The UK just had an energy revolution – let’s not ignore it

Partner, Infrastructure & Projects Group
Sabine Schleicher, Partner, Infrastructure & Projects Group
Brad Hopkins, Director, Infrastructure & Projects Group
Brad Hopkins, Director, Infrastructure & Projects Group

In late August 2016, National Grid, the entity responsible for managing the UK’s electricity grid, announced the winners of a tender to supply a little known service which helps to maintain the stability of the electricity grid.

Battery companies were expected to win the tender and did indeed prevail. But it was the lower than expected prices of the battery solutions that shocked the industry and evidenced a dramatic change in the cost of grid scale electricity storage. The energy storage revolution has arrived.

Tenders like the one by National Grid are common throughout the world and allow grid operators to procure near instantaneous increases in the supply of electricity. The ability for grid operators to fine tune the supply and demand balance of the grid is what keeps the lights from flickering and appliances from melting when sudden, unexpected changes in demand or supply occur.

Historically the victors in National Grid tenders were gas plants with the specialist hardware to suddenly increase supply, small diesel generators capable of firing almost instantaneously and coal generation plants that were kept running or ‘spinning’ in anticipation of providing sudden boosts to electricity supply. These services have traditionally been both expensive and dirty and National Grid reckons it spends in excess of £1 billion per year on maintaining stability. Like most costs in the electricity industry this burden is ultimately passed through to electricity consumers. The Australian Energy Market Operator (AEMO) says it pays out more than $100 million per year to do the same in Australia, which seems low by comparison. Regardless, these costs are increasing as intermittent renewable energy makes it harder to balance supply and demand and have been the subject of industry and political debate in Australia.

This latest tender changes the energy landscape by evidencing that clean, cost effective grid stabilisation is closer than was previously thought. National Grid has said that the average expected cost of the battery storage was around £10/MW/hr, generating cost savings in the order of £200 million over four years.

Here in Australia the UK tender results demonstrate that the development of energy storage technology has outpaced the politics of Australia’s clean energy transition. These solutions, if properly procured, ought to offer value for Australian electricity users today and hence deserve the attention and support of policy makers. Cheaper, cleaner grid stabilisation could speed the deployment of renewable energy and reduce the risk of damaging price spikes, like the one that recently occurred in South Australia.

The relatively sudden shift in the viability of energy storage has not taken all market participants by surprise. AGL is pursuing aggregated energy storage with vigour and is seeking to roll out battery storage to 1,000 homes and business in South Australia. Such initiatives make sense – by creating a role as an intermediary between battery owners and the electricity markets AGL may be able to capture value to offset the gradual decline in its traditional business. Coal generators have relied on the provision of grid stabilisation services to electricity grids to supplement their revenues. The loss of this income, combined with renewable energy capturing a greater share of peak price demand, will continue to undermine traditional business models.

 

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