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UK's downward flexibility costs 'not sustainable': battery storage trader

Highlights

Nearly 5 GW of ODFM instructions issued

73% of capacity used on Saturday

Support for storage 'a cheaper option'

London — Emergency measures dealing with low electricity demand in the UK are expensive and unsustainable, a battery storage trader told S&P Global Platts Tuesday.

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Multiple instructions over the bank holiday weekend saw system operator National Grid paying wind and solar generators to turn down, and energy storage sites to increase demand to balance an over-supplied system, Kiwi Power's head energy merchant Aaron Lally said.

Lally said he was speaking in a personal capacity and not for aggregator Kiwi Power.

"The new Optional Downward Flexibility Management (ODFM) tool is not sustainable for National Grid, even if it is lucrative for some operators," Lally said.

"We are curtailing renewables while artificially increasing demand – it is the complete opposite of what a long-term strategy should look like," he said.

Over the bank holiday 4,829 MW of ODFM instructions were issued by the system operator.

Over the three days the instructions led to 58% of ODFM capacity being utilized on average, the highest capacity usage being observed on Saturday (06:00-16:30) at 73%.

The system operator had been "pushed five years into the future by COVID-19," Lally said.

Low electricity demand had increased the share of renewables in the generation mix, putting a hefty premium on the cost of flexibility.

In mid-May the system operator admitted an extended period of low demand could push balancing costs up to GBP826.3 million ($1.011 billion) for the four months to September, almost GBP500 million more than for the same period last year.

"This shows the incentive regime needs to change quite aggressively over the next couple of years," Lally said.

For batteries, this could go one of two ways, he said.

Recently investors had been struggling to support the business case to invest in new batteries.

But if National Grid continued to pay "supernormal profits" to battery asset owners this summer, this could drive new investment.

"At the same time, this is only going to get worse. Renewable generation is only going to increase, and COVID is giving us a sneak peak of that," Lally said.

The second option was to put incentives in place for energy storage similar to those given to wind and solar.

"Providing a long-term contract guaranteeing a minimum revenue stream for batteries would result in more storage, removing the need to curtail renewables at greater cost," he said.

"We'd still be paid to store energy, but this would be much cheaper than curtailing a wind farm because we know we're guaranteed GBP40-50/MWh when we send it back," he said.

Without significant investment in battery storage, National Grid would be unable to achieve its 2025 target of being able to operate a zero-carbon system, Lally said.

UK hourly prices were negative for 17 consecutive hours on Saturday to 17:00, sinking as low as minus GBP38.80/MWh ($43.57/MWh), data from N2EX showed.

On Sunday hourly prices dipped to a low of minus GBP25.43/MWh and were again negative for much of the day.