Carbon Connect Policy Paper: Developing Electrical Energy
Storage in the UK
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On Wednesday 14 September 2016 Carbon Connect ran a roundtable in Parliament entitled ‘Developing Energy Storage
in the UK’, chaired by Callum McCaig MP. This policy paper has been produced as a follow up to this. While it was informed
by the event it does not necessarily represent the views of those in attendance.
Context
Renewable energy has vast potential to reduce greenhouse gas emissions in the UK. However, a major
impediment to its mass deployment is the intermittent nature of sources such as solar photovoltaics and wind
energy. By storing generated energy for a later use at a specific time that brings more value, electrical energy
storage offers a chance to bridge this gap.
Energy storage encompasses a number of different technological solutions such as pumped hydro, chemical,
thermal and compressed air storage. These technologies could deliver considerable benefits for the stability of
the energy system, security of energy supply as well as helping to decarbonise UK energy supplies.
Government policy should generally not ‘pick winners’ when it comes to technologies in the energy market.
Storage is no different in this regard and should only be supported to provide a useful service rather than for
its own sake. Nonetheless, developing the storage industry would help facilitate a transition to a low carbon
economy and at the very least unnecessary barriers to its deployment should be removed.
Benefits of Storage
Energy storage could provide the following benefits:
 Energy storage can enable the integration of more renewables (especially solar PV and wind) in the
energy mix thereby reducing the usage of fossil fuels and enabling a greener energy supply mix.
 Storage technologies could decrease the need to invest in new conventional generation capacity,
resulting in financial savings and reduced emissions.
 Storage technologies can improve our energy security by optimising the supply and demand.
 Storage can also provide system stability when the system is under stress due to plant failure or
changing weather patterns. Storage can provide enhanced services including response within 1
second whereas conventional plant typically responds within 10 seconds.
 Storage can reduce the number and cost of electricity transmission and distribution system
upgrades, depending on the location and services provided.
 Energy can be stored when prices are low and used on site when they are high to save consumers
and businesses money on their bills. Alternatively the stored energy can be sold.
 Storage can deliver balancing and ancillary services cost-effectively.
 Energy storage can reduce energy loss by using transmission and distribution systems at off peak
periods.
 It has been estimated that if 2 Gigawatt Hours of energy storage was deployed by 2020 the
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industry could create jobs for up to 10,000 people in the UK.
Long Term Contracts
The lack of long term contracts available for storage services is an obstacle to storage companies having a
viable business model and therefore to the deployment of storage technology. This is particularly important in
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REA & Energy Storage UK (2015) ‘Energy Storage in the UK An Overview’; Strbac, Goran, Marko Aunedi, Danny Pudjianto, Predrag Djapic,
Fei Teng, Alexander Sturt, Dejvises Jackravut, Robert Sansom, Vladimir Yufit, and Nigel Brandon, (2012) ‘Strategic assessment of the role
and value of energy storage systems in the UK low carbon energy future’ Report for Carbon Trust.; A Gigawatt Hour is a unit of energy
equivalent to 1 Gigawatt of power sustained for one hour.
the area of ancillary services (anything that supports the transmission of electricity from its generation site to
the customer) where contracts in excess of ten years are desirable.
When awarding contracts for services National Grid can only offer contracts that offer value for money to
consumers. It is also unlikely to be sensible for National Grid to award contracts for storage per se, rather they
are likely to offer contracts for a service which storage technology could provide. For example, National Grid’s
contracts for Enhanced Frequency Response services which were allocated on 26 August 2016 asked providers
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to help balance the national power grid in under a second. However, Ofgem and National Grid should
consider providing long term contracts for Enhanced Frequency Response services in recognition of the
potential for this to support the storage industry and lock in value for consumers.
One potential avenue for long term contracts could be through the Capacity Market which is intended to
provide insurance against future blackouts by subsidising capacity providers to guarantee that they will meet
electricity demand. Reforms to the Capacity Market in 2016 mean that it offers targeted support to demandside response services and it is easier for storage to participate in the mechanism. However, the Capacity
Market has been criticised for not being sufficiently supportive for storage and continuing to support higher3
carbon electricity generation. The Capacity Market is therefore currently unlikely to support widespread
development of the storage industry.
Recommendation 1
1. Ofgem should consider whether it would be appropriate for National Grid to offer long term
contracts (in excess of ten years) for services which storage technology could provide.
Distribution Network Operators (DNOs)
Storage can pre-empt the need for new developments such as more transmission and distribution lines. This is
currently supported by Ofgem through the Low Carbon Networks Fund which supports Distribution Network
Operators (DNOs) to try out new technology, operating and commercial arrangements which may help
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maintain security of supply and value for money as Britain moves to a low carbon economy. In the short term,
an expansion of this fund could help the UK to reduce new developments in the power sector through
increased use of storage. DNOs should be obligated to evaluate all options from an economic perspective and
this could be a further source of long term contracts for storage. In the long term, DNOs need to shift to
become Distribution System Operators so they are responsible for operating, ensuring and developing the
distribution system in a given area and its interconnections with other systems and for ensuring the long term
ability of the system to meet reasonable demands.
Recommendation 2
Ofgem should expand the Low Carbon Networks Fund to encourage new developments in the power
sector. In the long term, Ofgem should look to support Distribution Network Operators to transition
into becoming Distribution System Operators.
Double-Charging
There is a problem with storage technologies incurring double-charges due to the nature of the technology.
There are two separate double-charging issues. The first relates to the transmission network, which transmits
high-voltage electricity from where it is produced to where it is needed throughout the country. The cost of
managing or balancing the system is charged twice to storage technology whereas other generators pay it
once. This charge is paid when storage is charging up and when it is discharging. This double-charging is the
result of an industry code which Ofgem controls. Arguably the source of this problem is the lack of a clear
definition of storage in legislation, regulations and licensing. There is therefore a need for government to work
with industry to develop a licensing system which fairly accounts for storage technology. One possible route to
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‘National Grid awards seven firms £66m of enhanced frequency response contracts’, The Energyst http://theenergyst.com/national-gridawards-seven-firms-66m-of-enhanced-frequency-response-contracts/ Accessed 5th October 2016
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‘Capacity Market changes could support the growth of storage’, REA http://www.r-e-a.net/news/capacity-market-changes-couldsupport-the-growth-of-storage Accessed 5th October 2016
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Distribution network operators (DNOs) are companies licensed to distribute electricity in Great Britain by the Office of Gas and Electricity
Markets.
this would be to develop the system of licensing set out in the Electricity Act 1989 which provide separate
licenses for generation and supply and creating an additional category of licensing for storage.
Recommendation 3
Ofgem, with the support of the Department for Business Energy and Industrial Strategy (BEIS),
should use the upcoming joint Call for Evidence on a smart and flexible energy system to address
the double-charging of storage services relating to the transmission system.
Recommendation 4
The Government should work with industry to develop a licensing system which defines storage
services and properly reflects the value of storage to the grid.
The second problem relates to the distribution network which transports electricity from the transmission
system to individual consumers. Storage connected to the distribution network pays environmental charges
(which fund the renewable obligation, contracts for differences and other environmental programmes) on
energy used for charging but these charges are levied again if the storage output is sold on to another
customer. To remove this double charge requires a change to legislation and hence is a matter for BEIS.
Recommendation 5
BEIS should address the double-charging of storage services relating to the distribution system.
Two Speed Approach
There is a danger of the government taking a two speed approach to energy storage meaning that other
technologies are unintentionally given support while the UK fails to take full advantage of the benefits of
storage. For example, due to state aid requirements interconnectors were very quickly fully integrated into the
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Capacity Market in a way storage has not been.
Additionally, the Department for Business, Energy and Industrial Strategy and Ofgem are expected to publish a
Call for Evidence on a route map to a smart and flexible energy system. The Call for Evidence will seek views
from industry on barriers to the deployment of energy storage in the UK. While this process should provide an
avenue to support the development of storage in the UK, it has repeatedly been delayed. Simultaneously,
Ofgem have been reviewing ‘embedded benefits’ since January 2016 which many fear could result in changes
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to grid charging which disadvantage both renewables and storage.
Systems Solution
All energy technologies must be considered in terms of the service they can provide and their potential role
within the wider energy system (including areas such as transport and heat as well as power), rather than as
an end in themselves. In this context, electrical storage will be an essential part of the transition required to
meet the UK’s 2050 emissions objectives but it will not be an appropriate solution to all problems. For
example, in the area of heat the cost of developing the required storage infrastructure and increased
renewable capacity means the Government’s current strategy of providing over 80 per cent of domestic
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heating through electric heat pumps is likely to be costly and unrealistic. Arguably, in recent years the energy
system has been reformed in a piecemeal manner which has not been sufficiently holistic in approach.
Recommendation 6
In general government policy should seek to remove unnecessary barriers to the development of
energy storage, however, this should not include creating a ‘market for storage’ for its own sake.
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Interconnectors are transmission cables that allow electricity to flow from one country to another.
ADE & REA (September 2016) ‘Response to Open Letter on charging arrangement for embedded generators’
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Dr Keith MacLean, Dr Robert Sansom, Tom Watson & Dr Rob Gross (2016) ‘Managing Heat System Decarbonisation’; Policy Exchange
(2016) ‘Too hot to handle?’
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