The topic of battery storage will be discussed at EMEX on both days; on Wednesday 27 November at 14:30-15:00 in the Strategy, Regulation and Compliance theatre and Thursday 28 November at 10:40 – 11:20 in the Built Environment, Technology and Innovation theatre.
Imagine a world where your site has storage assets, mainly batteries, installed at no cost to you and the installers pay you, whilst reducing your energy costs at the same time. This sounds like a dodgy sales pitch with hidden catches but is not. The final part of this article even sets how you might be paid to charge your batteries. This market is about to be opened up and revolves around Demand Reduction (DR).
DR will be a vital component of the operation of the grid as it moves forward into a renewables-based world. DR works well if storage is utilised but unlocking the value chain has been as elusive as the Holy Grail. The key is the introduction of a humble new meter that will create a whole new energy trading marketplace based on grid levelling services.
The new meter class P375 will measure the charge and discharge of batteries or other storage assets independently of the MPAN. This simple function of measuring DR will allow the DR from almost any site be traded with the District Network Operators (DNOs) or District Service Operators (DSOs). The significance of P375 is that it moves DR from behind the fiscal meter (MPAN) and creates a market where DR can be traded independently of the supplier.
DNOs already pay for DR; however, the present contracts are limited. P375 will allow any site from domestic houses through to the largest industrial sites to measure and trade DR. The prices paid for DR at peak times could be significant. Reduction of demand from the grid, rather than export to the grid, will be a key element of the value chain, as it will help DNOs avoid upgrade and reinforcement costs.
The grid is facing a bill that will run into billions of pounds to maintain the present system capacity and stop it falling over in the future. Paying for DR rather than upgrade will be a low cost, low carbon solution that will increase resilience. One of the major benefits of using storage and DR is that it will allow companies, and homeowners to use power when they want to.
DR as a grid levelling service has huge benefits; however, the stumbling block to roll out has been the limited tools the DNOs have to pay for this benefit. The advent of P375 means that any load shifting through storage that a site undertakes can be measured, not only for amount but at what time periods DR takes place.
DNOs will through P375 create contracts for specified amounts of DR and dictate when that DR is required. Storage owners or aggregators could then bid to meet the contract. DNOs could pay higher market prices in constrained areas and pay a premium to attract installation of batteries in particularly stressed areas such as Cambridge. However, sites next to Hinkley Point B that are not in a constrained area will not be as attractive.
DR will become a tradable asset; however, most sites will not have the ability or knowledge to trade directly with the DNO and therefore will trade through an aggregator.
Aggregators will want to build a portfolio to include as many sites as possible to meet the DNOs’ contracts. The more sites that provide DR, the more the contracts will hit significant grid levelling capability, which will increase the value to the DNO. Sites that can load shift, charging the batteries off peak, or when there is excess load on the grid, and using the power to reduce its demand during peak periods will be sitting on an asset rather than the present liability.
Your company could reduce the amount it pays at peak load periods as the batteries discharge, through displacing import, whilst at the same time being paid for the paid DR. This is where the no cost comes into play. The cost of battery ownership has through CAPEX and risk made the purchase of batteries unattractive. This will cease to be an issue as the aggregators under the contract model, will install the batteries at your sites. The aggregators themselves could lease the batteries off finance houses, who will own the batteries and lease them as an asset class.
The issuing of contracts by the DNOs/DSOs will rely on agreement that these contracts can be entered into by Ofgem. Considering these contracts would meet all the Government’s stated targets around DR and storage, this should happen next year, after which the value of the contracts can be calculated.
Unlike other Demand Side Response (DSR) models, this solution does not require turn down at peak, and therefore companies will not have to change their operational use of electricity. A safeguard is that if for any reason the batteries failed, the site would revert automatically to the grid.
In the new market understanding the value of the DR you can trade will be essential in agreeing to contracts. This market will develop on a competitive basis so shopping around rather than signing with the first entrants, may pay dividends.
One point that needs to be raised is that batteries do not generate power themselves; this sounds ridiculous, but many Boards will forget this small detail. Charging the batteries at the right time will be key in the profit made.
The final point mentioned in the first paragraph is that charging could earn money. This sounds illogical; however, as the grid transitions over to wind and solar, times of oversupply might become an issue. When there is too much power on the grid from either wind during a storm, or solar at midday, rather than wasting the power, battery operators could be paid to charge in these periods.
Next year, the economics of storage are set to change, it’s time to look at installing your new P375 meter.