Energy Storage – A solution for Scottish Renewables?

Richard Turnbull discusses the numerous issues surrounding Scotland’s renewables strategy.

On the weekend of 13 August 2016, Scotland achieved another renewable energy milestone. For the first time Scottish wind turbines generated more electricity than was used in the whole of Scotland over a single day, producing 106% of electricity demand.

Whilst this is great news for Scottish renewables, it also highlights the limitations and intermittent nature of renewable generation (particularly wind).

As a result the Scottish government have since called on Westminster to develop and implement a national renewable energy storage strategy for wind and hydro power. The aim is to provide incentives to encourage the implementation of new storage technologies and also to provide a stable investment framework. This underpins a long term aim to produce 50% of Scotland’s energy from renewable sources by 2030. The focus on making the most of existing renewable projects through energy storage (matching existing generation with demand), will go some way to achieving the 2030 goal.

There are a number of different models for deployments of storage including:

Of the above models, we have seen limited steps to co-locate energy storage with renewable projects in Scotland to date. There are a number of reasons for this ranging from property/planning constraints to financial concerns over the impact energy storage might have over existing subsidy payments for co-located projects. Clearly, this is an issue which the Scottish government are seeking to address.

What is the benefit of energy storage?

Where a project operates in an area with grid constraints, the ability to shift and smooth peaks of generation to other times of the day when sufficient capacity is available, may increase the total amount of electricity that can be generated.

For solar parks, the ability to shift power generated during the brightest daylight hours to later periods of the day allows the operator to secure higher prices for electricity. This could potentially access certain valuable embedded benefits, such as triad avoidance benefits, which are usually restricted to other types of generation that are capable of operating at periods of peak demand.

For wind, the benefit is maximising the available capacity for a particular grid connection by smoothing the flow of generation. In addition this opens the possibility of repowering projects with turbines with a larger generating capacity but using the same grid connection. It also has a grid balancing benefit, reducing the likelihood of constraint payments i.e. compensation payments for when generators are asked to shut down turbines on windy days due to over-supply.

Why has uptake been slow?

In the current market these benefits alone may be insufficient to build a robust business case for investing in the additional cost of energy storage.

To improve the likely return on investment it may also be necessary to exploit the opportunity for the storage to provide other services, similar to those that a stand-alone energy storage project can provide. For example, seeking to obtain, either directly or via an aggregator, revenue from a grid operator for frequency response or other grid support services.

This approach requires careful modelling of the different ‘layers’ or ‘stacks’ of revenue in order to identify the services that will create most value at different times of the day or different times of the year.

This may affect the choice of battery or other storage technology as consideration will need to be given to:

What are the legal issues?

Aside from the economics, there are a number of legal issues that need to be taken into account before co-locating a storage facility with an existing renewable project.

Property Rights – it is unlikely that the lease will have anticipated the expansion of the applicable renewables project to accommodate storage. Therefore a variation of the existing lease is likely to be required to:

A developer should also be aware of the impact that lease variations to accommodate storage may have on rental, both in terms of landowner expectations and also where the current rental mechanism is linked to a percentage of project income. It also likely that project finance has been used to develop a project, therefore a lender review is likely before consent will be given to any lease variations.

Where the developers differ for the energy storage facility and the adjacent renewable development, a separate lease will be required. In addition the existing renewables lease may need to be amended to allow for the grant of ancillary rights by the landlord for the benefit of the adjoining energy storage plant.

Planning – it is unlikely that the existing planning permission will cover the installation and operation of the storage facility. A new application is likely to be required or in limited circumstances a variation of the existing consent may be appropriate.

Grid Connection – a review of the terms of the existing grid connection agreement is essential to check that the permitted level of import/export capacity is sufficient to accommodate the operating pattern of the storage facility alongside the renewables plant. It will also be important to liaise with the DNO in terms of any connection works required and to provide notification for any planned outages for works.

FIT/RO Accreditation – what is the proposed metering configuration for the storage, relative to the renewables facility? How will this enable any electricity imported from the grid to the storage to be identified and disregarded for the purposes of any claim for FIT payments or ROCs when re-exported?

On Renewables Obligation projects, the lack of certainty around how Ofgem would treat any particular co-located project is a cause for concern. It may be a particular challenge when seeking to retrofit storage to any existing, third party financed renewables project. This is an issue which will need to be addressed as part of any strategy review by Westminster.

PPA – what changes will need to be made to any proposed or existing PPA to allow for the storage? PPA providers will be used to predicting output from projects for their own balancing purposes by reference to weather forecasts and notifications from the project company as to any planned or unplanned outages affecting the renewables project. But the introduction of storage means a different forecasting and/or pricing model may have to be applied.

Cooperation – where the renewables and storage projects will be in separate ownership, a form of cooperation agreement will be required to cover aspects such as revenue and grid sharing arrangements. For example some of the value, arising from shifting of generation to other times of the day, will accrue to the renewables company via its PPA arrangements. The value associated with provision of balancing or other grid services will likely accrue to the storage company. In addition, each company will want to allocate risks and liabilities arising from shared use of the grid connection and that the shared connection does not inhibit the operation of either project. Any agreement will need to be reviewed and approved by respective project funders.

It is clear from the issues identified that there are a number of challenges to overcome when co-locating energy storage. These are not insurmountable and certainly the legal issues can be resolved provided a financial case can be made for a storage project. In particular it is encouraging that the Scottish government are aware of the financial and legal issues associated with developing energy storage and are lobbying Westminster for a clear development framework and support mechanism.