Building Capacity in the Storage Industry

Storage really is the holy grail of the energy industry.

To those in the industry, this mantra has been heard and cited time and time again. The intermittency of renewables ceases to be a problem. When England crash out of the quarter finals of Euro 2016 (on penalties to Portugal - you read it here first) the spike in demand two minutes afterwards won't be a problem. Heating and personal transport can be loaded onto the electricity grid, and the increased peak load ceases to be a problem (meaning that more and more, electricity and energy will become interchangeable words). And profits of whichever storage company nails it really do cease to be a problem.

It would seem that the Government has also realised that boring storage really could be quite sexy too. In the Budget last month, George Osborne announced that he was fully accepting the National Infrastructure Commission’s recommendations on energy and gave the storage industry 50 million pound-shaped reasons to get excited. The NIC specifically recommended that “the UK should become a world leader in electricity storage systems”, and that “outdated regulatory and legal barriers” should be removed to allow storage to “compete fairly with generation”. Asset owners should be incentivised to use storage. And crucially, these reforms should be proposed by Spring 2017 at the latest, and implemented very quickly afterwards.

Questions and conundrums

But the storage industry - pumped hydro excluded - is still relatively young (despite, umm, being invented in 1800 by Allesandro Volta), and the industry is evolving. Fundamental questions remain. For instance, batteries make a lot of sense not just to the renewables industry, but also to National Grid. It spends a lot of time and resources trying to work out demand (just how many cups of tea will be made when Rooney misses his penalty?) and match that with supply.

Our future renewables industry can supply, but can’t promise to meet demand when National Grid wants it. So storage is the holy grail to both, which poses our first set of conundrums. Who should own the storage assets? Where on the current electricity system will they be located? Should storage be counted as generation, able to be turned on and off when National Grid asks for it? Or should it be owned (or leased) by National Grid and counted as part of the transmission network? (Pumped hydro in the UK already counts as generation, so there is a precedent). And crucially, who should get that £50 million that Mr Osborne found down the back of the sofa?

Different models

Storage companies have to work out where they fit in. What is their primary market, and what is their primary product? Should they make smaller units that can fit in a home, larger units that businesses would like, or ‘power plant’ capacity-sized units that sell to utilities?

Business models need to be worked out and evolved. In much the same way as Ford has luxury cars, family cars and bargain-basement Fiestas, could a single company supply EV car batteries, house batteries and wind/solar farm batteries, all at different sizes (horizontal integration)? Or should companies partner with solar panel manufacturers and sell the combined hardware as a package (vertical integration)?

Or are we just not being imaginative enough? Could a household storage company partner up with demand reduction and smart meter providers to form in effect another utility, able to provide power to the grid one way and to homes the other way using the same bit of kit? (Whatever happens, you can bet the Big six will not be the same in six to 10 years' time.)

Policy incentives

But all of this will be worked out by the industry as a whole. What we don't yet know is how quickly this happens. Storage actually isn’t needed on the grid right now, but is wanted. It will definitely be needed if renewables are to provide, say, 60% of our nation’s electricity. This is where the regulators, DECC and ultimately Government come into the picture. What policy instruments should be used to incentivise the building of storage capacity and provision of storage services, and what level should they be set at? There’s no right or wrong answer here, but if this is to be a 'cornerstone industry', £50 million doesn't seem that much.

But that money is a start, and the energy establishment is on board and thinking things through. So where’s the problem?

Well, the problem lies with that year. Becoming a world leader is an easy thing to ask for, but really hard to do. Mainly because other nations want the title of world champion too.

International champions of storage

California required, as far back as 2013, that its top three utilities install 1.3GW of energy storage by 2020. Similarly, Oregon requires its top two utilities to install 5MWh by 2020, and New York has implemented the Demand Management Incentive Program, which incentivises larger businesses and industry to install batteries.

The US is the current storage champion, boasting 95 projects with a total installed capacity of 357 MW (as of the end of 2014). Japan has nearly 310MW. In Canada, Ontario has directly awarded contracts to 10 companies for 50MW of storage. China is financing a bunch of demonstration projects. So is Germany, as well as offering direct subsidies for small-scale (household) storage systems. India just required bidders in a solar tender it's running to include storage as a requirement. South Korea’s demonstration project recently came online.

The Japanese are the clear winners when it comes to ambition, though. Their Government’s stated aim is that Japanese companies have half the world’s estimated battery storage market share by 2020. Punchy.