Can storage solve the problem of low energy prices for UK solar?
Published August 2016
The answer is No. We explain why, and highlight a more promising opportunity.
There’s a question that my solar colleagues and I keep on hearing. Perhaps you’ve heard it too. It tends to run something like this: “These painfully low energy prices are seriously eating into the revenue of my PV farms. Could batteries help solve this problem?”
It’s a fair question. At £35-40/MWh, wholesale energy prices today are disappointingly low. And given the battery bonanza currently sweeping across the UK, no one wants to miss a trick on storage.
My response is simple: deploying storage alongside PV may well make sense, but not because storage solves the issue of low energy prices. This blog provides an explanation in four steps – and highlights a more promising opportunity.
1. The key to understanding solar-storage lies in distinguishing between high power and high energy storage:
When looking at storage, you face a choice:
- High energy storage (“bulk storage”): This means selecting a storage unit with a high MWh capacity, so that you can store plenty of energy – perfect for storing solar energy in the daytime ready for overnight use.
- High power storage: This means selecting a storage unit with a high MW rating, but which cannot store so much energy at once. This would suit frequency response applications that help balance the grid.
2. High energy bulk storage can help protect against low energy prices – but this is a suboptimal problem to solve
High energy storage can help solve the problem of low wholesale prices through playing the “price arbitrage” game – namely storing solar energy when it is cheap, and selling it when prices are high, for instance during peak morning/evening periods, lasting 1-2 hours.
But the reality is that the spreads we see in the UK wholesale markets are rarely large enough to justify this strategy as the dominant source of income. The revenue gains that you’d eek out through timeshifting must be balanced against round-trip efficiency losses and CapEx implications (battery costs generally scale with energy capacity in MWh). And the merchant risk can make financiers nervous, due to the challenges of forecasting future market prices.
We’re not saying that solar+bulk storage will never happen; price arbitrage is already being considered as a significant subsidiary revenue stream in UK storage projects today. But we are saying that in most cases it’s unlikely to be the primary revenue stream in your solar-storage stack right now.
3. High power storage doesn’t solve the problem of low energy prices – but can help maximise the value of your site
In contrast to high energy storage, high power storage units are less well suited to playing the price arbitrage game to solve low energy prices, because the volumes of energy they store are smaller.
And yet the vast majority of current UK commercial storage activity lies in this high power deployment – and it’s this that has been keeping us at Everoze particularly busy. Frequency response in particular is a comparatively high value service, if fiercely competitive. Another particularly lucrative revenue stream is chasing triads, albeit that this is subject to Ofgem’s Embedded Benefits review.
At a fundamental level, using storage for frequency response or chasing triads is about using your solar site moreso than your solar panels/energy. It means utilising the value of an existing grid connection and the goodwill of landowners and planners – though some renegotiation will be needed on all of these areas.
4. Summing up: don’t fixate on low energy prices – look to the wider storage revenue wheel instead
Rather than think narrowly about maximising the value of your solar energy, it’s more helpful to take a step back and maximise the value of your solar site. The solution to project profitability may not necessarily lie in trying to fix low energy prices, but rather in topping up income from entirely new revenue streams.
There’s a broad set of storage opportunities out there for PV plant owners. Check out the Everoze revenue wheel in Cracking the Code for inspiration.
As always, any questions or comments – just send a note to Everoze Partner Felicity Jones at firstname.lastname@example.org