5 Non technical issues, supply chain and regulation of energy storage
This section summarises a number of the non technical issues. These are
- An assessment of the constraints too the deployment of the key technologies
- A discussion of the supply chain issues and opportunities
- A high level assessment of the economic potential from deployment of pumped storage in Scotland
- A review of the regulatory issues
5.1 Assessment of constraints
The constraints matrix provided in Appendix 1 highlighted those technologies that face significant barriers in terms of wider development. As a general synopsis the large scale technologies i.e. pumped hydro and CAES face geographical and environmental constraints. This is in contrast to batteries where high cost and high risk linked to immature technologies is the major barrier.
Table 5.1.1: Summary of constraints by technology
Lack of incentive/market structure
Skills/research development support
The geographical/ environmental constraints are the major barrier to pumped hydro and CAES. A limited number of suitable sites exist and the quality of site directly influences cost
High capital cost will be a barrier. Economics will be driven by the need to avert the constraining of wind at high production levels.
Pumped hydro: skill shortage in hydro-engineers. Alternative forms of pumped hydro should be investigated, seawater pumped hydro and variable speed pumps both needing research. For CAES identification of disused coal mines needs investigating.
SSE and Scottish Power both familiar with pumped hydro technology. Major infrastructure schemes should represent an opportunity for job creation.
Advanced battery systems
Flexible in network location. Environmental concerns surrounding some of the batteries e.g. NaS, Li-ion, Metal-air and Lead-acid all of which have a limited number of operational cycles.
Currently considered for electricity line support. As a storage device for excess generation the market structure does not currently suit a technology that adds some value to different components of the electricity network be it generators or distribution.
R & D is ongoing on flow batteries in the UK. Additional development is required to bring the costs of this and other battery technology down to acceptable economic levels.
Limited Scottish infrastructure researching advanced batteries. Utility and wind farm operators are not used to running advanced batteries to support wind power. Much of the leading work is being undertaken in Japan in particular on NaS batteries.
Flexible to be located anywhere on the network
Market incentive for such short term power storage is currently not there.
Some high profile examples of flywheels being installed in the USA. These should be monitored for progress and applicability to Scotland.
Electro magnetic system
At the small scale no barriers on location exist for SMES. At large scale electro magnetic effects on the local environment could be harmful and therefore act as a siting constraint
Faces the same problem as described under advanced batteries, where the benefits are spread.
Large scale SMES is being researched worldwide. Research to improve the development of this technology is required with likely public sector support to academia required due to the development level (pre-commercial) of this technology.
Significant economic constraints. Many of the large scale Scottish projects such as Hunterston have been planned for almost ten years but have not happened to date.
Currently not economic a large scale. Further research (private and academic) required to improve the economics.
Safety aspects of large scale hydrogen storage would need thorough investigation.
Unlikely to present significant environmental obstacles.
Currently being promoted by DECC as a solution to meet carbon reduction targets. Will require regulatory changes to enforce smart grid developments over Scotland. Electric vehicle market will be self driven by global market forces.
Being driven by private finance due to near commercial status.
Upgrading infrastructure to smart grids is likely to be gradual in line with replacement works. Electric vehicle infrastructure will consideration as to the best set up from a practical perspective and from a grid function angle.
5.2 Scottish Supply Chain
The development of Energy Storage and Management technologies represents an opportunity for the stimulation of Scottish industry and potential job creation. A significant barrier facing this aim is that the technology review has found that most of the energy storage technology development is currently occurring outside of the UK. Due to its isolated grid and large demand fluctuations Japan currently leads the commercial market place for many of the advanced battery technologies.
Considering the size (several hundred MW) of potential contracts for the two large scale options for energy storage, pumped hydro and CAES interest is likely to be global. The global leaders in the fields of hydro power and CCGT will be interested. In many cases this is likely to be overseas companies.
The new hydro power plant at Glendoe was the first large scale hydro-electric plant to be built in the UK for 50 years. SSE's main contractor for this site was the German company Hochtief AG. If pumped storage was to become more widespread it is likely that the main contractors appointed would again be European or global companies with recent expertise of such installations.
CAES, will be reliant on CCGT technology. Major players in the CCGT market include Siemens, Alstom and General Electric. To illustrate the global market on CCGT three recent UK plants have been highlighted:
- Uskmouth 800 MWCCGT plant currently under construction is being led by Siemens (Power Technology)
- 2000 MW Pembroke plant is being developed by Alstom
- The Isle of Grain (Medway plant) was developed by Marubani (Japanese) and uses General Electric turbines
In the advanced battery market both SSE and Scottish Power are involved to some extent and are monitoring the development of specific technologies. SSE as previously mentioned are involved in small scale flow battery R & D. There is a reasonable UK presence in this sector which could represent potential for further development in Scotland with growth in companies such as Plurion. The Japanese and Americans are the overall global market leaders, NaS batteries in particular being dominated by Japanese investment. The Scottish Lithium battery sector has some presence although primarily focussed upon other applications to date such as Military and transport. Allied Electric, a Glasgow based company currently developing Li-ion batteries for use in Peugeot vehicles.
The review found that the following technologies have a reasonable presence in Scotland
- Flow batteries: Scottish Power are involved in a Technology Strategy Board flow battery project. Plurion a Fife based company are developing flow batteries.
- Electric vehicles: Li-ion batteries are being developed by Axeon in Dundee, ABSL in Thurso. Allied Electric, a Glasgow based company are selling electric vehicles. Axeon and Allied Vehicles are already working in partnership under the Glasgow Electric Car Pilot.
- Smart grids: A couple of companies working in this sector in Scotland notably Flextricity, based in Edinburgh and UK Smart Grid Solutions ( SGS) who are a Strathclyde spin out company.
5.3 Economic potential from energy storage to the Scottish Economy
This section estimates the potential economic costs and benefits to the Scottish labour market that would arise from the development of pumped hydro in Scotland. As already highlighted there are two projects planned by SSE, Coire Glas and Loch Lochy, both are in the 300-600 MW range. These projects both have a higher capacity rating than the recent 100 MW Glendoe hydro project.
A number of assumptions have been made to assess the cost and potential level of job creation, both of these aspects will be strongly influenced by site specific details but it does provide an indication of the scale. Assuming the median of the cost range reported by Deane et al (2009) the cost of a 400 MW pumped storage plant would be £1,650/kW which in turn would equate to a cost of £660 million. A breakdown of this cost into major components can be made by using the comparison of the relative cost of pumped hydro by the IEA (2009). This study states that the pump turbine and generator motor represent 55% of the relative cost. As reported in the Scottish supply chain section and also identified by Nick Forrest Associates Ltd (2009) the generator and pump turbine are likely to be manufactured overseas.
For the level of job creation that would arise from such a project the recent Glendoe hydro scheme represents an example of a large scale hydro construction project that will be of a similar scale. This created approximately 400 jobs ( BBC News 2006) and construction took 3 years. A diverse range of engineering skills was required with a temporary village created to house the workers. The types of specialist skills required for hydro development in Scotland have been identified by Nick Forrest Associates Ltd (2009). This study highlighted the types of key skills required for hydro site development which one can assume will be broadly similar to those required for pumped hydro. A table of skills that this report identified is provided below.
Table 5.3.1: Hydro-power skills distribution (Source: Nick Forrest Associates Ltd, 2009)
The scale of developments required based upon those planned by SSE are of the size that, as mentioned under the Scottish supply chain section, are likely to be provided by global multinational companies. Skills that are likely to be sourced from abroad will centre around turbine generator, controller manufacture, installation and commissioning. See figure 5.3.1 below for a breakdown of the skills required for hydropower development.
We have assumed that general construction, ecology, electricity network and public body employment is largely likely to be sourced from Scotland. This would represent 75% of the total employment share. The Glendoe hydro scheme was an enormous construction project, which required consent from Scottish Ministers, and it could be expected that a similar level of civil engineering for pumped hydro schemes would be required.
Figure 5.3.1: Employment share of industry sectors (Source: Nick Forrest Associates Ltd, 2009)
As previously stated, assuming a similar level of effort is required as the Glendoe scheme 400 jobs would be created, 75% of these jobs would be created within Scotland equating to 300 Scottish jobs for 3 years. The table below highlights the potential jobs created in Scotland.
Table 5.3.2: Estimate of jobs created from the development of pumped hydro in Scotland.
Jobs created for a 400 MW plant over 3 years
Job years for construction of 4x 400 MW pumped hydro
Using the assumptions above that 55% of the hydro plant will be manufactured overseas and then that 75% of employment is likely to be from local employment the economic value to the Scotland of a hydro scheme can be estimated, as shown below.
Table 5.3.3: Estimate of economic cost of a 400 MW pumped storage scheme and the potential value to the Scottish economy
Plant size ( MW)
Total cost million £
Proportion of costs to Scottish economy
5.3.1 Skills required
Pumped hydro is likely in many cases to feature very specialised civil engineering technologies such as tunnel boring, as required on the Glen Doe scheme. Specialised hydro engineers are also likely to be sought after skills as there are few such engineering projects that have taken place in Scotland or the UK for the last 30-40 years.
Summary of key skills required:
- Civil engineers- with niches areas such tunnel boring
- Public body consents and planning departments
- General construction
- Electricity network engineers
5.4.1 Energy Storage
Energy storage technologies can potentially benefit a wide range of the participants in the electricity market. For example:
- Intermittent generators can 'smooth' their output making it more dispatchable (allow the output to be predicted into the future).
- Generators and suppliers can store energy at times of low prices and use it when prices are higher.
- Transmission and distribution system operators can store energy to avoid temporary constraints on a network.
- Network operators can also use very short term storage to improve power quality.
- Householders can store energy from intermittent microgeneration units to be used when they have demand (e.g. store PV or wind generated energy) or exported to the local network when prices are higher. Energy storage could be used for black start capacity, however this will compromise the ability to deal with regular fluctuations in intermittent generation or generating income from arbitrage.
The above applications of energy storage highlight that the economics of energy storage technologies is complex. The technology inventory and the comparison matrix provide indicative costs of the technologies in terms of £/kW. Actual operational costs for many of the technologies are unknown as they are primarily being run in demonstration trials. The revenue that could subsequently be generated from the technology is subject to many variables. For example a flow battery could be deployed with its primary purpose of improving overhead line stability in an area of high wind penetration. The flow battery would therefore allow the cost of line upgrades to be avoided, this is a site specific cost. In another case its primary function may be to serve as peak power shaving and this will represent a different economic saving. The number of potential variables to the economics and technology application combined with the uncertainty in technology performance mean that at this point in time any economic estimate is highly uncertain. What is evident is that a number of regulatory and economic issues are prevalent which need to be addressed to facilitate the uptake of energy storage. The key issues are discussed below:
The value that an energy storage device can realise in £/ MWh stored depends on matching its capabilities to the required services and accessing these in the market. In a fully vertically integrated market, as still exists in many parts of the USA and other countries, this is a relatively easy task. The utility investing in the storage device can capture, within the market it controls, a range of values and benefits.
In a fully liberalised market the different operations; transmission, distribution, supply are often operated by separate companies. At each interface there is usually a commercial and contractual relationship. This brings benefits in making transparent the relative costs of each component of the electricity generation and delivery supply chain but associated with this transparency comes transaction costs and a broken value chain. For a technology like energy storage this can lead to difficulties - e.g. some participants may be restricted as to whether they can own and operate generation. This can limit both the range of services they can access commercial value from and lead to a complex series of contractual arrangements being required, which can lead to decisions not to proceed with storage because of the perceived and actual increased risks and uncertainties.
In the USA alongside the funding provided by the recovery programme and the storage schemes it is bringing forward, regulators are considering the types of incentives relevant to the services storage offers and, in some cases, introducing positive pricing regimes that encourage further uptake.
An example of this from the USA is the recent announcement (Boston Globe, 2010) by the Mid-West Independent System Operator ( ISO) that, following from a ruling by the Federal Energy Regulatory Commission ( FERC), they will offer a frequency regulation market tariff for stored energy resources, allowing energy storage operators to compete with similar service suppliers based on fossil fuel generation. This is one of a number of market modifications introduced in the USA over the last year as the FERC takes a positive view (Troutman Sanders 2009, FERC, 2009) on enabling energy storage devices to operate in the various US markets, recognising the potential benefits storage can bring in enabling greater penetration of low or zero carbon sources of generation and in enhancing system operation and stability.
In the UK discussions with Ofgem as part of this study have confirmed that they recognise the potential benefits of storage. Hence Ofgem will be willing to look at regulatory modifications to address any potential barriers to storage technologies gaining fair access to the energy markets. Specifically in relation to potential beneficial interventions, the previous UK Government were undertaking an Energy Market Assessment; the latest version of this is reported in the budget 2010 report ( HM-Treasury, Budget 2010). This assessment noted that changes to the GB energy market would benefit security of supply. These included:
- Enabling better demand side responses and storage both through the roll out of smart meters and the introduction of time of use tariffs.
- Recognition that many electricity energy storage technologies are at an early stage of development and that measures such as awareness raising of the benefits and addressing barriers to market participants investing in related R&D could improve the outlook for security of supply in the future.
- Noting that the current market arrangements leave uncertainty as to whether license holders can undertake storage activities and that this was acting as a barrier and should be addressed.
- Considering the introduction of more effective price signals related to the demand of system balancing and intermittent generation. If implemented, this could drive more investment in more realistic level of flexible generation and storage technologies.
- The introduction of a capacity payment (as in the all Ireland energy market). The mechanism rewards available capacity in addition to the usual energy sales revenue. The view in the report was that they may not be required until later in the decade, however their introduction at an earlier stage could, if well designed, support the development of storage.
New Energy Storage Technologies in Scotland
This assessment and the previous studies have identified a range of promising energy storage devices, such as the various redox flow cells, lithium or sodium sulphur batteries and hydrogen, that could, in the future, be developed at the 10 MW and 10-20 MWh size. At this scale a device could potentially provide services and hence commercial benefit to a range of players in the electricity generation and supply chain. These would include generators, network operators, transmission operators and suppliers.
At the present time, the economics of the new energy storage devices is very uncertain, either because they have not yet been scaled up or, in some case, they also require further development before they can be realised at scale.
Scotland, with its world leading resource potential, targets for renewable energy development and the particular constraints of its geography, electricity demand and connectivity with England and Ireland, has the opportunity to develop 'lighthouse' storage projects. These could lead the world in demonstrating the benefits of storage technologies and draw in the potentially high value research and manufacturing industries associated with them. It has already attracted Plurion, which is developing its cerium - zinc based system in Glenrothes in Fife.
The DECC Smart Grid capital grant scheme launched in late 2009 includes two projects in Scotland that involve energy storage devices at small scale, SGS in the Orkneys and Scottish and Southern in Perth. The larger Ofgem Low Carbon Networks Fund ( LCNF) has allocated £500 millions over 5 years for network connected innovative projects. These will be in two streams, one for smaller scale projects up to £80 million total value which is already launched and a second stream currently under development which will support a smaller number of large competitively bid projects that will be launched later this year. It should be noted that the funds will also cover the existing Innovation Funding Incentive ( IFI).
The Scottish Government should work closely with the Scottish Electricity network owners to assess the opportunities within these funds to trial and develop larger scale (> 1 MW and 1 MWh) new electricity storage technologies and consider whether additional funds should be identified to supplement the agreed schemes to maximise the potential for Scotland to take a lead in developing and trialling the technologies and exploit the associated benefits from an employment and industry perspective.
Alongside the initiative above, the Scottish Government should review the benefits from the storage devices already installed on Scottish Islands to assess the need for further support or actions to allow optimum use of electricity storage devices in this specific application where it can bring specific benefits such as quality of supply, deferment of upgrading sub-sea links and increase the opportunity for renewable energy exploitation.
ROCs have a significant impact upon the economics of renewable power generation. The market price for ROCs is at present around £40-50 per ROC. Offshore wind currently attracts double ROCs giving an economic value of approximately £100 per MWh11 or a total of £140 MWh with the value of electricity included. At present the renewable incentives are realised by the generator rather than ROCs being given to energy storage as this may contain electricity from non-renewable sources.
The current economic barriers of energy storage are evident when considering the case of wind power to hydrogen. The efficiency of conversion to hydrogen is lower than for all of the other energy storage technologies. Firstly converting electricity to produce hydrogen via electrolysis is typically around 70%. Secondly, production of electricity from hydrogen is around 40% resulting in a round trip efficiency of 28%. This means that the value of the 28% must be extremely high to compete with the direct revenue for offshore wind which is approximately £140/ MWh. Diverting wind power into a wind to hydrogen scheme would result in no ROCs and 28% of the original electricity for sale. The sale of this remaining electricity would therefore require a large peak price differential for a greater revenue to be generated than just selling the electricity from the wind farm directly or constraining the wind.
5.4.2 Renewable Energy Generators
A number of renewable energy generating technologies can potentially supply network management services to the network operator. Under the present GB market, with its high reward for renewable generation provided through Renewable Obligation Certificates ( ROCs), Power Purchase Agreements ( PPAs) are offered to generators that essentially force them to generate at maximum output at all times they can - this clearly maximises ROC numbers, which is probably the prime reason the supplier has contracted the generation. It does, however mean that wider benefits that the generator could offer to the network or system operator are in reality not considered.
In a future Scottish network where renewable output may need to be constrained the market structure would have to be preferable for energy storage to be constructed rather than renewable generation being constrained.
The present GB electricity market structure could inhibit the timely uptake of electricity storage technologies; the fragmented nature of the value chain in the market results in technologies and services that can benefit a range of players in the market (e.g. generators, network operators, suppliers) having to negotiate a range of contractual agreements to be able to realise the full benefits from each potential revenue stream. In some cases regulations make it unclear whether some activities are allowed (e.g. generation by network company). The regulations should be reviewed to assess where they could be simplified and clarified to remove the current disincentive to invest in storage technologies.
Scotland's circumstances of having a world class renewable energy resource, multiple island networks and limited interconnection, puts it in an ideal position to lead in demonstrating and hosting the development of energy storage technologies. While pumped storage presently remains the best and only option for large scale storage in Scotland, the developing redox, battery and other technologies could bring significant benefits to the Scottish system in enhancing stability and increasing the quantities of renewables that could be exploited in (e.g.) island and weak network locations.
The Scottish Government should continue to:
- Be proactive in encouraging the development of energy storage technologies in Scotland
- Work with the regulator to reduce the current disincentives deriving from the fragmented value chain to develop storage technologies