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Filling the need for long-term energy storage

23/11/2022

2 min read

A range of rectangular and cylindrical hydrogen storage tanks on gravel surface with trees behind Photo: Adobe Stock
Hydrogen-to-electricity is one way forward for increasing long duration energy storage

Photo: Adobe Stock

The provision of energy storage capacity at points around the UK electricity system is the key to maximising the role that renewable generation can play. But the route to developing sufficient storage projects – using various technologies – is not straightforward, as Andrew Mourant reports.

Increasing the country’s long duration energy storage (LDES) capacity is a matter of growing urgency if the UK wants to wean itself off fossil fuels and build up resilience against geopolitical upheavals. The point could hardly have been made more forcibly than by the timing of a government announcement earlier this year to invest in mainly small-scale storage projects. The Department for Business, Energy and Industrial Strategy (BEIS) released details of this on 23 February – the day before Russia invaded Ukraine.

 

BEIS is spending £68mn over four years on LDES demonstration projects – a start, but far more will be needed.

 

In July, consultant Afry published a BEIS-commissioned report which examined the potential and the challenges. Wind and solar resources are unevenly distributed across the UK, with much of the power they produce distant from centres of demand, and some in locations where there’s insufficient transmission capacity.

 

That’s a big part of the case for building up a storage capability. Afry considers both power and hydrogen LDES to be candidate technologies. And any low carbon power system must maintain system stability, meet peak demand and manage locational congestion.

 

Afry’s study: The Benefits of Long Duration Energy Storage, factors in commodity prices and technology costs. It points out that investors have limited foresight of future market developments, must reach decisions based on incomplete information and have different levels of risk aversion.

 

So there’s a gamble. With luck, LDES can be built at the right time and in the right place; but some investments may be spurred on by ‘over-optimistic views of deployment capability’ and how the market will behave. However, having LDES in place might act as a hedge against future turbulence – an investment that could reduce system costs over an extended period.

 

Large-scale projects
Afry sees hydrogen as the way forward for large-scale LDES projects. But scaling up will be complex and costly, says the report. It means investing in new salt cavern storage; developing carbon capture and storage (CCS) to facilitate the production of blue hydrogen from natural gas; having hydrogen-fuelled generation such as combined cycle gas turbines (CCGTs) to convert stored gas back to power; and building a pipeline transmission network.

 

That said, hydrogen salt cavern storage would ensure the system is less exposed to high gas prices should the wind drop for days on end, providing the transmission infrastructure can cope with any such drought. Adding 5 TWh of additional working volume of hydrogen storage at a capital cost of £2.5bn would give ‘significant extra resilience’.

 

Power LDES technologies such as pumped storage, compressed air energy storage (CAES) and liquid air energy storage (LAES) are, the report says, relatively expensive compared to large-scale hydrogen. Moreover, a wind-driven electricity system will often feature extended periods of high demand and excess beyond the durations available from power. Large-scale hydrogen storage’s technological characteristics fit better with prolonged periods of excess and insufficient generation.

 

Last year, the Renewable Energy Association (REA) produced a paper that focused on storing energy for up to 24 hours using technologies such as CAES; LAES; pumped hydro; gravity batteries and flow batteries.

 

Although several are readily available for commercial deployment, the current market framework acts as a barrier to investment, says the REA. The means of storing energy longer term remain ‘emerging’ and face high capital requirements and prolonged consultation. REA says much of the value provided by energy storage, such as capacity, balancing and stability, is unrecognised by power purchase agreements (PPAs).

 

In the British Energy Security Strategy, announced in April 2022, the government said it wanted to see 95% of UK electricity to come from low carbon sources by 2030. Offshore wind would be the backbone, delivering up to 50 GW of generating capacity. Clearly, the need for LDES is inextricable from any dash for renewables.

 

Undue burdens
Consultant LCP estimates that, over time, 50 GW of new demand-side flexibility from energy storage, electrolysers and interconnectors will be needed to avoid wasting up to 72 TWh of renewable power (almost three times the yearly output of the currently being built Hinkley Point C nuclear power station).

 

But BEIS has since commissioned a review to ensure that delivering net zero does not place undue burdens on businesses or consumers. This is due to report at the end of the year, the consultation period having closed at the end of October. It adds another element of uncertainty into the mix.

 

Management consultant McKinsey, which last year conducted a study of challenges and opportunities of long duration storage for the LDES Council – a global body representing the industry – called for governments to support early deployments of such schemes. State backing would help ‘de-risk’ the market for investors and enable it to scale up, says McKinsey. Currently, short-term power markets make investors wary.

 

Oxford-based consultant Aurora concludes that up to 46 GW of energy storage will be required to manage UK renewable intermittency if the power sector is to achieve net zero emissions by 2035. Of this, up to 22 GW is of short duration (up to four hours) and 24 GW of longer duration (up to weeks and months, with 40% of that in the 8–16-hour range). This, says Aurora, amounts to eight times the current LDES installed capacity – 2.8 GW of pumped hydro – in place since 1984.

 

McKinsey’s global modelling suggests that, by 2040, LDES has the potential to deploy 1.5–2.5 TW of power capacity. That, the report claims, could prevent 1.5–2.3 Gt of CO2 being released into the atmosphere annually – some 10–15% of total 2021 power sector emissions.

 

Ending curtailments
All the experts seem to agree that until LDES gathers momentum, renewables cannot achieve their full potential. The current lack of storage capacity means wind power production in Scotland – which Aurora estimates could reach almost 30 GW by 2035 and 45 GW by 2050 – sometimes has to be curtailed.

 

McKinsey claims that investment in the sector is rising fast. Storage can be widely deployable and scaled up and, the firm says, has relatively low lead times compared with upgrading transmission and distribution (T&D) grids. While hitting global storage targets would require significant reductions in the cost of technologies, LDES member companies reckon it can be done.

 

They cite price falls in renewable technologies such as solar PV and wind power. Much would depend on improved research and development and scale efficiencies in manufacturing. ‘In the short to medium term, government action will be required to kick-start the market by lowering costs, mobilising investment capital and creating a market ecosystem enabling investors to make an attractive return,’ the report says.

 

All the experts seem to agree that until long-term energy storage gathers momentum, renewables cannot achieve their full potential.

 

Aurora believes that seven long duration storage technologies, able to fulfil niche requirements, could be deployed commercially in the near-term alongside pumped hydro. These are: lithium-ion batteries; LAES; flow batteries; CAES; gravitational; molten salt and hydrogen-to-power. Each, it says, are at different stages of readiness.

 

Although the need for LDES has been recognised by policymakers, high upfront costs and long lead times, combined with a lack of revenue certainty and ‘missing’ market signals, have led to under-investment. The way forward, it suggests, could be a ‘cap-and-floor’ mechanism whereby revenues or margins are subject to minimum and maximum levels. Below the ‘floor’ customers would top-up revenues, and earnings above the ‘cap’ would be returned in whole or in part to customers.

 

Management consultant KPMG also favours this approach to reducing risks for investors. An income floor model would de-risk all revenue streams (ie energy, capacity and ancillary services), providing long-term certainty (eg 20 years) to investors. This should reduce the cost of capital, benefitting investors and consumers.

 

However, KPMG stresses that any such mechanism should be flexible, reflecting differences between storage technologies, besides ensuring that revenue stabilisation does not reduce incentives. The company says cap-and-floor has stimulated private investment in cross-border interconnectors since its launch in 2014, with investors able to see annual maximum and minimum revenues over 25 years.

 

Income floor guarantee
Last year the REA joined calls for an income floor guarantee that would compensate LDES plant operators for any revenue shortfall with a top-up payment while providing security to investors. It would enable LDES to truly compete with smaller-scale and shorter-duration technologies that require a much smaller capital expenditure.

 

Although the REA responded to the call for evidence from the government about the way forward for LDES in September 2021, Head of Policy Frank Gordon says there’s been no response to date. Despite the growing imperative for energy independence, it looks as if we must wait until 2024 for any government policy framework to emerge. ‘We’d like to see further action (beforehand),’ says Gordon.

 

While the £68mn committed in February to emerging technologies is a decent amount of money, Gordon would like to see more spent: ‘We know there’s a pipeline of possible projects – they need some support.’

 

It’s hard to dispute the social benefits of large-scale energy storage deployment if solar PV and wind are to become dominant sources of power. Or, as the McKinsey report claims, that the alternatives are costlier and that failing to invest in system flexibility would be ‘a recipe for major instability’ in electricity supply. But, as things stand, we’re seeing more of a crawl than a surge to that goal.