The UK’s biggest revenue stream for energy storage: what you need to know
Published March 2016
Everyone’s talking about the UK’s new revenue stream for storage: Enhanced Frequency Response. Everoze Partner, Fliss Jones sums up what you need to know – and how to get in involved.
1. What is this new storage revenue stream that everyone’s talking about?
National Grid is introducing a new tender for Enhanced Frequency Response (EFR). This will offer 4 year contracts, “predominantly aimed at storage assets”.
Here’s the backstory: National Grid has a problem. As the UK’s transmission system operator, it is responsible for managing system frequency within normal operating limits. The changing generation mix is making this task harder, by reducing the inbuilt system inertia which has historically helped stabilise frequency. This is why National Grid is procuring new services. EFR providers must offer a solution which can kick in within 1 second, and provide this service for up to 30 minutes at a time. Projects must be between 1MW and 50MW.
2. This is about batteries, right?
Yes… and no. Batteries are generally well placed to meet the technical criteria outlined by National Grid – of which the most important are response speed, service availability and delivery duration. As a result, batteries dominate the prequalification portfolio, accounting for 65% of prequalified capacity.
But formally speaking, EFR is technology neutral. A range of technologies have prequalified, including interconnection, flywheels and demand-side response.
3. Should I be bothered?
Yes, if you’re looking for a new growth market in the UK power sector. The initial pilot tender is just 200MW and will be fiercely competitive, but National Grid has signalled that future tenders will be 2-3 times bigger than this. And the long-term signals towards storage are clear:
- DECC is consulting on energy storage this spring
- Storage is high on the National Infrastructure Commission’s priority list
- Lithium-ion battery costs are plummeting.
4. Is it bankable?
Yes – the best projects will be, following robust due diligence. There is international precedent for batteries providing primary frequency response services, notably in Germany and the US. Technical risks such as degradation and availability require careful assessment, but can be modelled and mitigated. Whilst the 4 year contract length has been criticised for being too short, it remains likely that EFR assets can access other revenue streams beyond this period.
Everoze is already working with debt providers carefully eyeing up this opportunity; we expect external finance to come on board, albeit at lower gearing than that seen for renewables projects, for example.
5. How do I get involved?
By working with one of the 64 companies which have prequalified for the initial tender. These pre-qualified parties are forming project teams right now. Applications are due in June, the tender will run in July, and results will be published in August.
In addition to seeking support with project development, prequalified parties are looking for funding. They’ll be keen to hear from equity players, and will also be exploring derisking structures which make their projects palatable to lenders too. Financiers can either support initial pilot projects, support future tenders, or engage in refinancing in the secondary market from 2018 onwards.
Just get in touch!