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Across the pond, in the UK, energy storage is waning under the limits of its regulatory framework, and experts believe changes must be made to support this vital piece of the energy puzzle. Meanwhile, in the US, a recent Federal Energy Regulatory Commission (FERC) strategy seeks to “open the floodgates” for energy storage using wholesale markets. At this critical point for the technology in both nations, we see contrasting action by governments.
“The UK may be missing a historic opportunity to integrate energy storage technologies as it moves to decarbonise the energy sector,” says Jeffrey Casey, business development director, Burns & McDonnell. He points to provisional results of the capacity market auction earlier this month, which were dominated by fossil fuels and saw storage achieve a mere 1.7% of the payments – a drop of 80%.
The key issue is a lack of incentives for investment in and deployment of storage technology in the UK. We have seen, again and again, in the countries where energy storage thrives, that revenue stacking compensates a range of services and allows for a reasonable return on investment. However, in the UK, payback is just not high enough to attract investment.
“Who wants to put their career, company, money, etc. on the line by taking a 10 year risk on an 8 year asset with a measly 2-3 year guaranteed cash flow? Pricing signals are telling them to put their investment elsewhere in the market or in the world,” explains Casey. “When the country’s largest investment banks shy away from investing in energy storage, you can be sure the market isn’t functioning as well as it should be.”
Casey suggests 4 changes that would set the UK on the right course;
- Revise regulation using a holistic approach. Procuring the services required and removing things that are distorting the market and/or crippling investment.
- Reevaluate incentives across the value chain, reexamine potential markets and strive to lowering barriers to entry. All to provide the certainty that investment demands.
- Stack value across the chain to reward market participants appropriately. This will ensure the reliable, long-term cash flow needed to improve ROI.
- Promote openness and transparency, by sharing operational data, for example. This will help resolve issues and reinforce the traditional network and optimise investment.
This strategy, Casey suggests will solve the energy storage problem but not necessarily the energy problem. “Storage, however, is not a silver bullet. It is an important tool but only one of many that will be necessary for an integrated whole system solution that will propel the UK toward a low, or no-carbon, future. This is what the clean growth strategy alludes to, but who in government will stand up and lead the transformation from the front?” he asks.
Across the pond, in the US, FERC unanimously approved an order this month that could prove to be a landmark in the development of energy storage. Senior Energy Storage Analyst GTM Research Finn-Foley claims currently, “it is as if the industry has had one hand tied behind its back,” but called the new FERC ruling, “a starting point” for the development of energy storage projects in wholesale markets.
Order 841 officially requests wholesale market operators to create a framework that will encourage participation of energy storage in the wholesale energy, capacity and ancillary services markets. Regional transmission organizations and independent system operators will need to devise a set of rules that recognize the physical and operational characteristics of the resource, while fostering a fair and competitive market nationwide.
“The rules will codify mechanisms that will establish a level playing field that, ideally, is relatively comparable across regions,” said Finn-Foley. His colleague, director of energy storage at GTM Research Ravi Manghani, predicts that FERC’s order “opens the floodgates for storage participation” in wholesale power markets.
However, placing the responsibility in the hands of the industry will demand that they be brave and embrace the opportunity. “It will take guts from the industry to really dive in” to the wholesale markets, Finn-Foley said, noting that investor preference for contracted revenue streams will need to be addressed for an uncontracted wholesale market. Energy storage has proved its benefit to power price arbitrage, spinning reserves and capacity. “It is up to the industry to figure out how to weave all those together; we already have the fabric,” he said.
If a bold strategy is put forward, the FERC order has the potential to allow storage to compete directly with generation facilities such as peaking plants. “It is nice to see it come in as a market mechanism and not as a mandate,” Maria Robinson, director of wholesale markets at business advocacy group Advanced Energy Economy said, in an Utility Dive article. “I would imagine this will allow energy storage companies to find new ways to compete,” she said. “Ultimately, it is all about scaling.”
On either side of the pond, greater energy storage promises more flexibility, increased efficiency, better demand response and enables a greener, smarter energy system. While the energy landscapes in the US and UK are vastly different, each will have to find answers to the storage question or fall behind their own expectation. Only time will tell how FERC’s strategy in the US plays out, but the UK government can be certain that their energy system will struggle if they continue to ignore energy storage.