Leading the charge – lessons from the UK’s experience of installing battery storage
Storage in the UK, 6 July 2023
Pretty much every day the UK is installing more battery capacity than any country in the world apart from China and more fundamentally has developed more markets than anybody else for those batteries to operate in. At the time of writing, a battery connected to the UK grid can trade in 12 different markets which vary both in value and duration and unbelievably new markets are being developed as I write.
So what lessons can the rest of the world learn from us and probably more interestingly, what did the UK get wrong.
If I asked you, what does the UK lead the western world in, what is the one thing we do better than most other countries on the planet, you would probably suck a thoughtful tooth then respond with either something highbrow like Georgian architecture or something low brow like Formula One. Both would be correct. We have more listed buildings and our Formula One drivers have won more races (308) than any other country in the world. We also come a close second to the US in the availability of and frequency with which we order takeaway food so globally that’s 2 golds and a silver. However, and here’s our inevitable segue way into the more prosaic world of renewable energy, we also lead the western world in the installation of battery storage. Pretty much every day the UK is installing more battery capacity than any country in the world apart from China and more fundamentally has developed more markets than anybody else for those batteries to operate in. At the time of writing, a battery connected to the UK grid can trade in 12 different markets which vary both in value and duration and unbelievably new markets are being developed as I write.
So what lessons can the rest of the world learn from us and probably more interestingly, what did the UK get wrong. Hindsight is a wonder things but here are the 4 big lessons as I see them;
Firstly you really need to manage your grid connection queuing system better than we have. The UK traditionally operated on a first come first served basis and once investors realized how easy and cheap it was to make an application, our grid operators quickly became overwhelmed with speculative grid connection requests. At the moment there are over 70 GW of battery storage applications clogging up the system compared to the 2.1GW of storage actually installed and the 20 GW the Grid says it only actually needs by 2030. However the people who manage the connection queues of the network operators know that at least 70% of these projects will never get built mainly because the developers don’t have a chance of getting planning (see below), they don’t have enough money to build the project and in a quite a few cases more than one developer has applied for a grid connection on the same patch of land. Conceptually this is like trying to quickly get on a plane that is about to leave and the hundreds of shouty people in front of you in the departure gate don’t have tickets (planning), passports (funding), or visas (land secured) but you do. As you can imagine this is a tad frustrating to the developers who have all 3 things in place and hence the calls to overhaul the system. The Grid are belatedly taking steps to shift to a first ready first served system focused on prioritizing ready to build projects but unpicking this Gargantuan knot of 70 GW of applications will take time and several years of conceptual empty planes will have taken off before this has been achieved.
Secondly are merchant markets overrated? I have blogged about this before but the plethora of mainly merchant markets trading grid balancing events that might only last for seconds at a time has created a system of Byzantine like complexity which is anathema to most mainstream lenders. The one thing you can say with certainty about project finance banks is they really don’t like uncertainty so they look at these 12 mainly merchant markets and recoil in horror. Finance like nature abhors a vacuum, so the less risk averse infrastructure funds are cheerfully funding battery projects at 12% IRRs when really these things should be capable of attracting mainstream debt at much cheaper rates. However the UK may have gone too far down the merchant road to turn back now. Arguably the Government could have extended the Capacity market to cover ancillary services such as Frequency Response, but they didn’t do it when they had the chance and now it’s too late. Lots of people have invested lots of money in storage at double digit IRRs on the back of these merchant markets so it would be a brave Secretary of State to change radically course to lower but more fixed prices now in order to bring in more cheaper debt. As much as project finance banks hate uncertainty, infrastructure investors hate unexpected changes of heart by Ministers even more so we are probably stuck with what we have despite the knock on effect on the cost of capital.
Thirdly planning remains a problem for all UK projects. Planning is a local not national decision and tends to engage people much more and on a deeper emotional level than the bigger national issues. I recently sat through a 10 hour planning meeting and every objector prefaced their little speech with the phrase “I am not a NIMBY but……” or IANANBs as I took to calling them ( I Am Not A Nimby But). The trouble for politicians is that these IANANBs vote and successive Governments have learnt not to cross them so planning reform has been put in the big political box labeled “serious stuff that’s broken but too hard to deal with”. This is also the receptacle that contains the NHS, the overly complex tax system and UK state pensions but that’s three other blogs at least. To be fair, getting planning for a battery project is not as hard as a wind or solar farm as they are just shipping containers so are less visually intrusive but it’s almost impossible to over estimate how touchy people can be about building anything in their neighborhood. If your project involves ploughing up or cutting down anything then somewhere a IANANB will object irrespective of its merits.
Finally the UK backed the lithium ion technology horse at a very early stage and this has crowded out the rival storage technologies. Emerging markets tend to become homogenous quite quickly and the early technology winners can quickly become dominant irrespective of their relative merits. Batteries are much quicker and cheaper per MW to install than compressed air or pumped hydro so it’s now very hard to get investment for anything else. Arguably the Government or Grid could have encouraged alternative markets to develop these technologies but there is strong ideological belief in letting the market decide its own course and the market has picked lithium ion.
So in conclusion, the UK leads the western world in installing battery storage alongside a very specific type of architecture, the availability of takeaways and young twenty something multi millionaires who can drive very fast. Something to ponder the next time you are sitting in your massively overpriced and draughty Georgian flat conversion eating Chicken Tikka Masala and watching Lewis Hamilton come a distant third to a moody Dutch chap. The trouble with leading the pack in anything is that you make the first mistakes and as per the old adage, it’s often the second mouse who sniffs the trap that gets to eat the cheese. In our rush to get storage onto the grid, we have developed an overly complex merchant trading system that has pushed up the cost of capital for what is at heart a very simple technology. On the positive side this has bought a lot of money into the UK market but now this money is here, it’s very hard to change the underlying commercial structure without undermining wider renewable energy investor confidence in the UK. We have also made it far too easy for people to apply for grid connections and the grid probably should have been filtering out spurious or undeveloped applications a very long time ago. Finally we should make it easier to get local planning for nationally important issues such as storage but that’s a lot easier to write than it is to do.
On balance, this mishmash of evolving storage policies has worked and that’s why we are leading the chase in the rate of installed capacity but at some unnecessary cost and delay. If we started again we probably would have done things differently but that adage applies to pretty much everything in life both personally and when it comes to energy policy. We tried, we got stuff wrong but we got a lot of storage onto the grid very quickly and the rest of the world can now learn from our mistakes.