INTERVIEW: Volatility buoys UK battery market despite rising costs, supply challenges

The current price volatility in Great Britain's electricity market is offsetting the rising cost of battery storage projects, allowing development to proceed albeit at a slower pace, according to EDF Renewables UK's Director of Storage Matthew Boulton.

Great Britain has around 2 GW of installed battery storage capacity, with annual additions in the 400-500 MW range, Boulton said in an interview Jan. 25.

"This could conceivably double," he said, but not before supply chains had recovered.

"They've been pummeled -- leads times for transformers have gone from four to five months to nine, even 12 months. Meanwhile underlying commodity prices are going up," he said.

Costs had risen by around 25% over the last 12-18 months, Boulton noted. "This is not manufacturers exploiting the situation, it's underlying commodities -- lithium prices are five times what they were 18 months ago," he said.

Positive commercial performance of existing battery storage assets, however, is supportive of continued development despite rising costs and longer lead times.

"Batteries don't care about high prices per se, they care about volatility and spreads in the market, and these have been above expectation. That extra volatility more or less offsets the rise in costs so we're back where we need to be to get projects away," he said.

Platts, part of S&P Global Commodity Insights, assessed the price of the Block 5 evening peak spot contract at GBP215.00/MWh Jan. 23, a 19% premium over the baseload spot price that day. Over a longer view (see chart), the spread between the two has averaged more than GBP50.00/MWh.

Project rollout

Boulton co-founded Pivot Power, acquired by EDF in 2019. The company develops transmission-connected batteries in collaboration with city councils looking to support EV charging, municipal electrification and, more recently, solar initiatives.

EDF Renewables has two operational 50-MW storage facilities at Kemsley in Kent and Cowley in Oxford, both one-hour systems.

Two more of similar size are about to go live in Coventry and Sandwell, northwest of Birmingham, both two hour systems.

All four lithium-ion battery systems were supplied by Wartsila.

The company has up to 40 further 50-60 MW projects to develop, with Manchester, Ipswich and Luton among near-term target sites.

"Getting the first projects operational and commercially successful has provided delivery confidence," Boulton said. "We assume a two project per year run rate, and expect to double that as we go to 2024, 2025."

Ancillary services

Since Cowley and Kemsley went live in 2021 both have spent nearly 90% of the time providing grid services.

That started to shift quite dramatically in November, partly because frequency response requirements were higher in the summer and partly because more batteries were coming online, Boulton said.

"Now it is more 50/50 between ancillary services and trading, and as more batteries come on we expect to tip increasingly towards trading," he said.

"Near term, the ancillary services market is close to plateauing, but there will be an uptick in requirement as new single biggest loss of loads come on, such as Hinkley Point C, and I think there will be further upticks as inertia on the system drops."

"Then there is depth in the balancing market, a lot of depth in the intraday market and yet more in day-ahead market -- so I'm not nervous about where these batteries will find a living."

Longer term, Boulton expects to see the balancing mechanism largely dominated by batteries due to their flexibility and speed of response, and as dispatch became more automated.

"Location might become more of a premium in future -- at the moment trading is pretty much location agnostic, but half the value in the balancing mechanism is location-specific, and who knows how market reforms will change things, if for instance we end up with a more regionalized wholesale market," he said.

Coventry superhub

Boulton said the soon-to-be-commissioned Coventry project would push the boundaries of what transmission connected battery storage could achieve.

"Coventry's eco energy hub system is an exciting option for the council, not just public EV charging but for a terminus for a light rail park and ride system and potentially an e-bus hub," he said, noting Coventry's goal to completely electrify its bus fleet by 2025.

The city was also looking at whether a nearby solar farm could feed the rail and EV charging hub.

More broadly, the UK government aimed to decarbonize the power system by 2035, setting targets of 50 GW of offshore wind and 70 GW of solar capacity by the 2030s.

Nat Grid's Future Energy Scenarios, meanwhile, foresees "anything from 16 GW to 25 GW of storage by 2030 -- that's almost a statement of requirement, showing the level of concern there is on keeping a renewables-based system in balance," Boulton said.

As such, it was hard to argue against grid-connected battery storage having its own set of rules and regulations.

"At the moment Transmission Network Use of System charging puts you off locating batteries in Scotland because you have to pay a hefty premium for the privilege," Boulton said.

This was because batteries are still seen as adding generation to the system versus the reality of their role in absorbing surplus renewables, avoiding curtailments and reducing peak fossil burn.

"It's hard to see how batteries can do anything but benefit the network, inherently reducing the need for upgrades," Boulton concluded.

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Source: S&P Global Commodity Insights