www.cornwall-insight.comwww.dlapiper.comInsightpaperJune2023Readyandwaiting:OpportunitiesforenergystorageInsightPaperReadyandwaiting:Opportunitiesforenergystorage2TableofcontentsTheauthors3ForewordbyDLAPiper4Executivesummary5Backgroundtoenergystorage8Revenuestreamsandroutestomarket13Challengesforenergystorage20Futureopportunitiesforenergystorage26Keyconsiderations34AboutCornwallInsight36Glossary38DisclaimerWhileCornwallInsightandDLAPiperconsidertheinformationandopinionsgiveninthisreportandallotherdocumentationaresound,allpartiesmustrelyupontheirownskillandjudgementwhenmakinguseofit.CornwallInsightandDLAPiperwillnotassumeanyliabilitytoanyoneforanylossordamagearisingoutoftheprovisionofthisreporthowsoevercaused.Thereportmakesuseofinformationgatheredfromavarietyofsourcesinthepublicdomainandfromconfidentialresearchthathasnotbeensubjecttoindependentverification.NorepresentationorwarrantyisgivenbyCornwallInsightorDLAPiperastotheaccuracyorcompletenessoftheinformationcontainedinthisreport.CornwallInsightandDLAPipermakenowarranties,whetherexpress,implied,orstatutoryregardingorrelatingtothecontentsofthisreportandspecificallydisclaimsallimpliedwarranties,including,butnotlimitedto,theimpliedwarrantiesofmerchantablequalityandfitnessforaparticularpurpose.Theinformationprovidedinthispaperisforinformationonly,anddoesnotconstitute,norshouldbeconstruedas,investmentadvice,orarecommendationtobuy,sell,orotherwisetransactinanyinvestmentactivity.Hencewewillnotbeliableinrespecttoanydamage,expenseorotherlossyoumaysufferarisingoutofsuchinformationoranyrelianceyoumayplaceuponsuchinformation.Numbersmaynotaddupduetorounding.InsightPaperReadyandwaiting:Opportunitiesforenergystorage3TheauthorsMatthewChadwick,PhDLeadResearchAnalystCornwallInsightm.chadwick@cornwall-insight.comRubayetChoudhuryPartnerDLAPiperrubayet.choudhury@dlapiper.comAcknowledgementsForthisreport,weadoptedamixedmethodologyapproachbasedonbothquantitative(fromCornwallInsightandexternalsources)andqualitativedata(fromin-depthinterviewswiththemarketstakeholdersbelow).Wewouldliketothankalltheindividualsandcompanieswhocontributedtothisreportfortheirinsights,includingthosewhowishedtoremainanonymous.•AlexMurdie,LegalDirectoratDLAPiper•AndreasGunst,PartneratDLAPiper•AndrewOliver,SeniorEnergyModelleratCornwallInsight•BenBrooks,PortfolioManagementatSchrodersGreencoat•CharlotteJohnson,GlobalHeadofMarketsatKrakenFlex•CurtisVanWalleghem,CEOatHydrostor•ElinorThomas,LegalDirectoratDLAPiper•FredrikLindblom,PartneratDLAPiper•JamesCarter,Partner,HeadofUKEnergyandNaturalResourcesatDLAPiper•JulianJansen,SeniorDirector-Strategy,MarketDevelopment,Policy(EMEA)atFluence•KateMulvany,SeniorConsultantatCornwallInsight•NatashaLuther-Jones,Partner,InternationalHeadofSustainabilityandESG,GlobalCo-Chair,EnergyandNaturalResourcesSectoratDLAPiper•RichardBraakenburg,HeadofEquityInvestmentsatSUSIPartners•SeánMaguire,ManagingDirector,PrivateEquity/InfrastructureatImpaxAssetManagement•TimSowinski,AnalystatCornwallInsight•TomAndrews,SeniorConsultantatCornwallInsight•TonyMcGuiness,HeadofOrigination,MarketEntryandStorageatAerSoléir•WilliamMarshall,LegalDirectoratDLAPiperInsightPaperReadyandwaiting:Opportunitiesforenergystorage4ForewordbyDLAPiperTheGreatBritain(GB)energysectoris,inresponsetothedriverswhichtheclimateagendarightlyprovides,intransition.Thesignificantstructuralshiftfromafossilfuel-basedsystemofenergyproductionandconsumptiontorenewablesourcesisnecessarybutnotwithoutchallenge.Onelimitonthespeedoftransitionistheoftencompetingpriorityofenergysecurity,anissuewhichhasbeenbroughttotheforebyrecentmarketvolatilityfollowingtheonsetofconflictinUkraine.Itisinthatcontextwhichenergystorageplaysafundamental,critical,andpivotalrole.Atitssimplest,energystorageisthemechanicwhichovercomesthechallengepresentedbyintermittentrenewableenergysources;whenthewindisblowingandthesunisshiningexcessenergycanbecapturedandstored,tothenbedeliveredlaterwhenconditionsarelessconducivetoenergygeneration.Thisallowsforflexibility,energyefficiency,andincreasedcapacityintheelectricitygridtowhichthestoredenergycontributes.Thosefeaturesofenergystoragearetheessenceofwhyitwillplaysuchavitalroleinsecuringandacceleratinganeffectiveenergytransition.AlthoughtheGBelectricitystoragesectorfacesvariouschallenges,includingsupplychainvulnerabilityandthepotentialforrevenuevolatility,therealsoremainsignificantopportunities,particularlyinthecontextofthegrowthoflong-durationenergystorage.DLAPiperisoneoftheworld’slargestleadingglobalfull-servicebusinesslawfirmswithover80officesinmorethan40countriesacrosstheworld.Attheheartofthatbusinessisanenergyandnaturalresourcespracticewhichleadsthemarketbothinthelegalserviceswhichitprovidestoallpartsoftheenergytransitionsectorandtheinsightwhichitsexperienceenablesittoprovideonthetopicsthatmattertoourclients.WithalloftheaboveinminditisourpleasuretopresentthisEnergyStorageReport,producedinconjunctionwithCornwallInsight.Wewouldbeveryhappytodiscussanyoftheissueswhichitcoverswithyouandencourageyoutoreachoutdirectlywithanyqueries.NatashaLuther-JonesPartner,InternationalHeadofSustainabilityandESG,GlobalCo-Chair,EnergyandNaturalResourcesSectorDLAPipernatasha.luther-jones@dlapiper.com+44(0)7968558634RubayetChoudhuryPartnerDLAPiperrubayet.choudhury@dlapiper.com+44(0)2077966830JamesCarterPartner,HeadofUKEnergyandNaturalResourcesDLAPiperjames.carter@dlapiper.com+44(0)2071537773InsightPaperReadyandwaiting:Opportunitiesforenergystorage5ExecutivesummaryAstheUKtransitionstowardsnetzero,theincreasingshareoftheenergygenerationmixcomingfromrenewablesisresultingingreaterintermittencyofgeneration,leadingtoagrowingsystemneedforflexibledispatchsolutions.Witharangeofdifferentenergystoragetechnologiesthatare,orcouldbe,usedintheUKtoprovidebothshortandlong-termsystemflexibility,energystorageissettoplayacentralroleintheenergysystem.Thisshiftisreflectedinthesignificantrecentgrowthinthedevelopmentandinvestmentintoenergystorageprojectsglobally,withsomeofthemostrapidgrowthtakingplaceintheUKandtheUS.ThisreportprovidesabackgroundtoenergystorageandconsidersthemainrevenuestreamsandroutestomarketbeforegoingontosetoutthechallengesforelectricitystorageassetsinGreatBritain(GB)andconcludingwiththefutureopportunitiesandkeyconsiderationsforinvestors.ThefocusisontheGBelectricitymarket,withcasestudiesincludeddrawinginsightfromIrelandandAustralia,twootherislandnationsthatwillrequiresignificantenergystorageandflexibledispatchsolutions.Atpresent,GBelectricitystorageisdominatedbyLithium-Ion(Li-Ion)batteriesandpumpedhydropower.Themainrevenuestreamsare:•wholesalepowerarbitrage,•theBalancingMechanism(BM),•frequencyresponseservices,and•theCapacityMarket(CM).Shorterduration(0.5-1hr)batteryassetshavedominatedthefrequencyresponseservices,withlongerduration(2-4hr)storageincreasinglymoreactiveinthewholesalepowerarbitragemarketandBM.Sophisticatedtradingstrategiesthatstackmultiplerevenuestreamsareintegraltooptimisingthebusinesscaseforelectricitystorageassetsandmaximisingreturns.Withmarketsaturationofthefrequencyresponseservicesexpectedtosubstantiallyerodethevalueofthiscomponentofrevenuestacks,wehaveobservedatransitiontowards2hr+durationbatteries,alongsidepumpedhydroandmorenoveltechnologiessuchascompressedairenergystorage(CAES),withanincreasedproportionofrevenuestacksfromwholesalepowerarbitrage.Lookingforward,theco-locationofenergystorageassetswithexistingrenewablegenerationcouldprovideavaluableopportunitytoovercomethelongwaittimesnewassetsarecurrentlyfacingtoaccessagridconnection.However,therearestillmajorquestionsaroundhowtobestoptimiseaco-locatedstorageassettoreducepricecannibalisationfortherenewablegeneratorandavoidtimeperiodswhenbothassetsrequiretheabilitytoexporttothegridoveralimitedconnectioncapacity,thusconstrainingeachother.Forlong-durationstorage(>4hours)thereiscurrentlyashortageoffinancialincentivestopromotegrowthofthiscapabilityinGB.ThedevelopmentofthePathfinderprogrammeintoaformalisedmarket,oranequivalentoftheLong-TermEnergyServiceAgreements(LTESAs)inAustraliacouldprovecrucialtothefutureroll-outoflongerdurationinter-dayand‘seasonal’energystorage.InsightPaperReadyandwaiting:Opportunitiesforenergystorage6Asanassetclass,energystorageisverydifferentfromconventionalrenewablegeneration,and,alongwiththevolatileandevolvingnatureofenergystoragemarkets,thereareaseriesofkeyconsiderationsthatneedtobetakenintoaccountforinvestorsanddeveloperslookingtogetinvolvedintheGBenergystoragespace:Source:CornwallInsightItisimportanttoknowwhichmarketsofftakershaveaccesstoandexperiencetradinginandwhatimpactthathasonthepotentialrevenuestackfortheasset.Thetrackrecordofofftakersandoptimisersisalsoveryimportant,especiallyforbatteryassets.Withthemarketsaturationchallengesdiscussedinthisreport,accesstoancillaryservicesislikelytobelessimportantgoingforward.Therevenuestackwilldependonwhichmarketsarethefocusfortheassetownerandofftaker,whichinturnwillbeimpactedbytheriskappetiteofthepartiesinvolved.Therevenuestackandjumpingbetweendifferentrevenuestreams,withdifferentdegreesofrevenuecertainty,affectsassetcyclinganddegradation,aswellashavingimplicationsforraisingdebtormeetingrequiredequityreturns.Inparticular,investorsandlenderswillwanttounderstandthecertaintyof(orcontractednatureofany)revenuesunderanyproposedrevenuestack,andthetradingstrategiestomitigateanyperceivedmerchantrisk.Thesetupoftheroutetomarketarrangementwilldependontheriskallocationbetweentheofftakerandassetownerandwhoistakingonmarketrisk,assetperformancerisk,legalrisketc.Howsoonanassetcanbeconnectedtothegridandatwhatcostarekeyvariables,withco-locationprovidinganopportunityforquickerandcheapergridconnectionforenergystorageassets.Thelikelihoodofcurtailmentandwhenanycurtailmenthoursarelikelytobeareotherimportantconsiderations.Withmanymarketplayersincreasinglyconcernedwiththeirwiderimpactontheworldandsocietyat-large,environmental,socialandgovernance(ESG)considerationswillbeimportantformany.Thisislikelytorequirecarefulconsiderationbeinggiventowherematerialsarebeingsourcedfromandwhetherthereareconcernsaboutthetreatmentofworkersorthegeopoliticalstabilityofthosesupplychainsandtheriskstowhichthatgivesrise,including,asDLAPiperLegalDirectorElinorThomasnotes,ESGrelatedlitigationrisk.Warrantiesandperformancesystemsoftwarearecriticalforelectrochemicalsystems,particularlyassystem“wraps”canprovideinvestorsandlenderswithlong-termcomfortontechnologyrisk.Thelongevityofthewarrantyandwhetheritcoverstheintendedcycling(chargeandthendischargethestoredenergy)frequencyareimportantcharacteristicstoconsider.Similarly,theextenttowhichwarrantiesaredependentonthemannerinwhichassetsaremaintainedandthesoftwarethatisused,andwhotheassetownersusetoprovidethoseserviceswillallbekey.MarketaccessOptimisationandriskappetiteGridconnectionSupplychainsWarrantiesInsightPaperReadyandwaiting:Opportunitiesforenergystorage7BackgroundtoenergystorageInsightPaperReadyandwaiting:Opportunitiesforenergystorage8BackgroundtoenergystorageInDecember2015,almostallglobalnationssigneduptotheParisAgreement,1alegallybindingtreatytolimitglobalwarmingto2oCrelativetopre-industriallevels,withsignificanteffortsmadetolimitthetemperatureincreasetoonly1.5oC.TomeettheParisAgreement,inJune2019theUKgovernmentcommittedtoreachingnetzeroby2050,2wherebytheamountofgreenhousegasreleasedintotheatmosphereislowerthan,orequalto,theamountcapturedorremoved.ThisnetzerotransitionwillrequireactionacrosstheUKeconomy,withthepowersectortargetingnetzero,subjecttosecurityofsupply,by2035.3Figure1:ForecastedGBgeneration(andstorage)capacityuntil2030Source:CornwallInsight–BenchmarkPowerCurve(March2023)CornwallInsight’slatestmodellingindicatesthattheGBelectricitygenerationmixwillberoughlydoubleitscurrentcapacityby2030,withanincreasingshareofthegenerationmixcomingfromrenewablesources(Figure1).Asmorerenewablesenterthemix,theintermittencyofenergygenerationisincreasedandthereisincreasingneedforflexibility.Energystorageisakeywaytoprovidemoreshortandlong-termflexibilitytothesystemandtherearearangeofdifferenttechnologiesthatare,orcouldbe,usedinGB.AnindustrysourcehighlightedthatGBismovingfromasystemdominatedbyfossilfuels,wherethestorageisinthephysicalmolecules(e.g.gas,coal),toonedominatedbyrenewables,wherethe‘fuel’(e.g.sun,wind)can’tbestored,soseparatestorageisneededfortherenewableelectrons.1UNFCCC2GOV.UK3GOV.UKEnergystorageisakeywaytoprovidemoreshortandlong-termflexibilitytothesystem.“InsightPaperReadyandwaiting:Opportunitiesforenergystorage9AsaresultoftheUK’sisland-statusandlowerlevelsofinterconnectiontoneighbouringmarketsthanistypicalinEurope,theenergystoragemarketsarewelldeveloped,especiallyforshort-durationorintra-daytechnologies.Forthepurposeofthisreport,onlygrid-connectedenergystorageisbeingconsidered,ratherthancaptiveoroff-grid,4whichwouldhavedifferentrevenueopportunitiesandchallenges.Grid-connectedisthedominantformofenergystorageencounteredinGBbutforothermarketsoff-gridenergystorageplaysamorecentralrole.Forexample,inAustraliatheEastCoasthasdominantlygrid-connectedenergystoragewhilsttheWestCoasthasamuchgreaterprevalenceofoff-gridstorage,duetomuchloweramountsofelectricitytransmissioninfrastructureontheWestCoast.5ThisdichotomyinAustraliacouldprovidevaluablelessonsforotherpartsoftheworld,includingfortheuseofdifferenttypesofenergystoragewithinthesamecountry.EnergystoragetechnologiesThereareawiderangeofenergystoragetechnologies,includingthosethatarecurrentlyoperationalandthoseindevelopmenttomeettheincreasingdemandforsystemflexibilityfromthenetzerotransition.Broadly,energystorageassetscanbeconsideredaseithershortorlong-duration.Short-durationislargelyusedtorefertoassetswhichcycle(storeandthendischargeenergy)onanintra-daybasis,andlong-durationcanbefurthersplitintoassetsthatcycleonaninter-daybasis(12-48hours)andona‘seasonal’basis,whereenergycanbestoredforweekstomonths.InGB,theelectricitymarketiscurrentlydominatedbyshort-durationstorage,butasrenewablepenetrationincreases,therewillbeanincreasedneedforlongerdurationassets.CurtisVanWalleghem,CEOatHydrostor,highlightsthistrendbyflaggingthatstoragestartstoberequiredinmarketsasrenewablepenetrationoftotalelectricitygenerationreaches20-30%,andbecomesincreasinglyimportantaspenetrationincreases,withtheneedfor‘seasonal’storagearrivingat70-80%renewablepenetration.Toputthisintoperspective,in2022,56%ofelectricitygeneratedinGBwasfromlow-carbonsources,6whichhighlightsthematurityoftheGBmarketandtheimportantroleenergystoragehastoplay.BatteryenergystorageBatteryenergystorageisthemostcommonlydiscussedandfastestgrowingenergystoragetechnologyinGBatpresent,with2.5GWcurrentlyoperational,766MWofwhichwasinstalledin2022alone.7Batteriesarepredominantlyusedforintra-daystorageandcycling.BatteriesarechargedusingelectricityfromeithertheNationalGridoranenergygenerationasset.Thisstoredelectricitycanthenbereleasedata4Distributedenergysystemswhereon-siteornearbystorageassetsareconnectedtoenergyusersandoperateindependentlytoanygridconnection.5AEMO6GOV.UK7BESSanalyticsInGB,theelectricitymarketiscurrentlydominatedbyshort-durationstorage.“InsightPaperReadyandwaiting:Opportunitiesforenergystorage10latertimeinaccordancewiththechosenrevenuestream(s),asdiscussedinsection2.Globallythereareawidevarietyoftypesofbatterytechnologies,usingarangeofmaterialsandtechniquesforstoringenergyelectrochemically.InGB,mostbatteriesareLi-Ionbutthereisincreasinginterestanddevelopmentintoflowbatteries,whichcouldprovideamorescalableoptionwhenlookingtoprovideenergystorageforcities.PumpedhydropowerPumpedhydroisthemostprevalentformofenergystorageglobally,accountingfor>94%oftotalinstalledcapacityandisalsothelargestcapacityenergystoragetechnologyinGB,with2.8GWinstalledacrossfoursitesinScotlandandWales.8Pumpedhydrostoresenergybyusingatwo-tierreservoirsystemwhereenergyisusedtopumpwaterfromthelowerreservoirtotheupperreservoir.Whenthestoredenergyisrequired,thewatercanbereleasedfromtheupperreservoirandthegravitationalpotentialenergyofthewaterisconvertedintoelectricity.Pumpedhydroisparticularlyusefulatlong-dischargedurations(4-8hrs)andhasthebenefitsofalonglifetimeandrelativelylowlifetimecostscomparedtootherenergystoragetechnologies.However,itislimitedbylocationalconstraintsonwhereitcanbeinstalled.CompressedairenergystorageCAESsystemsworkinasimilarwaytopumpedhydro,butinsteadofusingexcessenergytopumpwaterfromalowertoanupperreservoir,theenergyisusedtocompressandstoreair,oranothergas,inundergroundcontainersorcaverns.Thecompressedaircanthenbeheatedupandexpandedinanexpansionturbinetogeneratepower.Becausetheairhasbeencompressedaspartofthestorageprocess,CAESturbinescangenerateroughlytriplethepoweroutputasanequivalentsizednatural-gaspoweredturbine.CAESisstillattheearlydevelopmentalstagesasatechnologyinGB,butlessonscanbelearntfromthemoreextensivedevelopmentincountrieslikeAustralia(Box1).98InternationalHydropowerAssociation9ARENABox1:CAESinAustraliaInOctober2022,theAustralianRenewableEnergyAgency(ARENA)announcedtheconditionalapprovalofAUD45millioninfundingfortheconstructionofa200MWcapacitySilverCityadvanced-CAESfacilitydevelopedbyHydrostorinNewSouthWales.Thisprojectisexpectedtoreachfinancialcloseinlate2023and,oncebuilt,willprovideatleasteighthoursofstorage.AswellasbeingoneofthelargestCAESprojectsglobally,theSilverCityprojecthastheadvantageoverlegacyCAESprojectsthattheheatgeneratedduringthecompressionprocessisstoredandusedtore-heattheairduringtheexpansionstage,ratherthanusingfossilfuelstore-heatthecompressedair.CAESprojectsareviewedasagoodalternativetopumpedhydroprojectsformedium-andlong-termenergystorage,withCurtisVanWalleghem(Hydrostor)highlightingthatCAEShaslowerspaceandwaterrequirementsthanpumpedhydro,givingmoreflexibilityinsiteselection.Installingmoregrid-scalestorageprojectsinremoterareascanhelpsupportthedevelopmentofmorerenewablecapacityintheseregions.InsightPaperReadyandwaiting:Opportunitiesforenergystorage11Otherlong-durationstorageTheLongDurationEnergyStorageDemonstrationprogramme(LODES)10isacompetitionlaunchedbytheUKgovernmentinMarch2021,offeringuptoGBP68millioninfundingtohelpthecommercialisationofinnovativetechnologiesforlong-durationenergystorage.LODESisseparatedintotwostreams,withthefirststreamofferingaroundGBP37millionfortechnologiesatatechnologicalreadinesslevel(TRL)11ofsixorseven,andthesecondstreamtargetinglessdevelopedtechnologiesataTRLoffourorfive.Therearearangeofmorenascentlong-durationenergystoragetechnologiessupportedthroughtheLODESprogramme,includingseveralnovelflowbatterytechnologies,CAES,andlow-carbonhydrogenstorage.Beyondthissupportforearly-stagetechnologydevelopment,whichisdesignedforpathfinderschemesratherthanrollingoutatscale,thereiscurrentlyadearthofincentivestohelpthebuildoutoflong-durationstoragetechnologiesinGB,althoughtheUKgovernmenthascommittedtodesigningnewbusinessmodelsforlow-carbonhydrogenstorageby2025.12CurtisVanWalleghem(Hydrostor)addsthat,whilstbatterieswilllikelydominatetheintra-daymarkets,andpumpedhydroandCAEScanactintheinter-daymarket,thereisnotcurrentlyacleartechnologyfor‘seasonal’storagethathasproventobeboth“commercialandcostcompetitive.”10GOV.UK11TRLsareameasureofthematurityofatechnology,onascalefrom1to9.4–technologyvalidatedinalab,5–technologyvalidatedinrelevantenvironment,6–technologydemonstrat-edinrelevantenvironment,7–systemprototypedemonstratedinoperationalenvironment.12GOV.UKThereisnotcurrentlyacleartechnologyfor‘seasonal’storagethathasproventobeboth“commercialandcostcompetitive.”-CurtisVanWalleghem,Hydrostor“InsightPaperReadyandwaiting:Opportunitiesforenergystorage12RevenuestreamsandroutestomarketInsightPaperReadyandwaiting:Opportunitiesforenergystorage13RevenuestreamsandroutestomarketRevenuestreamsThereareawiderangeofrevenuestreamswhichenergystoragetechnologiescanaccessinGB.Unlikeforconventionalrenewablegeneration(solarPV,wind,etc.)manystorageassetsarelookingtoparticipatein,andtooptimiseand‘stack’across,multiplestreamstomaximiserevenues.Thisstackingofrevenuesresultsinmoresophisticatedstrategiesinthestoragespacethanforconventionalrenewablegenerationandunderstandingthedifferentelementsoftherevenuestackiscrucialforinvestorsandlenderstobuildsuccessfulbusinesscasesforstorageassets.Jumpingbetweendifferentrevenuestreamsisincreasinglynecessarytomaximiseassetuse,particularlyforshort-durationassets.Notallrevenuestreamscanbestackedtogether,forexample,toensurethatassetsareavailablewhenrequired,thesystemoperator,NationalGridElectricitySystemOperator(ESO),doesnotallowfrequencyresponseservicestobestackedwithwholesalepowerarbitrageandtheBalancingMechanism(BM).Forinvestorsandassetownersthismeansthatcarefulconsiderationisrequiredaboutwhichrevenuestreamstoparticipateinatanygiventimetomaximisetheirreturns.Ingeneral,shorterduration(0.5-1hr)energystorageassetstendtobemoreactiveinprovidingfrequencyresponseservicesfortheESO,andlongerdurationassetsaremoreoftendeployedinthewholesalemarket,BMorCapacityMarket(CM).Figure2indicateshowusecasevariesforGBbatteryassetsdependingonduration.Figure2:BatterypotentialusecasesbydurationinGBBatterydurationCapacityMarketWholesalemarketBalancingMechanismFrequencyservices0.5hour1hour2hours4hoursKeyNotactiveLimitedExistingSource:CornwallInsightRubayetChoudhury,PartneratDLAPiper,notesthatenergystorageassetstendto“needmuchmoreactivemanagementfrominvestors,”particularlywithregardtofinancingthem.Choudhuryaddedthatthevolatilityofenergystoragerevenuesmakesthemmoreappealingto“equityinvestors,whoarewillingtotakeinformedrisks”onfuturerevenuesbydeployingwell-thought-outtradingandoptimisationstrategies.GiventhewidermacrotrendsaroundUnderstandingthedifferentelementsoftherevenuestackiscrucialforinvestorsandlenderstobuildsuccessfulbusinesscasesforstorageassets.“InsightPaperReadyandwaiting:Opportunitiesforenergystorage14risinginterestrates,thisapproachcouldwellappealtoanincreasingnumberofinvestorswhomayviewpotentialvolatilityasanopportunity.Buildingonthis,NatashaLuther-Jones,Partner,InternationalHeadofSustainabilityandESG,GlobalCo-Chair,EnergyandNaturalResourcesSectoratDLAPiper,highlightsthat,whilstinvestorscanoutsourcealotofthetradingandoptimisationtothirdparties,energystorageassetsaremorecomplextoinvestinthantraditionalgeneration.WholesalepowerarbitrageWholesalepowerarbitrageistheprocessofstoringenergywhenit’scheapandthenexportingitattimeswhenit’smoreexpensive,thuscreatingapricespreadandgeneratingamargin.Atypicalexampleofthiswouldbeimportingenergyfromthegridduringthenightwhendemandandpricesarelow,andthenexportingbacktothegridduringtheeveningpeak.Energycanalsobestoredfromco-locatedgenerationassetsifexcessivecurtailmentgeneratesalargeenoughpricespreadandcouldalsobeexportedtoabehind-the-meterdemandsourcetoavoidimportingfromthegridduringexpensiveperiods.Asmoreintermittentrenewablescomeonlinethevolatilityinpricesisexpectedtorise,withanincreasingnumberofperiodswhenoversupplyofenergy(e.g.highwindoutputcombinedwithlowdemand)causeswholesalepricestobezeroornegative.Theincreasingnumberoflowornegativelypricedperiodscreatesadditionalarbitrageopportunitiesforenergystorageassetsalongsideincreasedcomplexityinoptimisingenergystorageanddischargecycles.Wholesalepowerarbitrageisarevenuestreamthatcanbeaccessedacrossthefullrangeofenergystoragedurationswithanindustrysourcenotingthatforlongerdurationstorage,thefocusshiftstooptimisingacrossdaystomatchweatherpatterns,withcharginganddischargingdecoupledfromeachother.BalancingMechanismTheBMisakeytoolusedbytheESOtobalancethesystemandmatchsupplyanddemand,andisobligatoryforlarge(>100MWinEnglandandWales,>20MWinSouthScotland,>10MWinNorthScotland)GBgeneratorstoparticipatein.TheESOwillassesssupplyanddemandforeach30-minutewindowandpayparticipantstoeitherincreaseordecreasesupplytoensurethesystemisbalanced.TheBMispay-as-bid,withtwopricessubmitted,onetoturn-upenergysupplyandonetoturn-down.PricesintheBMaremorevolatilethaninthewholesalepowermarketandsotheBMcanformalucrativecorecomponentoftherevenuestackformanyenergystorageassets.However,therevenuesaremoreuncertainthanforwholesalepowerarbitrageduetoitnotbeingaself-dispatchmarket,astheassetmustbecalleduponbytheESO.Additionally,therecanbeastronglocationalelement.Forexample,highlevelsofrenewablegenerationandrelativelylowelectricitydemandinScotland,combinedwithsignificantgridconstraintsontheB6(England-Scotland)boundary,meanthatstorageassetsinScotlandaremorelikelytobecalleduponthroughtheBM.Comparedtowholesalepowerarbitrage,theBMthereforerepresentsahigherrisk,higherrewardstrategyandsoitsusewithintherevenuestackwilldependontheriskappetiteoftheowneroroperator.Aswithwholesalepowerarbitrage,increasingintermittencyfrommorerenewablegenerationislikelytoresultinmoreBMactionsneedingtobetakenbytheESO,increasingtheopportunityforenergystorageassets.WhilstbothbatteriesandpumpedhydrohavebeenactiveintheBM,during2022ithasprovidedamorelucrativerevenuestreamforthelatterthantheformer.InsightPaperReadyandwaiting:Opportunitiesforenergystorage15FrequencyresponseservicesFrequencyresponseor‘ancillary’servicesareasuiteofserviceswhichoperatetomaintainsystemfrequencyonasecond-by-secondbasisandbalanceanydeviationsfrom50.0Hz(Box2).ThethreemainESO-procuredserviceswhichenergystorageassetsoperateinare:•DynamicRegulation,•DynamicModeration,and•DynamicContainment.Theseservicesofferonlyshort-termcontractsandarelinkedtotheinertia13ofthesystemandthesizeofthelargestpotentialgenerationordemandloss.13Systeminertiaisameasureofhowquicklysystemfrequencywouldchangeiftherewasachangeingeneration,akintotheshockabsorbersonacar.Theturbinesintraditionalgas-orcoal-firedpowerstationsprovidehighsysteminertiabycontinuingtorotateforaperiodafteralossinpower,slowingthedecreaseinfrequency,whereasrenewablessuchassolarandwinddon’tprovidethesystemwiththisinertia.Periodsofhighrenewablegenerationthereforehavelowersysteminertiaandwouldbesubjecttomorerapidchangesinfrequencyifgenerationdrops,thusrequiringagreatervolumeofancillaryservicestobeprocuredtomanagesystemfrequency.ThespeedoffrequencyresponseservicerequirementsinGBandIrelandhashelpedpromote“veryadvancedancillaryserviceproductsthatotherglobalmarketsdon’thave.”-CharlotteJohnson,KrakenFlex“Box2:FrequencyresponseservicesDynamicRegulation–designedtoslowlycorrectcontinuous,butsmall(<±0.2Hz)frequencydeviations.Aimingtocontinuouslyregulatefrequencyaround50Hz.DynamicModeration–designedtorapidlyregulatesuddensmalldeviationsinfrequency(<±0.2Hz).Aquickactingservicefordeviationsattheedgeoftheoperationalrange.DynamicContainment–designedtooperateafterasignificantfrequencydeviation(e.g.post-fault)torecoverfrequencydeviationsof±0.2-0.5Hz.InsightPaperReadyandwaiting:Opportunitiesforenergystorage16InGBalltheacceptedvolumesinthethreedynamicserviceshavesofarcomefrombatteryassets.Frequencyserviceshaveprovidedakeycomponentofrevenuesforbatterystorageassets,makingup~74%ofrevenuesforbalancingmechanismregisteredassetsinMay2023.14DynamicContainment,inparticular,hasprovenespeciallylucrativerecently,averaging>GBP20/MW/hr,withamaximumofnearlyGBP80/MW/hrandmakingup~70%ofthebatteryrevenuesfromancillaryservicesin2022.15AncillaryserviceshavealsobeenaprominentrevenuestreamforenergystorageassetsintheIrishmarket,asaresultofpromotionthroughtheDS3(“DeliveringaSecure,SustainableElectricitySystem”)programmebytheEirGridGroup(Box3).16CharlotteJohnson,GlobalHeadofMarketsatKrakenFlex,highlightsthatthespeedoffrequencyresponseservicerequirementsinGBandIrelandhashelpedpromote“veryadvancedancillaryserviceproductsthatotherglobalmarketsdon’thave.”JohnsonaddedthatthesemoreadvancedancillarymarketsareakeyreasonforthestrengthoftheGBandIrelandenergystorage,andparticularlybatterystorage,markets.14BESSanalytics15CornwallInsight-FlexibilityMarketsReport16EirGridGroupBox3:DS3inIrelandAspartoftheEU’srenewabletargets,Irelandwassetatargetofprocuring16%ofthecountry’stotalenergyconsumptionfromrenewablesourcesby2020.Toreachthistarget,Irelandtargetedgenerating40%ofelectricityfromrenewableenergyby2020,withtheDS3programmeintroducedtoallowtheincreasedroll-outofintermittentornon-synchronouselectricitygenerationsourceswithoutjeopardisingpowersystemsecurityandefficiency.Renewablegenerationaccountedfor43%ofelectricityin2020andthetargethasthereforebeenupdatedto80%by2030.AmajorpartoftheDS3istheSystemServices,whichcontainfourteenancillaryservicesthatcanbeaccessedbyenergystorageassets.Thecurrentfixedtariffregimehasmeantthat“accesstocontractsundertheDS3programmeforancillaryservicesinanunrestrictedwayhasbeenakeydriverofrevenues”forenergystorageassets,accordingtoWilliamMarshall,LegalDirectoratDLAPiper.Thistariffregimeiscurrentlyunderconsultationandtheoutcomewillimpactontherevenuesavailabletoenergystorageassetsgoingforward.InsightPaperReadyandwaiting:Opportunitiesforenergystorage17CapacityMarketTheCMisafixedpaymentmadetosupplierstomaintainlong-termsecurityofsupply,withcapacityprocuredthroughcompetitiveauctionsheldfouryearsandoneyearaheadofdelivery.Contractlengthsofone,three,and15yearsareavailablefordifferenttechnologiesandallassetswithintheCMaregivenade-ratingfactorbasedonhowmuchofaCMwindowthatassetisexpectedtobeavailablefor.Thede-ratingfactorsforenergystorageassetsarehighlydependentonthedischargeduration(Figure3).TheCMisstackablewithallpreviouslydiscussedrevenuestreamsandassuchcanformabaselevelofrevenueformostenergystorageassets.Figure3:CMde-ratingfactorsfordifferentstoragedischargedurationsinthe2022GBauctionStoragedischargedurationT-1de-ratingfactor(%)T-4de-ratingfactor(%)0.5hour9.305.951hour18.6011.812hours37.0223.634hours62.3245.866hours95.2558.978hours95.2570.88Source:NationalGridESOTheauctionpricesforsuccessfulassetshavealsobeenconsistentlyincreasingoverthelastfouryears,fromGBP6.44/kWfortheT-4auctionfor2022-23toGBP63/kWfortheT-4auctionfor2026-27.17TheT-1auctionoutturnpriceshavealsoincreasedfromGBP0.77/kWfor2019-20toGBP60/kWfor2023-24,withamaximumofGBP75/kWfor2022-23.18CMparticipationcangivecomfortincontractedrevenuecertaintytoinvestorsandlendersbyprovidingastable,long-term,revenuestream,butisunlikelytojustifyabusinesscaseonitsownsotheviabilityoftherestoftherevenuestackisstillimportant.TheCMcanbeeffectivelycombinedwithotherrevenuestreamsaspartoftherevenuestackandisparticularlyvaluableforlongerdurationstorageassetsthatcansecurehigherde-ratingfactors.Bywayofdemonstration,WilliamMarshall(DLAPiper)commentsthattheCapacityRemunerationMechanismprovidesasimilarlyvaluablerevenuestreamintheIrishmarket,with10-yearcontractsfornewcapacityformingan“attractivebaserevenueformanyenergystorageassets.”RoutestomarketTherearetwomainroutesforenergystorageassetstogainaccesstothemarket:(1)fullymerchantmarketaccessthroughanoptimiseror(2)asmarketparticipationwithdownsideprotectionfromanofftaker(e.g.aspartofanoptimisationanddispatchcontract).Thelatteristheroutethatismostoftenpursued,particularlybybatteryassets,becauseofthecomplexityofthemarket,giventhewidevarietyofstructures,marketaccessandofftakerofferstonavigate.Thecomplexitiesoftradingandoptimisingenergystorageassets,particularlyforthoselookingtooperateinarangeofmarkets,meansmanyenergystoragedeveloperswilllooktoengageanindustryspecialisttooptimiseandtradeontheirbehalf,withover2517NationalGridESO18NationalGridESOInsightPaperReadyandwaiting:Opportunitiesforenergystorage18offtakeroroptimisercounterpartiescurrentlyactiveinthebatterystoragespacealone.However,RichardBraakenburg,HeadofEquityInvestmentsatSUSIPartners,notesthatthisislikelytoconsolidatemoreinthefuture,basedonprovenrevenuecases.StructureofroutetomarketagreementsThestructureoftheroutetomarketagreementbetweenanofftakerandassetownerwillvarydependingontheriskappetiteoftheinvestorandtheirexperienceinenergystoragemarkets.Whilsttherearearangeofpossibleinvestmentstructures,AndreasGunst,PartneratDLAPiper,notesthat“therearebroadlytwomaintypesofdispatchandoptimisationagreementsactiveinthemarketatthemoment.”Thefirstoftheseisthe‘leaseconcept’wherebytheinvestorreceivesafixedpricefortheassetandathirdpartyiswhollyresponsiblefortheoperationandoptimisationofitandthereforecomeswiththeleastriskfortheinvestor.Thesecondissharedparticipationintradingandoptimisingbetweentheassetownerandtheofftaker.Gunstcommentsthatthisoptionisforinvestors“whowouldlikeashareintheupsideofassetoptimisation,inreturnfortakingsomeriskinthedownside.”TheselatteragreementsarethedominantarrangementintheGBmarketandoftenincludeafloorpricetoenablethefinancingoftheasset.Thissecondtypeofoptimisationanddispatchcontractstructure,withsharedparticipationintradingandoptimising,ismorefrequentnow,withthenegotiationslargelycentredaroundwheretheriskliesbetweenparties.Someofthekeyquestionsarisearoundtheoptimisationmodelandhowthatinfluencesenergystoragecyclesandassetdegradation,andtherevenuesharingmodel,suchaswho’stakingthemarketriskandtheasset-relatedperformancerisks,etc.Atypicaloptimisationanddispatchcontractwillinvolvetheofftakeroroptimisertradingandoptimisingtheassetinreturnforapercentageshareonthereturns(averageof7%),sometimestieredfordifferentprofitranges.Theassetownerandtheofftakerwouldagreeonmarginalcostsandpricetriggersandthesecontractsaretypicallyonetothreeyearsinlength.Itisalsopossibleforassetstoenterlong-term(oversevenyears)optimisationanddispatchcontracts,oftenwithfloorprices,toprovidepricecertaintyoveralongerperiodandhelpfinancenewprojectsbuttheseagreementstendtorequirestrongercreditratingsfromthepartiesinvolved.Sharedparticipationintradingandoptimisingbetweentheassetownerandtheofftaker...isforinvestors“whowouldlikeashareintheupsideofassetoptimisation,inreturnfortakingsomeriskinthedownside.”-AndreasGunst,DLAPiper“InsightPaperReadyandwaiting:Opportunitiesforenergystorage19ChallengesforenergystorageInsightPaperReadyandwaiting:Opportunitiesforenergystorage20ChallengesforenergystorageWhilstitisclearthatthereareextensiveopportunitiesopentoenergystorageassetsintermsofaccessiblerevenuestreams,settingupanenergystorageassetisnotwithoutitschallenges.Broadly,thesecanbeseparatedintotwocategories:firstly,physicalconstraintssuchasongridandsupplychains,andsecondly,marketandrevenuechallenges.GridconstraintsAmajorobstacletotheroll-outofenergystorageassetsinGB,aswellasmanyotherglobaljurisdictions,isbeingabletoaccessthegrid.Currently,anewstand-alonestorageassetisunlikelytobeabletoaccessagridconnectionbefore2030,andinmanypartsofthecountryisfacedwithasevenyearwaitfromtheapplicationstartdate.AlargepartofthisissuehasarisenasaresultoftheESOmodellingofstorageassets,whichareassumedtobeexportingcoincidentwithmaximumgenerationorimportingconcurrentwithpeakdemand,wheninfacttheoppositeislikelytrue.Anotherchallengetotheexistingsystemisthatprojectsarequeuedbyapplicationdate,andsoprojectsclosertothefrontofthequeuecouldbeholdingupprojectsthatarealreadyreadytoconnectandoperate.Theassumedextrainfrastructurenecessarytoconnectassetstothegridislikelytobegreaterinareaswhicharealreadythemostconstrained.Therefore,storageassetswillbelesslikelytoaccessthegridintheseareasdespitethesebeingtheareaswhichcouldmostbenefitfrommoresystemflexibility.Tocountertheissuesaroundgridaccess,theESOhasproposedinitiatingarangeofshortandlong-termmeasurestochangeboththequeuesystemandmodellingassumptionscurrentlyused.Forstorageinparticular,thereformsareaimedatallowingfasterconnectiontothenetwork,althoughwiththecaveatthattheymaybeaskedtoturnoffmorefrequentlyduringperiodsofsystemstress,withoutinitiallybeingpaidforthisdowntime,whichcoulddentinvestorconfidencebylimitingaccessto,andcertaintyof,revenues.Relatedtothis,FredrikLindblom,PartneratDLAPiper,suggeststhatallowingstorageassetstofreelyaccessthegridatcertaintimesofdaycouldbeanotherwaytopromoteenergystorageroll-outandsystemdecarbonisation.SupplychainsAnotherchallengetotheroll-outofenergystorageassets,andmanyotherlow-carbontechnologies,isaroundsupplychains.Supplychainsforenergystorageassetsarecurrentlyfacingconstraintsonthreefronts:•accesstorawmaterials,•manufacturingcapacity,and•labourandinstallationcapacity.Forenergystorageassets,andinparticularbatteries,sourcesofrawmaterialsandmanufacturingaregeographicallylimited,withChinaAnewstand-alonestorageassetisunlikelytobeabletoaccessagridconnectionbefore2030.“InsightPaperReadyandwaiting:Opportunitiesforenergystorage21dominating(Figure4).Thelimitedgeographicalspreadofmanufacturersmakessupplychainsmorevulnerabletodisruptionsandrawmaterialpriceshavedisplayedhighvolatilityandincreasingpricesinrecentyears.BenBrooks,PortfolioManagementatSchrodersGreencoat,addsthatdependenceonspecificnationswarrantsaheightenedfocusonensuringthematerialsandproductshavenotcomefromareasorjurisdictionswithknownhumanrightsabuse.ThisislikelytobeanincreasinglyimportanttopicwithESGbecomingevenmoreofapriorityformanymarketplayersandbecause,asJamesCarter,Partner,HeadofUKEnergyandNaturalResourcesatDLAPiper,notes,oftheincreasedESGlitigationrisktowhichbusinessesareexposed.Ownersandlendersaren’tsimplyfocussingondeliveringlow-carbonsolutions;theyarealsolookingattheoverallimpactoftheirprojects.Figure4:Geographicconcentrationofsupplychainsegmentsin2021Source:IEAEnergyTechnologyPerspectives2023,CornwallInsightThesematerialandmanufacturingconstraintshavebeenfurthercompoundedbyawidershortageoflabourandskills,withtheConfederationofBritishIndustryidentifyingthatalackofskilledtalentisthegreatestobstacletobusinessgrowthacrosstheUKeconomy.19RichardBraakenburg(SUSIPartners)alsohighlightsthislabourshortage,withabottleneckcurrentlyin“credibleandgoodplantcontractors”anduncertaintyoverwhetherthecontractorbasewillbeabletomeetthedemandfrompipelineprojects;thiswillbeakeyfactorformanyinvestorswhoareseekingto19CBIDependenceonspecificnationswarrantsaheightenedfocusonensuringthematerialsandproductshavenotcomefromareasorjurisdictionswithknownhumanrightsabuse.-BenBrooks,SchrodersGreencoat“InsightPaperReadyandwaiting:Opportunitiesforenergystorage22participateinameaningfulpipelinesotheycanscaleuptheirinvestmentsinlinewiththeircapitaldeploymentrequirements.Long-termpartnershipsandtargetedacquisitionscouldhelpbuildmoreresilientsupplychains,withexamplesofthisalreadyseenincomparablesegmentssuchastheelectricvehicle(EV)andoffshorewindindustries.OneEVmanufacturerhasforgedlong-termagreementswithminingcompaniesinBrazil,China,andtheDemocraticRepublicofCongotoprovideasteadysupplyofnickel,cobalt,andlithium,allcriticalrawmineralsforEVmanufacturing.Similarly,awindturbinemanufacturerhasannouncedastrategicpartnershipwithasteelproducerwherebytheturbinemanufacturersupplieslow-carbonhydrogenandwind-generatedelectricitytoallowthesteelproducertoproduce‘green’steelwhichtheturbinemanufacturerwillthenpurchasetoproduceturbines.Thevulnerabilityofglobalsupplychainshasalsoseenmanygovernmentsdevelopinginitiativestopromotethedevelopmentofdomesticsupplychainsaswellasimprovingsecurityofsupplyforrawmaterialsandcriticalminerals.TheInflationReductionAct(IRA)20introducedintheUSon16August2022containedaseriesofdomesticcontentrequirementsforaccessingsubsidyfundingtopromotedomesticsupplychaingrowth.JulianJansen,SeniorDirector-Strategy,MarketDevelopment,Policy(EMEA)atFluence,highlightsthatwiththeIRAintheUSandtheEU’sGreenDealIndustrialPlan(GDIP),21thereisanincreasingriskthattheUKwillnotbeabletoattractinvestmentacrossthevalueandsupplychainsforenergytechnologyandassets.RubayetChoudhury(DLAPiper)addsthat“Biden’sIRAisagame-changer.Wearealreadyseeing,boththroughadiversionofdeal-flowandanecdotally,thatinvestorsareincreasinglyturningtotheUSinsearchofattractivetaxcredits.ItwillbeinterestingtoseewhethertheEUandUKwillrespondwithretaliatoryprotectionistmeasuresorwhethertheywillcontinuewiththepragmaticapproachtakenundertheGDIP.”Therecentlypublished(30March2023)“PoweringUpBritain–TheNetZeroGrowthPlan”22intheUKincludedmultiplementionsofdevelopingandstrengtheningnetzerosupplychains.TheUKgovernmentalsopublishedits“CriticalMineralsStrategy”23inJuly2022,withthesubsequentCriticalMineralsRefresh24publishedon13March2023,tooutlinetheirstrategiesforgrowingtheUK’sdomesticcriticalmineralprojectsalongsidedevelopingbilateralinternationalpartnerships.Thepolicyandimplementationdetailsthatwouldunderpinthesestrategiesareyettobereleased.20TheWhiteHouse21EuropeanCommission22GOV.UK23GOV.UK24GOV.UKBiden’sIRAisagame-changer.Wearealreadyseeing,boththroughadiversionofdeal-flowandanecdotally,thatinvestorsareincreasinglyturningtotheUSinsearchofattractivetaxcredits.-RubayetChoudhury,DLAPiper“InsightPaperReadyandwaiting:Opportunitiesforenergystorage23Marketsaturationofancillaryservicesmeansthattheothercomponentsoftherevenuestackwillbecomeincreasinglyimportant.“Alongsideaccesstomaterialsandlabour,supplychainsarealsobeingincreasinglystretchedasaresultoftherisingcostofcapital,witharecentreport25fromCornwallInsighthighlightingthescaleandimplicationsofthischallengeonGBrenewablegeneration.Additionally,JulianJansen(Fluence)raisesthepointthatascapitalcostsincrease,thereistheriskthatinvestorswillchoose“weakerperformingproductsthatmaynotlasttheirintendedlifetime.”MarketsaturationAsdiscussedpreviously,ancillaryservicescurrentlyprovidealucrativecomponentoftherevenuestackinboththeGBandIrishmarkets.However,withasubstantialpipelineofenergystorageprojectsduetocomeonlinethisdecade(Figure5)thereisanincreasingriskofmarketsaturationimpactingontheavailablerevenues.CornwallInsight’srecentBalancingServicesForecast(publishedFebruary2023)indicatesthat,asthemarketbecomesoversaturated,pricesfortheDynamicContainmentancillaryservicecouldfallto<GBP1/MW/hr.Concernsaroundmarketsaturationofancillaryservicesmeanthatfornewandexistingenergystorageprojectsitislikelythattheothercomponentsoftherevenuestack,particularlywholesalepowerarbitrage,willbecomeincreasinglyimportant.However,CharlotteJohnson(KrakenFlex)addsthatinthelasttwoyearsthemarkethasbeenparticularlyvolatileandthatinvestorsshouldnot“buildabusinesscaseoffthepowerarbitrageandancillaryrevenuesseenatthemoment.”Figure5:Capacityofstand-aloneenergystorageprojectsperyearontheNationalGridTransmissionEntryCapacity(TEC)registerforthenextdecade,asof6April2023Source:NationalGridESO,CornwallInsightAnotherconcernaroundmarketsaturation,accordingtoanindustrysource,isthatifthebuildoutofrenewablegenerationfallsbehindforecastedrates,thentherevenuestackpredictionsusedtofinanceenergystorageassets25CornwallInsight-WACC-A-MOLE-ImplicationsoftherisingcostofcapitalforthefifthroundoftheContractsforDifferenceschemeInsightPaperReadyandwaiting:Opportunitiesforenergystorage24couldbeimpacted,withanincreasinglysaturatedmarketreducingattainablerevenues.Theindustrysourceaddedthatrevenueprojectionsarecurrentlybasedona“buildoutofrenewablesthatwillbechallengingtoachieve.”RevenuecertaintyLinkedtothechallengearoundmarketsaturationisthecertaintyofcontractedrevenues,giventheinherentvolatilityofmostofthemarketsinwhichenergystorageassetsareactive.Revenuecertaintyisafundamentalconsiderationformanyinvestorsandlendersandthedegreeofcertaintyislikelytobeakeycomponentinbusinesscases.AkeyconsiderationiswhetherassetshaveaccesstotheCMoriftheyaredominantlyactiveinpowerarbitrageandancillaryservices.Additionally,aspointedoutbyanindustrysource,withgridconnectiontimesoverfouryearsaway,itisdifficultforinvestorstohaveconfidenceinstorageassetswithsomuchuncertaintyinthefuturerevenuestack.DLAPiper’sRubayetChoudhuryaddsthatatthemomentthemajorityofenergystorageassetsareequityfunded,withthelackofcontractedrevenuecertaintyputtingoffcertainlenders.However,moreproject-financeddealsarenowclosing,provingthatsomeplayersaregettingmorecomfortablewithsophisticatedrevenuestacks,althoughtheseareoftenunderpinnedbysomeformofcontractedrevenue.RichardBraakenburg(SUSIPartners)furthernotesthatinvestorconfidenceinenergystoragewillbedependentonashiftinmindsetawayfromafocusonabsolutepowerpricestoafocusonmarketvolatilityandgettingcomfortablewiththatvolatility.Greaterfamiliaritywithenergystoragetechnologycanhelpbuildinvestorconfidenceandoffsetsomeoftheconcernsaroundrevenuecertainty.AlexMurdie,LegalDirectoratDLAPiper,statesthatthetransitiontolongerequipmentwarranties,from5-6yearwarrantiesto10-15yearlong-termserviceagreements,alsosupportsandbuildsconfidenceinlong-terminvestmentsinenergystorage.Murdieaddsthat,forsomeprojects,thishasinvolvedaseparationofthestorageassetfromtherestoftheproject,therebyprovidingtheenergystorageassetsupplierswithmoreconfidenceinprovidingalong-termwarranty.Similarly,theoperationandmaintenanceofcertainstorageassets,suchasbatteries,increasinglyrequiressophisticatedstrategiesandsoftwaretotryandextendassetlife.Whilstitistooearlytosaywhetherthosestrategiesandwarrantieshaveprovensuccessful,theseapproachescanhelpmakeprojectsmoreattractivetoinvestors.Investorconfidenceinenergystoragewillbedependentonashiftinmindsetawayfromafocusonabsolutepowerpricestoafocusonmarketvolatility.-RichardBraakenburg,SUSIPartners“InsightPaperReadyandwaiting:Opportunitiesforenergystorage25FutureopportunitiesforenergystorageInsightPaperReadyandwaiting:Opportunitiesforenergystorage26FutureopportunitiesforenergystorageWhilsttherolloutofenergystorageisnotwithoutitschallenges(asdiscussedintheprevioussection),withmarketsaturationofparticularconcernfornewprojectsandinvestors,therecontinuetobeopportunities.Lookingtothefuture,whatkeyopportunitiesareavailableforthecontinueddevelopmentofenergystorageandwhatarethekeyconsiderationsfornewGBenergystorageprojects?PathfindersNationalGridESOiscurrentlyrunningthree“pathfinders,”26whichseektoprovideinnovativesolutionstotheemergingissueswiththeevolvingelectricitysystem.Thethreepathfindersare:•highvoltage,•stability,and•constraintmanagement.Allthreepathfindersarelocation-specificbutcanofferanadditionalcomponentoftherevenuestackforenergystorageassets,withAlexMurdie(DLAPiper)commentingthataccesstopathfindershasbeen“seenasanimportantobjective”forfutureenergystorageprojects.CharlotteJohnson(KrakenFlex)addsthatbatterystorageassetsintheGBmustalreadyprovetoNationalGridthattheycandeliverreactivepowerandsomestabilityservicesaspartoftheirgridcode,andsothereisagrowingbodyofassetsthatcouldprovidepathfinderservicesifthereisamarketforit.HighvoltagepathfinderThehighvoltagepathfinderlookstocost-effectivelyabsorbmorereactivepower,whichhasarisenfromadropinminimumpowerdemandandpowerconsumptiononlocaldistributionnetworks.Twotendershavebeendeliveredthroughthispathfindersofar,offering9-10yearcontracts.Abatteryprojecthassecuredacontractaspartofthefirstofthesetenders,indicatingthatthisisapotentialrevenuestreamforenergystorageassets.StabilitypathfinderThestabilitypathfinderlookstoaddressthefallinginertia(fasterrateofchangeinsystemfrequencywithachangeingenerationoutput)ofthesystemasmoreintermittentrenewablescomeonline.Threetendershavebeenrunsofar,withsuccessfulprojectswining5-10yearcontracts.Aswiththehighvoltagepathfinder,batteryprojectshavebeensuccessfulforthestabilitypathfinder,althoughthemajorityofcontractshavebeenawardedtogridformingtechnologies(e.g.synchronouscondensers).Thesuccessofsomebatteryprojectsindicatesthatitcouldprovidevalueasanadditionallong-termcomponentofenergystoragerevenuestacksinthefuture.Additionally,theESOarecurrentlyinvestigatinghowtodesignanddevelopastabilitymarket27toprocurebothshort-andlong-termstabilitythroughanopen,transparent,andcompetitivemarket.TheESOisstillcurrentlyexploringeligibilityandcontractstructuresaspartofapotentialmarketdesign,butitispossiblethatadedicatedstabilitymarketcouldallowenergystorageassetstogetgreatercertaintyofrevenuesfromstabilityservices.26NationalGridESO27NationalGridESOInsightPaperReadyandwaiting:Opportunitiesforenergystorage27ConstraintmanagementpathfinderTheconstraintmanagementpathfinderaimstomanagegridconstraint,particularlyontheB6(England-Scotland)boundary,separatelytotheBM.Whilstthismarketislikelytogrowuntilthe“EasternBootstraps”(largeunderseaHighVoltageDirectCurrentconnectionsbypassingtheB6boundary)areinoperation,itislikelythatenergystorageassetscangethigher,althoughlessstable/certain,valuefromaccesstotheBMthanaspartoftheconstraintmanagementpathfinder.TheESOhasnotedthatusingenergystorageexclusivelyforconstraintmanagementwouldbeuneconomicalandlocatingalongsideanactiveexportconstraintwouldlimititsaccesstoothermarkets.28However,BenBrooks(SchrodersGreencoat)notesthattransmission-as-a-servicecouldbecomemoreofarevenuestreaminthefuture,withtheNetzboosterproject29inGermanyalreadyanexampleofthis,where“insteadoflayingadditionalhighvoltagelines,storageassetsareplacedateitherendtoincreasethecapacityoftheexistingline.”Co-locationAnareaofincreasinginterestinthelast12monthsforinvestorsanddevelopers,inparticularforGBbatterystorageassets,isco-location.Co-locationcancomeinawidevarietyofformsbutforthepurposeofthisreportweareonlyconsideringthesituationwhereanenergystorageassetandgenerationasset(e.g.asolarfarm)shareagridconnectionbutareseparateassetsbehindthatconnection(i.e.notahybridsystem),withtheassetseithermeteredtogetherorseparatelydependingonthetradingstrategyandset-up.Thisisthemostexploredtypeofco-locationinGBatpresentandallowstheenergystorageassettobenefitfromlowercostsandquickerconnectiontothegridifco-locatedwithanexistinggenerationasset,whichisaparticularbenefitinlightofconnectiontimescurrentlybeingbeyond2030forastand-alonebatteryasset.TonyMcGuinness,HeadofOrigination,MarketEntryandStorageatAerSoléir,notesthatthiscouldbeparticularlybeneficialforsolarfarmswhereyieldsandexportcapacityutilisationtendtobelowerinGBandIreland.Co-locationrevenuestreamsCo-locatedenergystorageassetscanaccessthesamerevenuestreamsasstand-aloneassets,alongsidetheadditionaloptionofstoringenergyfromtheco-locatedgenerationasset.Storingenergyfromtheco-locatedgenerationassetcouldbeforpowerarbitragepurposes,toavoidcurtailment,ortocreateanenergyprofilethatis‘firmer’orbettermatchesofftakerdemand.However,AndreasGunst(DLAPiper)statesthat,atpresentinGB,the“valueforastorageassettendstobemuchhigherintradingandoptimisingthanin28NationalGridESO29TransnetBWAtpresentinGB,the“valueforastorageassettendstobemuchhigherintradingandoptimisingthanfromstoringrenewableenergytoavoidcurtailment.”-AndreasGunst,DLAPiper“InsightPaperReadyandwaiting:Opportunitiesforenergystorage28derivingrevenuefromstoringrenewableenergytoavoidcurtailment”andaco-locatedenergystorageassetshouldthereforehaveamoresophisticatedbusinesscaseandtradingstrategythanjustbeingturnedonorofftoavoidgenerationcurtailment.Withtheexceptionofhighlycurtailedrenewableoutputduetogridconstraintsornegativepricing,therehasn’tbeenastrongbusinesscaseinGBforstoringenergyfromtheco-locatedgenerationassetinsteadoffromthegrid.However,thisisnotthecaseforalljurisdictions,withanindustrysourcenotingthatco-locatingsolarandstoragewithbehind-the-meterdemandhasbeensuccessfulinWesternAustralia.Theyaddedthatthisset-upwasusedtoreduceconsumerenergybillsalongsideparticipationincapacityandfrequencyresponsemarketsasavirtualpowerplant.NatashaLuther-Jones(DLAPiper)highlightsthat,althoughcurrentlystorageandgenerationassetshavebeentreatedseparately,withseparaterevenuestreamsandoptimisationanddispatchcontracts,usingstoragetobalanceandavoidrenewablegenerationcurtailmentcouldbeanimportantmarketmovementinthefuture,particularlywithmarketsaturationimpactingtheattainablerevenuesinancillaryservices.AndreasGunst(DLAPiper)addsthatlargerenergystorageassetsthanthebatterysizescurrentlyusedinco-locatedprojectswouldbeneededtoallowfor“shapingandre-shapingofthegenerationvolumesinvolved.”BenBrooks(SchroderGreencoat)furthernotesthatlargecorporatesmaybewillingtopayapremiumforstorageassetstotemporallyshiftgenerationtobettermatchconsumptionanddemand.Challengesforco-locationAchallengetoco-locatingenergystoragewithagenerationasset,especiallyifthegenerationassetisalreadybuiltandoperatingwithexistinglegalandcontractualframeworks,ispricecertaintyandcannibalisation.Stackingtheindividualbusinesscasesforthedifferentassetsislikelytoplaceaconstraintononeorotheroftheassets.Optimisingco-locatedassetsiscrucialtoensuringthatthecostandtimebenefitsoutweighthelossesfromanyconstraints.Theoutlookforco-locatedenergystorageassetsappearspositive(Figure6),andasmoreprojectscomeonlinethereisincreasedclarityonwhichbusinesscasesworkbestandhowtooptimisethedifferentassets.Usingstoragetobalanceandavoidrenewablegenerationcurtailmentcouldbeanimportantmarketmovementinthefuture.-NatashaLuther-Jones,DLAPiper“InsightPaperReadyandwaiting:Opportunitiesforenergystorage29Figure6:Capacityofco-locatedenergystorageprojectsforthenextdecadeontheNationalGridTECregister,asof6April2023Source:NationalGridESO,CornwallInsightMorelong-durationstorage?Asdiscussedinthefirstsectionofthisreport,theGBenergystoragemarketiscurrentlydominatedbyshort-durationstoragefocusedonintra-daystoragecyclesandtheaccompanyingmarketopportunities.CharlotteJohnson(KrakenFlex)commentsthat,withmarketsaturationlimitingthefuturevalueofancillaryservices,thereisatrendawayfromonehourbatteriestoinvestingintwohourbatteriesinordertobettercapitaliseonwholesalepowerarbitragerevenues,butthatthereremainsagapinlongerdurationstorageassets.BenBrooks(SchrodersGreencoat)addsthat,withoutamassiveincreaseininterconnection,inter-dayand‘seasonal’storagewillbecrucialfortheUKandIrelandtoreachnetzero.Incentivesforlong-durationenergystorageCurrentlytherearenofinancialincentivesintheGBmarkettopromotegrowthofthelong-durationinter-dayand‘seasonal’storage.CurtisVanWalleghem(Hydrostor)highlightsthatCMrevenuesarelikelytobethemaincomponentoftherevenuestackfortheselongerdurationstorageassets,butthatcapacitypaymentsareoftencappedbygaspowerplantsorshorterdurationbatteriesandnotsufficienttoincentiviselong-durationassets.TheLTESA(Box4)30andtheCapacityInvestmentScheme31inAustraliacouldprovideexamplesofhowmorelong-durationstoragecould30AEMOServices31AustralianGovernmentWithoutamassiveincreaseininterconnection,inter-dayand‘seasonal’storagewillbecrucialfortheUKandIrelandtoreachnetzero.-BenBrooks,SchrodersGreencoat“InsightPaperReadyandwaiting:Opportunitiesforenergystorage30beprocuredinGB.Similarly,acap-and-floorregime32couldbeadoptedasoutlinedintheUKgovernmentconsultationresponseonthedeploymentoflong-durationelectricitystoragethatwaspublishedinAugust2022.33InJune2022,theLongDurationEnergyStorage(LDES)Councilpublishedareport34outliningawiderangeofpotentialwaysthatgovernmentscanhelpincentivisemorelong-durationstorage,with“capacitymarketmandatesoroffsettingwithgrantsortaxcredits”identifiedbyCurtisVanWalleghem(Hydrostor)askeymechanismsforenablingthis.AnindustrysourceaddedthatimplementingaContractsforDifferencestyleschemeforlong-durationstoragenotonlyprovidestheassetwithrevenuecertainty,butalso“incentivisesenergystoragetoremovethevolatilityfromthemarket.”32Acap-and-floorregimeforlong-durationenergystoragewouldprovideanassetwithaguaranteedminimumor‘floor’revenue,andamaximumor‘cap’revenue.Whenrevenuesfallbelowthefloortheyaretoppeduptothefloorbyconsumers,andconversely,whenrevenuesexceedthecap,thoseexcess33GOV.UK34LDESCouncilBox4:LTESAsinAustraliaIn2020,theNewSouthWalesGovernmentsetoutitsplantotransformitselectricitysystemthroughcoordinatedinvestmentintransmission,renewablegeneration,storageandfirminginfrastructure.AkeycomponentofthisplanwerecompetitivetenderstoofferLTESAsforlarge-scalerenewablegeneration,long-durationstorage,andfirming.Thefirstofthesetendershasnowclosedwiththesecond(onlyopentofirminginfrastructure)currentlyunderway.TheLTESAsofferlong-termcontracts(upto40years,dependingonthelifespanofthestorageasset)withacap-and-floorContractsforDifferencestylescheme.LTESAsthereforeprovidelong-termrevenuecertaintiesforlong-durationstorageassets.InsightPaperReadyandwaiting:Opportunitiesforenergystorage31Policyriskoropportunity?-REMATheReviewofElectricityMarketArrangements(REMA)wasannouncedaspartoftheBritishEnergySecurityStrategyinApril2022,35withthefirstconsultationstagelaunchedinJuly202236andthegovernmentresponsetothisconsultationpublishedon7March2023.37REMAisthegovernment’sreviewintoallnon-retailaspectsofGreatBritain’senergymarketswiththeaimofensuringthesemarketsarefit-for-purposeindeliveringupontheUK’snetzerotargets.Attimeofpublication,therearestillalargenumberofoptionsbeingputforward,withrelativelyfewruledoutafterthefirstconsultation(Figure7),butthemainhigh-levelproposedchangesinvolvesplittingthewholesalemarketbytechnologytypeandlocationalmarginalpricing(LMP).SplittingthewholesalemarketSplittingthewholesalemarketwouldlikelyinvolvetwo‘pools’,onefordispatchabletechnologies(e.g.gasfiredpowerstations,batteries)withpricesbasedonshort-termmarginalcostsandanotherforintermittenttechnologies(e.g.wind,solarPV)withpricesbasedonthelong-termmarginalcosts.Itislikelythatdispatchableassetswillstillbeabletocapturehighpricesandtherecouldevenbegreatervolatility,andthereforemoreopportunitiesforenergystorageassets.Overall,splitmarketsareunlikelytosignificantlyimpactonenergystorageassets,althoughtradingstrategiesandofftakearrangementsmayneedre-visiting.Figure7:SummaryoftheREMAoptionsfollowingthefirstconsultationSource:GOV.UK,CornwallInsight35GOV.UK36GOV.UK37GOV.UKInsightPaperReadyandwaiting:Opportunitiesforenergystorage32LocationalmarginalpricingLMPwouldproposetoreplacethecurrentself-dispatchmarketwithacentral-dispatchmarketwherepricesaresetonalocationalbasis(eitherzonalornodal)inresponsetothebalanceofgenerationanddemandandtheconstraintsongridinfrastructureforthezone/node.WhilstthefullimpactsofLMPcannotbepredictedwithouttheexactdetailsoftheLMPmodelunderconsideration,itislikelythatgenerationassetslocatedfurthersouthorclosertothemajordemandcentreswillseehigherwholesalepricesthanthoselocatedfurthernorthandingenerationdominatedareas.Becausestorageassetsearnrevenuesfrommarketvolatility,locationalvariationsinabsolutewholesalepricesarelesslikelytoimpactrevenues.However,assetsthataremoreflexibleonsiting(e.g.batteries)maybemoreabletobenefitfromanylocationaldifferencesinvolatilityresultingfromLMPthanlong-durationenergystorageassetssuchaspumpedhydroorCAES,whicharelessflexibleonwheretheycanbelocated.REMAwillhaveasignificantimpactacrosstheGBenergymarketsforatleastthenextfewyearsasdecisionsaremadetofirmupwhichoptionswillbeadoptedgoingforward.AtpresentitlookslikelythatenergystorageassetswillnotbesubstantiallynegativelyimpactedbyREMA,withAndreasGunst(DLAPiper)notingthatstorageassetswill“stillbeusedtooptimisetradingopportunitiesinthemarket”andthatREMAisunlikelyto“disruptorbringaboutameaningfulreductionintheattractivenessoruseofenergystorage.”REMAisunlikelyto“disruptorbringaboutameaningfulreductionintheattractivenessoruseofenergystorage.”-AndreasGunst,DLAPiper“InsightPaperReadyandwaiting:Opportunitiesforenergystorage33KeyconsiderationsInsightPaperReadyandwaiting:Opportunitiesforenergystorage34KeyconsiderationsAsanassetclass,energystorageisverydifferentfromconventionalrenewablegeneration,and,alongwiththevolatileandevolvingnatureofstoragemarkets,therearethereforeaseriesofkeyconsiderations(Figure8)thatneedtobetakenintoaccountforinvestorsanddeveloperslookingtogetinvolvedinGBenergystoragemarkets.Figure8:KeyconsiderationsforinvestorsanddevelopersItisimportanttoknowwhichmarketsofftakershaveaccesstoandexperiencetradinginandwhatimpactthathasonthepotentialrevenuestackfortheasset.Thetrackrecordofofftakersandoptimisersisalsoveryimportant,especiallyforbatteryassets.Withthemarketsaturationchallengesdiscussedinthisreport,accesstoancillaryservicesislikelytobelessimportantgoingforward.MarketaccessTherevenuestackwilldependonwhichmarketsarethefocusfortheassetownerandofftaker,whichinturnwillbeimpactedbytheriskappetiteofthepartiesinvolved.Therevenuestackandjumpingbetweendifferentrevenuestreams,withdifferentdegreesofrevenuecertainty,affectsassetcyclinganddegradation,aswellashavingimplicationsforraisingdebtormeetingrequiredequityreturns.Inparticular,investorsandlenderswillwanttounderstandthecertaintyof(orcontractednatureofany)revenuesunderanyproposedrevenuestack,andthetradingstrategiestomitigateanyperceivedmerchantrisk.Thesetupoftheroutetomarketarrangementwilldependontheriskallocationbetweentheofftakerandassetownerandwhoistakingonmarketrisk,assetperformancerisk,legalrisketc.OptimisationandriskappetiteHowsoonanassetcanbeconnectedtothegridandatwhatcostarekeyvariables,withco-locationprovidinganopportunityforquickerandcheapergridconnectionforenergystorageassets.Thelikelihoodofcurtailmentandwhenanycurtailmenthoursarelikelytobeareotherimportantconsiderations.GridconnectionWarrantiesandperformancesystemsoftwarearecriticalforelectrochemicalsystems,particularlyassystem“wraps”canprovideinvestorsandlenderswithlong-termcomfortontechnologyrisk.Thelongevityofthewarrantyandwhetheritcoverstheintendedcycling(chargeandthendischargethestoredenergy)frequencyareimportantcharacteristicstoconsider.Similarly,theextenttowhichwarrantiesaredependentonthemannerinwhichassetsaremaintainedandthesoftwarethatisused,andwhotheassetownersusetoprovidethoseserviceswillallbekey.WarrantiesWithmanymarketplayersincreasinglyconcernedwiththeirwiderimpactontheworldandsocietyat-large,environmental,socialandgovernance(ESG)considerationswillbeimportantformany.Thisislikelytorequirecarefulconsiderationbeinggiventowherematerialsarebeingsourcedfromandwhetherthereareconcernsaboutthetreatmentofworkersorthegeopoliticalstabilityofthosesupplychainsandtheriskstowhichthatgivesrise,including,asDLAPiperLegalDirectorElinorThomasnotes,ESGrelatedlitigationrisk.SupplychainsSource:CornwallInsightInsightPaperReadyandwaiting:Opportunitiesforenergystorage35TheUKhasseensubstantialgrowthinenergystorage,particularlybatteries,inrecentyears,withagreaternumberofinvestorsbecomingconfidentwiththesophisticatedtradingstrategiesneededtooptimisebusinesscases.Thelargepipelinesofassetsbeingdevelopedhighlightsthatthisisamarketthatwillcontinuetogrow.However,thisgrowthwillfacechallengesfromgridaccess,supplychains,andmarketsaturation.ThelatteroftheseislikelytoresultinatrendawayfromrevenuestacksdominatedbyancillaryservicestoagreaterfocusonwholesalepowerarbitrageandtheBM.Aspartofthisshifttherewillbeagreaterfocusinenergystorageassetswith2-4hrduration,asopposedtothe0.5-1hrdurationassetsthatarecurrentlyprevalentinthemarket.Goingforward,therewillbeincreasinginterestfrominvestorsanddevelopersindesigningandoptimisingco-locatedsystemsforenergystoragealongsiderenewablegeneration,whichcouldprovideavaluableopportunitytospeedupgridaccessandlowercostsforassets.OtherkeydevelopmentsthatcouldhavesignificantimpactsontheenergystoragemarketareREMAandthepotentialdevelopmentofaformalisedmarketforlong-durationelectricitystorage.GiventhecomplexityandrapidlyevolvingnatureoftheenergystoragemarketinGBatpresent,therearearangeofkeyconsiderationsthatneedtakingintoaccountforentitieslookingtogetinvolved,ashighlightedinFigure8.GetintouchwithCornwallInsightorDLAPiperforfurtherinformationonhowwecanhelpyourbusinessgettogripswiththeintricaciesoftheenergystoragemarket.NatashaLuther-JonesPartner,InternationalHeadofSustainabilityandESG,GlobalCo-Chair,EnergyandNaturalResourcesSectorDLAPipernatasha.luther-jones@dlapiper.com+44(0)7968558634BertieBaggeSeniorBusinessDevelopmentManagerCornwallInsightb.bagge@cornwall-insight.com+44(0)7884177274JamesCarterPartner,HeadofUKEnergyandNaturalResourcesDLAPiperjames.carter@dlapiper.com+44(0)2071537773TomRossSeniorBusinessDevelopmentManagerCornwallInsightt.ross@cornwall-insight.com+44(0)7909874447RubayetChoudhuryPartnerDLAPiperrubayet.choudhury@dlapiper.com+44(0)2077966830InsightPaperReadyandwaiting:Opportunitiesforenergystorage36AboutCornwallInsightGettingtogripswiththeintricaciesembeddedinenergyandwatermarketscanbeadauntingtask.Thereisawealthofinformationtohelpyoukeepup-to-datewiththelatestdevelopments,butfindingwhatyouarelookingforandunderstandingtheimpactforyourbusinesscanbetough.That’swhereCornwallInsightcomesin,providingindependentandobjectiveexpertise.Youcanensureyourbusinessstaysaheadofthegamebytakingadvantageofour:•Publications–CoveringthefullbreadthoftheGBenergyindustry,ourreportsandpublicationswillhelpyoukeeppacewiththefastmoving,complexandmulti-facetedmarketsbycollatingallthe“must-know”developmentsandbreaking-downcomplextopics•Marketresearchandinsight–Providingyouwithcomprehensiveappraisalsoftheenergylandscapehelpingyoutrack,understandandrespondtoindustrydevelopments;effectivelybudgetforfluctuatingcostsandcharges;andunderstandthebestroutetomarketforyourpower•Training,eventsandforums–Fromnewstarterstoindustryveterans,ourtrainingcourseswillensureyourteamhastherightknowledgeandskillstosupportyourbusinessgrowthambitions•Consultancy–Energymarketknowledgeandexpertiseutilisedtoprovideyouwithadeepinsighttohelpyouproveyourbusinessstrategiesareviable•Research–Creatingnewknowledgeandinsightinmarketsthatarerapidlyevolving,leveragingourin-depthknowledgeandexpertiseintheenergysectortodesignthoughtleadershipcampaignstosuityourneeds.•Modelling-Weprovideaseamlessrangeofadvisory,research,andbespokeconsultingservicestosupportorganisationsthroughbusinessandfinancialplanning,strategydevelopment,duediligence,policydesign,riskmanagement,andregulatoryassessments.Wealsoofferarangeofsubscriptionandbespokeconsultancyproductsspecificallywithintheenergystoragespace:FlexibilityMarketsService–Gainanin-depth,realtimeunderstandingofthecommercialflexibilitylandscape.Policyandregulatorycoverage,forecasting,androutestomarketinsight.RegularanalysisreportingandinteractivemonthlyforummonitoringdevelopmentsinGB.ArchetypeStorageRevenueCurves–QuarterlyreportprovidingaforecastofrevenuestreamsandcostsfortypicalbatterystorageassetsinGreatBritain,coveringa20yearhorizon.Arangeofassetconfigurationsareprovided,varyingbylocation,duration,capacity,andconnectiontype.RevenuesareprovidedannuallyonaGBP/kWbasis,alongwithexpectedcyclerates.BespokeBatteryStorageModelling–UsingCornwallInsight’sin-housemodellingcapabilities,a20yearforwardviewofrevenuesachievablefromanoptimizedbatterystorageassetcanbeprovided,tailoredtoyourrequirements.Therearearangeofcustomisationoptionsavailabletoaccuratelymodelyourspecificasset,aswellasabroadvarietyofdetaileddataoutputsincludingrevenuesandvolumessplitbyrevenuestream.Formoreinformationaboutusandourservicescontactusat01603604400orenquiries@cornwall-insight.comInsightPaperReadyandwaiting:Opportunitiesforenergystorage37GlossaryInsightPaperReadyandwaiting:Opportunitiesforenergystorage38GlossaryB6boundary:separatesthetransmissionnetworkattheSPTransmissionandNationalGridTransmissioninterfacerunningalongtheborderbetweenEnglandandScotland.BalancingMechanism(BM):amechanismthatenablestheElectricitySystemOperatortoinstructgeneratorsandsupplierstovaryelectricityproductionorconsumption,inreal-time,inordertobalancethesystem.Cap-and-floorregime:aroutetomarketwherepaymentshaveapre-agreedmechanismforprovidingaminimumguaranteedrevenue(the‘floor’)andalimitabovewhichrevenuesarecapped.ThisregimeisusedforGBinterconnectorrevenuesandisalsooftenseeninPowerPurchaseAgreements.CapacityMarket(CM):managesthelong-termsecurityofsupplybyprovidingpaymentforreliablesourcesofgenerationcapacity,alongsidetheirelectricityrevenuestoensuretheydeliverenergywhenneeded.Capacityisprocuredthroughcompetitiveauctionsheldfouryearsandoneyearaheadofdelivery.Captive/off-grid:anelectricitygenerationorstorageassetlocatedataconsumerssite(egalargeindustrialorcommercialenergyuser)primarilyfortheirenergyconsumption.Theassetmayhavenoconnectiontotheelectricitynetworkandsobeunabletoexportanygenerationnotneededbytheconsumer.ContractsforDifference(CfD):ageneratorsigneduptoaCfDispaidthedifferencebetweenthe‘strikeprice’–apriceforelectricitygeneratedreflectingthecostofinvestinginaparticularlow-carbontechnology–andthe‘referenceprice’–ameasureoftheaveragemarketpriceforelectricityintheGBmarket.Whenthemarketreferencepriceishigherthanthestrikeprice,thegeneratorwiththeCfDpaysthedifferencebacktotheLowCarbonContractsCompany(LCCC).Whenthemarketreferencepriceislowerthanthestrikeprice,thegeneratorwiththeCfDreceivesthedifferenceuptothestrikeprice(fromtheLCCC).Curtailment:thereductioninelectricityoutputcomparedtowhatcouldhavebeenproducedasaresultofaconstraint.Cycling:theactofcharginganddischargingelectricity.Cyclingtimescalescanvarysubstantiallyfromassetsthatchargeanddischargemanytimeswithinasingledaytoassetsthatchargeuponedayandthendischargedaysorevenweekslater.De-ratingfactor:thepercentageofaCapacityMarketwindowthatanassetisanticipatedtobeavailablefor,withmoreintermittentorweatherdependentassetsreceivingalowerde-ratingfactor.DynamicContainment:ancillaryservicedesignedtooperateafterasignificantfrequencydeviation(egpost-fault)torecoverfrequencydeviationsof±0.2-0.5Hz.DynamicModeration:ancillaryservicedesignedtorapidlyregulatesuddensmalldeviationsinfrequency(<±0.2Hz).Aquickactingservicefordeviationsattheedgeoftheoperationalrange.DynamicRegulation:ancillaryservicedesignedtoslowlycorrectcontinuous,butsmall(<±0.2Hz)frequencydeviations.Aimingtocontinuouslyregulatefrequencyaround50Hz.“EasternBootstraps”:thesearelargeunderseaHighVoltageDirectCurrentconnectionsbypassingtheB6Boundary.InsightPaperReadyandwaiting:Opportunitiesforenergystorage39ElectricitySystemOperator(ESO):thelicensedoperatoroftheGBelectricitytransmissionsystem.Primaryroleistoensuresupplyanddemandarematchedandthetransmissionsystemisplannedforandoperatedwithinsafeandsecureengineeringlimits.Frequencyresponse(orancillary)services:servicesthatoperatetomaintainsystemfrequencyandbalanceanydeviationsfrom50.0Hzonasecond-by-secondbasis.GreenDealIndustrialPlan(GDIP):awiderangeoflegislativeandregulatoryreformsintheEUaimingtoremovethebarrierstonetzeroandpromotenetzeroinvestmentintheEU,whilstalsoboostingdomesticsupplychains.Inertia:ameasureofhowquicklysystemfrequencychangesinresponsetoachangeingeneration,akintotheshockabsorbersonacar.Traditionalcoal-andgas-firedpowerplantsprovidehighsysteminertia,andthereforeslowchangesinsystemfrequency,duetothecontinuedmovementoftheturbinesforaperiodaftergenerationhasstopped.Whereasrenewables(egsolarPVandwind)providelowsysteminertia.InflationReductionAct(IRA):aUSfederallawpassedinAugust2022thatallocatesUSD369billioninfundingoveraperiodof10yearstoincentiviseinvestmentincleanenergy.Includes‘localcontentrequirements’toboostdomesticsupplychainsincleanenergytechnologies.Locationalmarginalpricing(LMP):amarketmechanismproposedundertheReviewofElectricityMarketArrangementsconsultationwherebypricesaresetonalocationalbasis(eitherzonalornodal).Priceswouldthereforebebasedonthelocalbalanceofgenerationanddemandandtakeintoaccountconstraintsonthegridinfrastructureforthezone/node.Long-TermEnergyServiceAgreements(LTESAs):amechanismintroducedinNewSouthWales,Australia,whichprovidesalong-termcontractforrenewableelectricitygenerationprojectswithafixedminimumpriceforelectricitygenerated.Theseagreementsarecompetitivelytenderedandaredesignedtoprovidelong-termrevenuecertaintytohelpdriveinvestmentinnewrenewableprojects.Offtaker:anentitywhichcontractsforpowergenerated.Pathfinderprogrammes:aseriesofprojectsrunbytheElectricitySystemOperatortofindsolutionstothechallengesintheelectricitysystem.ThethreePathfinderprojectsareaimedtoaddress:(1)regionalhighvoltageissues,(2)theneedforsysteminertiatomaintaingridstability,and(3)networkconstraintissues.Pay-as-bid:biddersreceivethepricethattheybidinwith,andsopriceswilllikelyvarybetweenbidders.Pricecannibalisation:thedepressiveinfluenceonwholesaleelectricitypricesattimesofhighoutputfromintermittent,weather-drivengeneration(egsolar,wind).Thegreatertheproportionofgenerationcomingfromthesesources,thegreaterthiseffectbecomes.Revenuestack:theprocesswherebyanassetearnsrevenuesfromarangeofdifferentmarkets.Thesedifferentmarketscouldbeenteredsequentiallyorsimultaneously.Forexample,anelectricitygeneratorcouldreceivepaymentsforsellingelectricityintothewholesalemarket,whilstalsogainingrevenuesfromprovidingbalancingservicestotheElectricitySystemOperator,andalongsidereceivingregularpaymentsfromtheCapacityMarket.InsightPaperReadyandwaiting:Opportunitiesforenergystorage40ReviewofElectricityMarketArrangements(REMA):theUKGovernment’sreviewintoallthenon-retailaspectsoftheGBelectricitymarkets,withtheaimofensuringthesemarketsarefit-for-purposeindeliveringtheUK’snetzerotargets.Technologicalreadinesslevel(TRL):measureofthematurityofatechnology,ratedonascalefrom1to9,whereascoreof1showsbasicprinciplesobservedand9meanstheactualsystemhasbeenproveninanoperationalenvironment.Wholesalepowerarbitrage:theprocessofstoringenergywhenitscheapandexportingitwhenitsexpensive,generatingrevenuefromthedeltabetweentheimportandexportwww.cornwall-insight.comContactUsCornwallInsightTheAtrium,Merchant’sCourtStGeorgesStreet,Norwich,NR31ABT01603604400Eenquiries@cornwall-insight.comwww.dlapiper.com
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