Introduction
The Green Steve’s series is a collaboration between Sharpe Pritchard Solicitors and energy & climate change consultant Stephen Cirell to assist local authorities to understand the energy market, identify opportunities and provide practical guidance as to how to engage more in the green agenda. In this fourth paper in the series, we look at the topical area of battery storage as part of renewable energy facilities. Battery storage can add considerable flexibility to any renewable energy project and is expanding rapidly.
Background
The dilemma of the transformation of the UK electricity grid away from large power stations to renewable energy assets can be supported by the development of battery storage.
In the past, the large power stations (based around gas supply and the coal fields) generated most of the power, which was then transmitted by the electricity grid to homes and businesses. This was a one-way process from generator to consumer.
Then came renewable energy as part of the country’s move towards a decarbonised electricity system. However, this created a difficulty: could the electricity grid cope with ‘intermittent’ power (i.e. power that ebbs and flows and cannot readily be dialled up and down to match demand)? This makes the delicate balancing exercise of electricity flows even more complicated. The answer has largely been energy storage. Energy storage has been a key mitigant in respect of this problem. It simplifies the balancing of the grid and enhances developers’ gains into the bargain.
Battery storage comes in many forms and can be utilised in conjunction with a renewable energy asset or in isolation. The example used in this paper is together with a solar farm development.
What is Battery Storage?
Battery storage with a solar farm works on a very simple principle: instead of the electricity being generated going into the grid ‘live’, it is put into a storage device (for these purposes a lithium-ion battery). The electricity is then discharged from that storage device when needed at some later stage.
A simple example would be solar panels on a house generating power during daylight hours in the summer. The electricity is then stored in a battery during the day and discharged in the evening. This allows the solar power to completely fuel the house without recourse to the grid. However, storage works on every level, from the utility level, through commercial and industrial uses down to the domestic level. This means that it will work with solar farms at a commercial level.
There are many forms of battery storage, from pumped storage to various types of battery. However, the majority of the battery storage market works on lithium-ion batteries and so only those are considered in this paper.
Prices of lithium-ion batteries fell by approximately a factor of ten from 1991 to 2005. These are the batteries that are used in laptops and phones and, latterly, electric vehicles such as the Nissan Leaf and Tesla models. Research has shown that the price of lithium-ion batteries falls 15% per doubling of volume and the projected cost curve of such batteries bears a remarkable resemblance to the cost curve of solar cells themselves over the past fifteen years. In other words, batteries are projected to reduce in price in much the same way as solar panels did, where huge decreases have accompanied greater volumes of deployment.
Advantages of a Battery Storage Asset
This raises the question why should battery storage be added to a solar farm project? There are a number of advantages for doing this, although each project will depend on its own facts and circumstances.
The first point to note is that battery storage permits ‘time shifting’. It is common knowledge that there are large spikes in electricity demand in the UK at breakfast time and in the evening period; however, during the rest of the day demand is low and so, therefore, are prices.
Time shifting allows the solar energy to be diverted into the batteries during the day (when those prices are low) and then discharged into the grid in the evening, when much higher prices are available. Different revenue streams will emanate from different destinations for that power.
One revenue stream could be from frequency control. The grid has to run at a constant 50 Hz and if the frequency goes higher or lower than this, adjustments need to be made. In this example, the batteries are on standby and available to increase frequency on the local grid. A signal is sent to the asset and it comes on line and is paid for that service. There are various forms of this such as firm frequency response and dynamic containment. The suite of products is changed frequently and so the planning of any project would entail looking at what is available at the time it is completed.
Another route is energy trading. The battery system is linked to an algorithm which will take measurements of electricity pricing in real time at half hourly intervals. The signal directs the battery asset to charge or discharge as necessary. As an example, it is 4 am and the wind is blowing hard in Scotland meaning maximum supply but with demand being very low. Power prices drop. A normal £50 per MWh rate reduces to £10 per MWh so the signal is given to charge the batteries and store the energy. On the next day at 5.30 pm it’s the half time in the Quarter Final of the World Cup football tournament and everyone has just turned the kettle on. Demand is very high. As the wind has dropped, supply is low and so prices go up to £100 per MWH. The signal to the battery asset is now to discharge the electricity. The difference between the two prices means that a profit of £90 per MWh is made. This is the principle of ‘arbitrage’.
The third possibility is to engage with the Capacity Market. This is part of the Government’s Electricity Market Reform package and will ensure security of electricity supply by providing a payment for reliable sources of capacity, alongside their electricity revenues, to ensure they deliver energy when needed. This will encourage the investment we need to replace older power stations and provide backup for more intermittent and inflexible low carbon generation sources.
The system works by holding regular auctions four years in advance to allow assets to be built out once contracts have been entered. There are also shorter term auctions for next year top up capacity. These are important provisions for new renewable energy capacity and securing your asset’s capacity on this system for 15 years should ensure that a good profit is made on the transaction.
Stand Alone Assets
Even though the focus is largely on adding battery storage to a renewable energy project, such as a solar farm, there is no reason why a battery storage asset cannot be stand-alone. This means that the battery asset is built out and simply charges from the grid when costs are low and discharges to the grid when costs are high.
For this purpose, a site is required. 50 MW of battery storage takes up about 1.5 acres and so much less land is required than for a solar farm. The usual planning and grid issues will apply, in the that a grid connection will be necessary and the site has to be suitable. In visual amenity terms, battery storage sites do not look too pretty (a site covered in shipping containers) and so they need to be away from housing and other areas.
The private sector has developed many such assets but few local authorities have gone down this route. Notable here is South Somerset District Council, which developed a 25 MW stand-alone battery asset in 2020, costing the Council £12.5m. This is unusual and is ambitious. The asset is operated by a joint venture company established with local company Opium Power. The initial development was sufficient to supply 30,000 homes with electricity for an hour.
Not satisfied with this considerable achievement, the Council has now expanded its battery storage aspirations up to 90 MW from a number of different assets. A deal has been entered with well known aggregator Limejump to optimise the value from these assets.
Another option for a local authority is to provide a site to be used by a private sector developer. Rents of around £1500 per MW can be achieved, so a 50 MW site on 1.5 acres of local authority land would command a rent around £75,000 per annum for up to 25 years.
Capital Costs and Business Case
Returning to the example of the local authority solar farm with battery storage, a robust business case will be essential to ensure that the project moves forwards. This is where battery storage really comes in, as it is possible in appropriate cases to give the business case a healthy boost.
Financial modelling of the capital cost of land based solar PV hovers around the £600,000 mark per MW peak of capacity. This means that a 5 MW site would cost in the region of £3m – £3.5m. A business case can be prepared on this, using wholesale prices or any other available option, such as a private wire connection.
If battery storage is to be added into the mix, then the capital costs will inevitably rise as the batteries have to be paid for. The current modelling of lithium-ion battery storage systems is around £550,000 per MW. This means the total cost of the solar farm + battery storage is nearer £6.5m and so this has to perform better in terms of income streams to achieve a strong internal rate of return. However, the routes described above will provide these levels of income.
Practical and Legal Issues
Most solar farms are similarly designed, with the panels on racking and featured in long rows. If battery storage is to be added, this is usually by way of a shipping container next to the one housing the inverter and switchgear for the solar installation.
A 40 foot shipping container will accommodate between 1 and 2 MW of battery storage and modular systems allow this to be arranged as appropriate. It is possible now to obtain containers ready made for installation – even including the battery cells within them. In other cases the modular containers are empty and the cells are slotted in later. The housing is air conditioned and there are fire precautions to protect the battery cells but these do not generate any real noise.
Planning will, as usual, be an issue. A solar farm design will normally incorporate a shipping container anyway, to house the inverter and switchgear so the design of a solar + battery asset needs to accommodate the battery housing in the same place so that it is also covered in the planning consent.
When seeking to persuade local planning authorities to allow battery storage development, the key approach is the Climate Change Act 2008 (as amended) and the race to get to net zero carbon. Climate change and emissions reduction are key to such developments as net zero will not be reached without significantly more battery storage.
The grid will usually be of significant importance to ensure a solar farm can be constructed. This needs to incorporate an export connection to the grid to match the maximum capacity of the asset. However, it is very important to note that where battery storage is to be utilised, the grid connection also needs an import connection sufficiently large to accommodate the charging of the batteries that will be an important part of the site’s operation. Here there may be problems, as some DNOs cannot offer grid connections that are sufficiently flexible for such a use.
If only export is available, then the solar farm can still be built as a stand-alone asset, with a view to adding battery storage at a later date should the grid position change. This is where battery storage is so flexible, as it does not have to be fitted at the time the solar farm is completed. Ensuring design and planning accommodate future expansion would be a good step.
The usual contracts for construction and operation and maintenance will be required. The lifespan for lithium-ion batteries is 10 years of operation and so at that stage the cells are removed from the containers and replaced. All the other infrastructure stays in place, making this a straightforward exercise. The business case needs to reflect that in Year 11 there is additional cost to be accommodated.
Examples From Local Government
One of the interesting points in relation to the development of solar farms generally is the way local government tends to follow developments in the commercial sector. So the private sector had built hundreds of solar farms before local authorities largely became comfortable with the same idea.
Conclusions
It was mentioned above that the argument with planners is that battery storage is required for the UK to reach a position of net zero carbon. Estimates range from 50 – 100 GW of storage being required to meet these targets. In April of this year Renewable UK estimated the battery storage pipeline in the UK to have now reached 32 GW (ie 32,000 MW), which is more than double the estimated pipeline at the same time last year. Such is the level of private sector investment in battery storage.
The relevance of the current energy crisis will also feed into the debate on battery storage. Supporters of renewable energy argue that the UK would not be in the position it is, had it continued with Government financial incentives and without setbacks like the banning of onshore wind. There is now a full blown crisis with millions more due to slide into fuel poverty and energy bills becoming unaffordable. So now is a good time for acceleration of the renewable energy and storage markets.
On the local authority front, the advice must be to take one step at a time. It is not good advice to a small Council that has not developed any solar farms to attempt a 20 MW plus asset as its first attempt. Similarly, electricity trading is a complex activity and requires a level of understanding and knowledge internally, meaning that it is probably better suited to the larger authorities. That said, all the help that is required to undertake a project is available externally and there are already good examples from the local government sector.
It is also the case that battery storage works at any level. So time shifting might be relevant to a building based solar PV system, perhaps where there is a 24 hour operation in the building itself. Where a new solar farm is proposed, battery storage modelling should always be included in order to see if the returns can be improved.
Energy is becoming more and more important to all local authority services and as such local authorities need to gear up in this area. The aim of these papers under the Green Steves banner is to improve understanding and in the hope that local government as a whole will develop the confidence to press forward with such schemes.
