31 Jan 2023
Clare Kiss

The big news for battery energy storage from ESN 2023

It was the Electricity Storage Network annual conference last week. In case you missed it, here is a quick summary of the biggest battery energy storage talking points from the conference.

Neil talks you through the key takeaways from the ESN conference.

The need-to-know headlines

  1. Intraday procurement of Dynamic Regulation and Dynamic Moderation will likely replace Mandatory Frequency Response.
  2. Grid connection queues should soon improve - particularly for battery energy storage sites.
  3. The Electricity Generator Levy will tax revenues from co-located battery energy storage assets.
  4. Global supply chains might struggle to keep pace with demand. This could lead to an increase in local manufacturing for battery energy storage.
  5. Long-duration energy storage projects are still waiting for policies and incentives to encourage the creation of viable markets.
  6. Balancing Mechanism skip rates should improve following planned control room changes in September.

1. Mandatory Frequency Response looks like it’s on the way out

Currently, National Grid ESO procures Mandatory Frequency Response via the Balancing Mechanism - and normally from large thermal power stations. That said, any transmission-connected battery assets must also be able to participate.

Quentin and Neil discuss Mandatory Frequency Response.

Right now, these are the Oxford Superhub, Kemsley and Capenhurst assets - though they don’t tend to participate.

National Grid ESO confirmed at ESN 2023 that its Mandatory services will be put on a level playing field and procured on an open market.

But what will replace it?

For battery energy storage, this is good news! It means the whole fleet could participate in an equivalent of Mandatory Frequency Response. We expect that intraday procurement of Dynamic Regulation and Dynamic Moderation will replace Mandatory Frequency Response, which we discussed here. This is likely linked to the Enduring Auction Capability program of works.

2. The massive grid connection queues should soon improve

There are huge queues for getting a grid connection, with some connection dates stretching as far as 2037. This clearly does not fit with either the necessary investment or net-zero timelines.

National Grid ESO is working on reducing the queues for connections in several ways. One of these is a ‘TEC amnesty’ where projects in the queue can terminate their connection agreement at zero or minimal cost. However, only 6 MW of 343 GW have come forward so far!

They are also looking at the queue management system to prioritize the applications more likely to result in completed projects. This also means removing projects from the queue that aren’t ever likely to be completed.

What does this mean for batteries?

As well as the shorter queue times, there’s another reason for battery developers/owners/operators to celebrate: batteries will also be treated differently than they currently are.

To date, batteries have been modeled as if they are importing at the times of highest demand - and therefore adding to grid constraints. This makes it much harder for batteries to get grid connections.

Current ESO modeling of battery behaviour.

In reality, at times of congestion on the networks (when demand is high and margin is low), energy storage is most likely to be exporting (or helping to maintain grid frequency, which is typically a low power service). Basically, batteries are currently penalised in case they add to constraints - when in reality, they’re helping to manage them.

A more realistic model of battery behaviour.

So what’s changing?

Battery energy storage projects in the queue are now to be treated as neutral to the transmission system. This means they will be modeled as 0 MW import/export assets - rather than assuming that they will import at capacity during the most constrained times of the day. This should make it easier for battery projects to get earlier grid connections!

The updated model will assume 0 MW import/export behaviour.

That said, distribution networks continue to model batteries as a hindrance rather than a help. There is work to be done to create a more joined-up approach throughout the connection process.

3. The Electricity Generator Levy will tax revenues from co-located battery energy storage assets

When the Energy Generator Levy was announced, it was unclear whether the revenues from batteries co-located with renewables would be within the rules.

HMRC have now confirmed that generation from co-located battery assets - where they are time-shifting renewable electricity generation - will be included in the Levy. This is disappointing for the business case for co-optimizing co-located assets.

Can I find out more?

HMRC will provide further detail on how the rules will work for co-located assets. We recently modeled how the Levy might impact co-located battery revenues here.

4. Global supply chains might struggle to keep pace with demand

The UK has been world-leading in battery energy storage. In light of the USA’s Inflation Reduction Act and anticipated similar announcements from the EU, the UK will need to work hard to remain competitive.

There is now a 30% tax rebate on standalone storage in the USA, prompting an additional 100 GWh of orders. Competition for the global energy storage supply chain has increased.

Also, the war in Ukraine has raised long-term policy questions around energy independence. More local manufacturing (either in Europe or Great Britain) is needed, which takes years - and lots of capital - to set up.

5. Long-duration energy storage projects are still waiting on viable markets

We’re unlikely to see any markets for long-duration energy storage until the government has properly defined policy around it.

Technologies that can provide electrical storage to deal with increasing wind generation are crucial to decarbonizing the power system. However, these technologies carry inherent risks: they are unproven at scale, and it can take many years to get from a lab to a commercially viable, sizable (multi-MW) operational site.

One of the main hurdles to innovation in this area is understanding the commercials. Investors and developers are waiting for policymakers to incentivize the build-out of these technologies. Only then will the markets follow.

6. Balancing Mechanism skip rates will improve from September

Significant changes to the control room dispatch efficiency for battery energy storage are on the horizon. Software releases to control room infrastructure in September and December of this year should create big improvements to skip rates for battery energy storage within the Balancing Mechanism.

For more details on skip rates and control room improvements, check out our article on skip rates and the Balancing Mechanism.

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