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Improving UK Market Conditions for Energy Storage

Energy storage will become more valuable for the UK power grid year by year, since it will allow operators to face two key challenges: balancing the supply variability that comes from a larger share of solar and wind farms, as well as the increase in peak demand that will be caused by the adoption of heat pumps and electric vehicles. The cost of energy storage is also expected to decrease, making it cheaper to deploy while the value provided by its services increases.

Unfortunately, the current regulatory framework is very taxing on energy storage, treating it simultaneously as consumption and generation and not a separate activity. In other words, energy storage is charged twice for using the power grid: once when it’s filling up its capacity, and again when supplying power to the grid.

Ancillary services provided by energy storage are very valuable for the power grid, but there is a limitation from the investment standpoint: the demand for these services is occasional and unpredictable, making it difficult to develop a business case. This is completely different from the case of power plants, who make their primary income from generation and may offer ancillary services as a secondary activity to derive extra value.

Increasing the Profitability of Distributed Energy Storage Systems

There are three main sources of revenue currently available for electric utility clients who deploy energy storage:

  • Energy Arbitrage: Charging their storage systems when energy prices are at their lowest point, and consuming it when the highest rates are being charged.
  • Maximum Demand Reduction: If the power bill includes a maximum demand charge, it can be reduced by using storage to absorb peaks in consumption.
  • Integration with Solar Power: Grid-tied PV systems with no storage have their savings capped by the applicable feed-in tariffs of the utility company. On the other hand, a PV system with storage can use its generated energy to avoid the highest electricity rates of the day.

These activities also benefit the utility company, since they shift energy consumption away from hours when the grid is fully loaded, towards hours when there is spare generation capacity. Storage can provide even more value by providing ancillary services, but there is currently no way for homeowners to make a profit from them. With a favorable regulatory framework, utility clients could make extra income by allowing their storage capacity to be aggregated to provide services such as frequency regulation and operating reserve.

Creating a Profitable Market for Aggregators

Aggregators are, as implied by their name, companies who aggregate resources distributed across several facilities to offer services to the power grid. It is possible to aggregate both demand and energy production, and in both cases there are potential applications – aggregators can provide both energy arbitrage and ancillary services.

Current UK regulations don’t have a defined role for capacity aggregators in the balancing market, resulting in plenty of missed opportunities. Current regulations give an advantage to generators, and aggregators are simply unable to compete directly with them in the ancillary services and capacity markets.

A favorable framework for aggregators would also be beneficial for the residential market, driving up demand for storage systems. Aggregators would make a profit by managing distributed storage capacity and providing services directly to the power grid, and homeowners would be offered payments for authorizing the aggregator to manage their capacity.

This business model will allow virtual power plants to be deployed, which for practical purposes behave just like a conventional power plant, providing energy, firm capacity and ancillary services, with the difference that they can also absorb surplus generation from other sources because they’re based on distributed storage.

The “Sunshine” Tariff

Solar power is characterized by a variable energy output, which peaks in the hours around noon and drops to zero during nighttime. Given that peak demand occurs in the evening, power grids can’t rely on solar power to provide the required energy.

A proposed alternative that would drive forward the adoption of distributed energy storage is a “sunshine tariff”, which consists on offering low electricity rates between 10 am and 4 pm, when solar farms have their highest output. These are hours when home occupants are typically away due to work or academic activities, but they can install energy storage systems to be filled with this low-cost energy, which is then used during peak demand hours.

The Role of Software and Data Analysis

Aggregated energy resources have a common denominator: they must be built upon a robust software platform that allows resources to be coordinated effectively, or otherwise it is impossible for the system to provide the expected benefits. It could be said that data is the glue that binds distributed storage together into a single system, capable of operating like a bulk storage facility.

Logic Energy provides expertise on both hardware and software, providing integrated and cloud-connected solutions that can meet the needs of any energy system. Our technology has been integrated with biomass boilers, heat pumps, wind turbines, solar PV arrays and smart heating systems, just to name a few examples.

Matthew Algie

Matthew Algie is the UK's leading independent coffee roaster.

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