In this contributed blog, Sam Langston, manager of Power Markets at Pulse Clean Energy, is investigating the potential impact of the LDES cap and floor schedule on Bess investments.
April saw a milestone moment for the ambitions of clean energy in the UK. OFGEM officially opened the first application window for its new CAP and floor schedule for Long Duration Energy Storage (LDES), a crucial enabler from the Clean Power 2030 action plan of the government. LDES technologies have the potential to speed up the rollout of renewable energy, to strengthen the resilience of energy enforcement and to transform our grid.
As we want to create a cheaper, cheaper, cheaper system, we have to ensure that policy support for LDES does not create a malinvestment. Each LDES program may not be at the expense of the wider energy market by favoring technologies above the economy. Without a careful design, we risk tilting the playing field and slowing down overall progress.
The enormous potential of LDES
LDES Technologies spend energy for a longer period of time, shipping power during periods of low renewable energy output or peak demand. In addition, they can move fossil fuels at lower costs: offer reliable, around the clock in a cheaper, cleaner and more flexible way.
McKinsey estimates that LDES can only lower the costs of achieving a full carbon system with US $ 35 billion (£ 26.24 billion) per year in the US. The same study suggests that the same study in the same period could lead to the annual avoidance of a maximum of 2.3 gigatons from Co.2 Worldwide, or up to 15% of today’s emission sector.
Flexible technologies have multiple applications, lower costs, are scalable and have fast implementation period lines compared to upgrading grids. There is little doubt about the central role that they can play in balancing the energy system and improving efficiency. Until now, commercial markets have not supported LDES projects. Developers have been cautious to invest in these schemes and use their valuable grid connections, unless they can provide sufficient returns to assets owners and investors while striving for lower system costs.
That is why the Cap and Floor Scheme of OFGEM is considerable. By offering security for security through a proven financial support model, the scheme will offer the stimuli needed to increase the use of this technology. However, we must be aware of unintended consequences. To successfully improve this schedule the security, affordability and stability of the energy system, the design is not allowed to choose winners and all technologies must compete on a level playing field.
Create a level playing field
An important consideration is the duration of assets that are eligible to participate. Although we welcome the decision to increase the suitability threshold of six to eight hours, eithergem should look at further. The primary need for LDEs is to tackle periods of long -term low renewable energy generation, which take place over 24 or more hours. Projects of eight hours simply do not fill in this gap. Doing the duration well is crucial to maintain a level playing field. Allowing projects of eight hours to request the scheme risks not only to weaken the potential impact, but can also influence the economy of existing assets with short duration, such as storage systems for battery energy (BESS).
As we have seen in markets such as California and in modeling work, existing lithium ion batteries with a duration of two hours can be stimulated by the market to regulate their dismissal to last four to six hours. With falling Bess Capex this may be increased to eight hours. If the subsidized projects in the CAP and floating schedule have to contribute to something that existing projects cannot, a higher duration threshold is necessary.
It is well understood that a varied portfolio of energy storage technologies with different duration is essential to achieve the goals of the leakage decoration goals. Bess projects are crucial for energy balancing and the stabilization of frequency in power grilles. They can help manage sudden changes in the supply or the demand of electricity, because the systems can respond quickly and balance the unexpected peaks or drops to the electric grid.
To guarantee honest, efficient and transparent competition (the characteristic of a functional marketplace), it is essential that every schedule or regulatory intervention is technology. It is crucial not to choose winners.
If a subsidized long-term asset is allowed to compete against Bess for supporting services and energy rights, this will suppress the investor interest in BESS-ACTIVA, which currently does not receive government support. This unbalanced competition for income would harm the business case for Bess of short duration and undermine the success of a technology that is vital for the energy system. To stimulate innovation and impact, we must prevent the competitive market from being unbalanced.
If projects of eight hours are eligible for the CAP and floor schedule, policy makers must determine strict caps or operational limits, such as restrictions on cycling or participating in support services, to ensure that each technology supports the schedule where the most needed. This would prevent existing economic solutions from being under offer and an existing work market model deforms where no subsidy or stimulus is required or requested.
LDES projects will be the most advantageous when managing limitations and periods in the longer term in which the intermittent generation is persistently not available. If subsidized, its use must be limited to these activities.
We also need more clarity about the purchasing goals. The current goal from 2.7 GW to 7.7 GW from LDES capacity by 2035 is too wide, creating both investors and developers. A narrower, more defined target range would create greater investment confidence, better planning and improved coordination with the needs of the long -term energy system.
Coordination with a broader policy
A final consideration is policy coordination. The energy system is complex and includes the merging of various policy measures between departments, regions and regulatory authorities to ensure that they work in harmony.
To date, much of the analysis of the system benefits of LDEs is based on the current market design. With the current evaluation of the process of the electricity market schemes (REMA), however, a change in only zonal prices can only change much of the recommendations.
LDEs built in Scotland in a single price market, for example, it is not expected to lower energy prices, but under a zonal market, LDES in Scotland would have a significant impact on energy prices. This is due to much better price signals that encourage LDEs to absorb surplus wind energy that would otherwise be limited by grid restrictions. This cheap energy can then be fired during gaps when generating wind.
However, switching to zonal prices is not without its important challenges and can take time to implement effectively. To tackle this, the location advantage must be incorporated into the LDES purchasing process. We would propose a more top-down approach, which prefer strategically located storage at Key Grid bottlenecks.
More generally, the future of the scheme must also take into account wider CP30 reforms, including the
Capacity market, nuclear and hydrogen strategies and the considerations and planning with regard to the contribution of natural gas.
A smarter rollout for a smarter schedule
The introduction of a CAP and floor schedule for LDES is an important milestone that could form the future of the VK energy mix. But to be really successful, it has to do more than bringing new technologies to the market. It must improve the entire system.
After this first application window has been closed, OFEM Neso will consult to understand LDES capacities for 2035 and 2050. This will be the following steps of the LDES program based on the lessons drawn from the first purchasing. This offers a clear opportunity to refine the approach.
Focus on storage solutions that fill real gaps in the energy system, protect the integrity of the wider market and tuning to broader energy reforms has the potential to create a more resilient and cheaper energy system. A well -designed schedule for LDEs today means a smarter, stronger, cheaper and safer energy system for tomorrow.
