By James Basden, founder director of battery storage specialist Zenobe
The Cap and Flooring scheme for Lengthy Period Electrical energy Storage (LDES), launched by the Division for Power Safety and Internet Zero (DESNZ) and controlled by Ofgem, is designed to drive funding into storage applied sciences that may ship electrical energy for 8 or extra hours. It really works by providing a minimal income assure (the “flooring”) to guard in opposition to low returns, whereas inserting an higher restrict (the “cap”) to return extra earnings to shoppers. This creates better monetary certainty for buyers, serving to to unlock much-needed LDES capability for the grid.
Nevertheless this certainty comes at a price – to each shoppers and the Authorities’s personal clear energy ambitions.
The Authorities’s Clear Energy 2030 plan units a goal of 4 to six GW of operational Lengthy Period Electrical energy Storage (LDES) by 2030, up from 2.9 GW at the moment, with that determine rising to 5-10 GW by 2035. Whereas these are formidable and vital objectives, they prioritise only one piece of the vitality storage puzzle.
The vast majority of the UK’s versatile capability might want to come from shorter period Battery Power Storage Methods (BESS), with 23 to 27 GW required by 2030 and as much as 29 GW by 2035. Presently, the UK has solely round 5 GW of BESS in operation, that means there’s a vital hole to shut.
But the LDES Cap and Flooring scheme dangers making that hole even tougher to bridge. By permitting subsidised LDES property to compete straight with unsubsidised BESS in markets like balancing, response and capability, the coverage may distort pricing and bidding behaviour, lowering the competitiveness of battery storage and in the end undermining funding within the very applied sciences important to decarbonising the grid.
That is particularly regarding on condition that lots of the companies being focused by LDES, corresponding to frequency response and short-term balancing, don’t require lengthy period storage. In these markets, shorter period batteries should not simply adequate – they’re usually the extra environment friendly and cost-effective resolution. That is already evident in at the moment’s ancillary markets, the place batteries have considerably decreased prices for shoppers and displaced extra carbon-intensive sources like fuel.
So why threat slowing down BESS deployment?
Evaluation from LCP Delta means that the Cap and Flooring scheme, if not rigorously designed, may jeopardise as a lot as 20% of the projected BESS build-out. The priority is easy: whereas LDES initiatives will profit from income certainty, BESS property will proceed to function with out a flooring worth, totally uncovered to market volatility. This unequal taking part in subject can considerably affect market dynamics – notably within the wholesale and balancing companies markets – the place subsidised LDES property may outcompete unsubsidised BESS initiatives.
The evaluation additionally means that this might result in a 12% discount in working margins for shorter period BESS, a considerable hit to challenge viability and investor confidence.
Customers shouldn’t pay the value for Authorities’s favouritism
The federal government is clearly backing pumped-hydro, a expensive expertise with lengthy lead instances and a well-documented historical past of complexity and value overruns. If long-duration storage is genuinely wanted, the Authorities ought to allow the market to determine and ship the simplest options on the lowest value to shoppers. Implicitly favouring pumped-hydro dangers locking in larger prices – LCP’s evaluation reveals this might add an additional £122 million per yr to client payments. That interprets into over £2 billion throughout the 25-year scheme.1
Permitting batteries to compete on a stage taking part in subject would assist decrease the scheme’s worth flooring. Most significantly, the Authorities should make sure that the full capability supported beneath the scheme is scaled appropriately, so shoppers should not burdened with subsidising costlier applied sciences than vital.
As Ofgem’s utility window for the Cap and Flooring scheme opens, the detailed design of the mechanism stays a important piece of the puzzle
Key selections corresponding to how market participation is structured and whether or not protections are in place to forestall distortion will decide whether or not the scheme can efficiently assist the expansion of lengthy period storage with out undermining the equally very important enlargement of battery storage.
The stakes couldn’t be larger. As much as 7.7 GW of LDES property might obtain subsidies by means of the scheme. With out well-designed safeguards, this well-intentioned coverage dangers unintentionally derailing the Authorities’s personal ambition to deploy 27 GW of shorter period BESS by 2030.
Getting this proper is not only a matter of equity – it’s elementary to constructing a resilient, versatile and future-proof electrical energy system.
View the report right here
Learn the business Open Letter right here.
Notes
[1] Slide 14: Worth of long-duration BESS to the GB energy system
