By James Basden, founder director of battery storage specialist Zenobe
The Cap and Floor scheme for Long Duration Electricity 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 “floor”) to guard in opposition to low returns, whereas inserting an higher restrict (the “cap”) to return extra income to shoppers. This creates higher monetary certainty for traders, serving to to unlock much-needed LDES capability for the grid.
Nevertheless this certainty comes at a value – to each shoppers and the Authorities’s personal clear energy ambitions.
The Government’s Clean Power 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 right this moment, with that determine rising to 5-10 GW by 2035. Whereas these are bold and vital objectives, they prioritise only one piece of the vitality storage puzzle.
Nearly all of the UK’s versatile capability might want to come from shorter length Battery Power Storage Methods (BESS), with 23 to 27 GW required by 2030 and as much as 29 GW by 2035. At present, the UK has solely round 5 GW of BESS in operation, that means there’s a important 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 instantly with unsubsidised BESS in markets like balancing, response and capability, the coverage may distort pricing and bidding behaviour, decreasing the competitiveness of battery storage and in the end undermining funding within the very applied sciences crucial to decarbonising the grid.
That is particularly regarding on condition that lots of the providers being focused by LDES, equivalent to frequency response and short-term balancing, don’t require lengthy length storage. In these markets, shorter length batteries should not simply ample – they’re usually the extra environment friendly and cost-effective answer. That is already evident in right this moment’s ancillary markets, the place batteries have considerably lowered prices for shoppers and displaced extra carbon-intensive sources like gasoline.
So why danger slowing down BESS deployment?
Analysis from LCP Delta means that the Cap and Flooring scheme, if not fastidiously designed, may jeopardise as a lot as 20% of the projected BESS build-out. The priority is straightforward: whereas LDES initiatives will profit from income certainty, BESS property will proceed to function with out a flooring value, absolutely uncovered to market volatility. This unequal enjoying area can considerably affect market dynamics – notably within the wholesale and balancing providers 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 length BESS, a considerable hit to mission viability and investor confidence.
Customers shouldn’t pay the worth for Authorities’s favouritism
The federal government is clearly backing pumped-hydro, a pricey know-how 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 establish and ship the best options on the lowest price to shoppers. Implicitly favouring pumped-hydro dangers locking in greater prices – LCP’s analysis exhibits this might add an additional £122 million per 12 months to client payments. That interprets into over £2 billion throughout the 25-year scheme.1
Permitting batteries to compete on a degree enjoying area would assist decrease the scheme’s value flooring. Most significantly, the Authorities should make sure that the whole capability supported underneath the scheme is scaled appropriately, so shoppers should not burdened with subsidising costlier applied sciences than vital.
As Ofgem’s software window for the Cap and Flooring scheme opens, the detailed design of the mechanism stays a crucial piece of the puzzle
Key choices equivalent 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 length storage with out undermining the equally very important growth of battery storage.
The stakes couldn’t be greater. As much as 7.7 GW of LDES property could 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 length 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 here
Learn the business Open Letter here.
Notes
(1) Slide 14: Value of long-duration BESS to the GB power system
