The business case for energy storage has strengthened over the past 12 months. At Flexitricity, we now has over 100MW of energy storage contracted to our virtual power plant, and there are many more projects in the pipeline. Frequency response has been providing excellent returns over the last six months and there is a range of other revenue streams available to batteries, all of which Flexitricity provides access to, including wholesale markets, balancing mechanism, other ancillary services, distribution system operator (DSO) services, triad management and the Capacity Market.
The energy storage market is now starting to thrive, and there’s a clear view of the potential returns that batteries can realise in the medium term. However, Covid-19 has had a major effect on energy markets in the short term. It’s completely understandable that investors are wondering what impact the lockdown will have on the battery business case, but at Flexitricity we have high confidence in this asset class and its market potential. Here’s why.
Like the rest of Great Britain in lockdown, National Grid ESO find themselves in unprecedented circumstances. The record low electricity demand over the Easter weekend has been well publicised, and it’s likely that reduced activity across most industrial and commercial sectors will continue to keep demand well below the seasonal norm. On average, electricity consumption has dropped by around 20% since lockdown began.
This happened during a reasonably windy period and at the same time as solar generation has been increasing as the days get longer. It’s not that solar PV was asleep over winter – we saw impressive generation even on the shortest days – but it leapt out of bed as spring arrived. Most will have seen the new solar generation record of 9.68MW last Monday (20 April) lunchtime – a record which I daresay won’t last long. As a result, we’re seeing comparatively higher proportions of green electricity on the systemthan we would expect to at this time of year – around 30% of demand on that Monday lunchtime came from that solar peak. This is an amazing statistic, more than large enough to shift markets dramatically. Low demand coupled with high renewables has pushed day ahead and intraday prices down, with headline-grabbing negative prices in both markets.
Herein lies an opportunity for batteries. Buying power intraday at negative prices or being present in the balancing mechanism to help National Grid ESO balance supply and demand by charging you up, presents more of an opportunity in these unique circumstances than one might expect. The challenge then becomes selecting the best place and price to sell at, to have “footroom” capacity in the battery for the next opportunity to charge advantageously. This is a delicate balancing act, and human beings backed by algorithms will make the right decisions here, not the other way round. Whilst revenues for merchant storage have reduced slightly during lockdown, the ability for storage to go both ways means it is less at risk of low power prices than a gas recip might be. For batteries, the opportunities are in the spreads; in any case, we expect that the energy market will recover as commercial and industrial demand ramps up again post-lockdown.
And, make no mistake, the current green-heavy grid is a taste of what’s to come. Growing proportions of green energy on the system are great, but they do present additional challenges for system balancing. Almost all of the solar on the system and most of the wind outside of Scotland is not dispatchable by National Grid ESO. When renewable output is high, National Grid ESO balances the system by turning other things down, primarily gas generation. But turning down the CCGTs to clear the path for renewables reduces system inertia, and that’s a problem.
Fortunately, batteries can help here too. National Grid ESO’s frequency response services – Firm Frequency Response, Low Frequency Static and Dynamic Low High – are used to regulate system frequency and keep it within safe operating levels. All are open for battery storage and are delivering attractive revenues. Dynamic Containment, a highly technical frequency service, brings frequency response closer to a position where it begins to address the system inertia problem. We expect that Dynamic Containment will be live over this summer. The draft technical requirements are such that most asset classes will struggle to deliver it – but for batteries, Dynamic Containment may be an ideal fit.
This new service will be followed in due course by two more frequency services: Dynamic Moderation and Dynamic Regulation. Frequency response is an absolutely critical service category which National Grid ESO will need more of this summer, and more of in the future as we see greater renewable contribution. Quite rightly, the world’s focus just now is on ending the devastation caused by Covid-19. In the meantime, we in the energy industry can nevertheless learn something. Some aspects of the energy system in lockdown foreshadow how the green energy system of the future could operate, at least in terms of the proportion of electricity coming from low-carbon sources. It’s clear that the system needs a richer variety of flexibility – including a whole lot of battery storage.