction timetables
  • Network competition, i.e. competitive tenders for building, owning and operating onshore electricity network assets which could include LLES
  • Network charging incentives
  • Guidance on the ‘Transmission Constraint Licence Condition’, which applies to storage providers when importing power from the transmission system during a network constraint

Market Intervention

Further evidence is being requested on whether it would be beneficial to intervene in the market in order to accelerate deployment in the medium term, so that LLES is available to contribute to the system in the latter half of the 2020s. In order to address this, BEIS has listed some potential options to de-risk LLES:

  • Regulated Asset Base (similar to that for nuclear)
  • Cap & Floor Mechanism
  • CfD framework
  • Reformed Capacity Market

From the above, BEIS identifies the Cap & Floor Mechanism as potentially effective, by utilising the same mechanism employed by Ofgem in encouraging investment in electricity interconnectors. An alternative proposed by BEIS might be to set a floor, but without a cap. This could provide further incentive for investors and developers to optimise the operation of storage assets but would mean consumers do not benefit when returns are higher than expected. Alternatively, profits could be shared between investors and consumers if above the agreed cap.

Simon Davies, Principal Associate comments: “In order for larger scale, long duration (LLES) projects to begin to replace fossil-fuel sources of flexibility (e.g. CCGTs) as part of the UK's decarbonisation process, it is likely that some form of market intervention will be needed to make such projects investible, as there are currently no long term constraint/balancing contracts or reactive power tenders which such projects can rely on for revenue certainty and they face challenges in terms of the technology being unproven at scale. BEIS has listed some interesting options to potentially de-risk LLES projects under various models, with a preference towards cap and floor.”

Caroline Clapham, Partner
Simon Davies, Partner
Ben Brown, Partner

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