Battery storage: Positive outlook?


batteryCosts are falling but batteries are still expensive. Bankable revenues are hard to come by and developers want more routes to market. But others believe they are already commercially viable. Brendan Coyne reports

Energy storage is seen as the answer to balancing intermittent generation.

Batteries are particularly valuable to Grid because they offer sub second frequency response. Costs are falling and investors and developers appear to have significant appetite. National Grid has created a market and the first enhanced frequency response tender, due to be decided this week, was massively oversubscribed. More than 1.3GW prequalified for 200MW on offer.

A degree of that appetite was from solar developers, who have seen their markets pummelled by subsidy cuts. Batteries and solar PV are also highly complimentary technologies.

But batteries as still very expensive and most of those prospectors find themselves without an EFR contract. Market participants have called on National Grid to outline a route to market to maintain momentum.

Robert Owens: Positive momentum must be maintained.
Robert Owens: Positive momentum must be maintained.

“It would be a shame if that interest disappeared, because it is hard to regain momentum,” says SmartestEnergy’s Robert Owens. “Over the last nine months we have gone from hardly anyone talking to us about batteries to a pipeline of 800MW-1000MW. In such a short space of time that is virtually unheard of.”

Currently, cost versus bankable revenue is a market barrier both for businesses and investors. They have to work out how to stack revenue streams and take on a degree of risk.

But some market participants believe batteries are a viable opportunity today, with or without an EFR contract, due to the flexibility they can both provide and unlock.

Unlock other assets

Most market participants see batteries and demand-side response (DSR) as complimentary technologies.

“Because of the raw flexibility in the battery, it can do whatever you tell it to do – anytime granular speed of response,” says Limejump CEO Erik Nygard.

Erik Nygard: Combining batteries with DSR can unlock more revenue streams
Erik Nygard: Combining batteries with DSR can unlock more revenue streams

“Combining a battery with DSR or generator means we can unlock a lot more flexibility from those asset types. An asset that I cannot turn on or off very frequently does not have much value on its own. But putting a battery alongside that asset allows me to create a new product to unleash value, because they are now working together to deliver something much more proficient to National Grid.”

Nygard says Limejump currently uses batteries alongside solar PV to provide frequency response services, amongst other revenue streams.

Shorter odds

Kiwi Power CEO Yoav Zingher thinks that combining batteries and DSR will bring down costs by enabling much smaller batteries to be used.

Yoav Zingher: Combining DSR and batteries can reduce set up costs.
Yoav Zingher: Combining DSR and batteries can reduce set up costs.

“You can make do with a battery with a shorter duration as well,” he says. “Instead of building a battery that can deliver an hours’ worth of response, you can use a battery that delivers only 10 minutes of response and provide the rest with DSR, which can’t deliver response so quickly. So we think if you design the market well enough you can get more benefit from both.”

Zingher thinks there will be a “huge amount” of battery storage deployed as prices fall.


Homing in

Restore co-CEO Pieter-Jan Mermans agrees that batteries are a “huge opportunity” for DSR – and not just for the commercial and industrial market. Restore, he says, will ultimately move into the B2C sector, with batteries likely to play a key role.

“We operate in Germany, where more than 10,000 batteries have been installed, with the primary purpose of installing solar electricity. People are looking at how to wrap them up into a 50MW block to offer to the TSO,” he says.

Pieter-Jan Mermans: Battery operators will need DSR technology and software and vice versa.
Pieter-Jan Mermans: Battery operators will need DSR technology and software and vice versa.

“From our point of view, that is exactly the same question as aggregating 50 pumps or compressors. So that is where the complementary aspect sits. Battery operators will need DSR technology and software and vice versa.”

Chris Kimmett, commercial manager at Open Energi, says some firm frequency response (FFR) providers are looking into battery storage because of the complimentary nature to fast response services. He thinks behind-the-meter applications face little in the way of regulatory barriers and will work if asset owners can make the business case stack up.

“I think the price has come down to the point where it is starting to make sense to buy batteries,” he says.

Chris Kimmett: Brexit vote has pushed battery prices up 10% "almost overnight".
Chris Kimmett: Brexit vote has pushed battery prices up 10% “almost overnight”.

But Kimmett also points out that the Brexit vote and subsequent fall in Sterling has pushed prices back up by around 10%. Despite that, he says it is “still an interesting place to invest”.


Sam Scuilli, regional director, international sales at Enernoc, agrees that it is “not too soon” to start looking at batteries. Like fellow aggregator Restore, Enernoc is active in Germany and agrees that the rapid deployment of batteries is because they are “perfectly suited” to some of the ancillary services within that market.

But he says they are just one tool for National Grid.

Sam Scuilli: If you have a major capacity shortfall, batteries aren't going to cut it.
Sam Scuilli: If you have a major capacity shortfall, batteries aren’t going to cut it.

“It all comes down to economics. Batteries are specifically well suited to fast response. But if you have got a major capacity shortfall, there is probably not enough batteries that are going to help with that,” says Scuilli.

“That is where you need the broader capacity market or the whole Triad structure, which is designed to shift significant amounts of load.”

Market correction

Flexitricity chief strategy officer, Alastair Martin, agrees batteries “will find their niche”. But he thinks there will be a lot of disappointed developers.

“There has been a lot of noise and a massive rush – far in excess of what the EFR tender aims to stimulate. We are going to see a correction as a result,” says Martin.

“We have double digit gigawatts of batteries in the planning and the connections application systems, the majority backed by people who believe that there is a frequency response contract waiting for them. But there isn’t a double-digit requirement for frequency response. It doesn’t exist,” he says.

Alastair Martin: Batteries have their place, but a market correction is coming.
Alastair Martin: Batteries have their place but a market correction is coming.

“So we are going to see a correction in that market. After that, the lithium type batteries are going to find their niche and perhaps after that we might see other battery technologies coming forward which will pursue a different niche.”


Baringa Partners manager, Eamonn Boland, thinks batteries have a bright future – but he sees them as cannibalistic to DSR rather than complementary.

“Batteries and DSR are in direct competition. If I were an investor I would see that the DSR market today offers a price of X. But I am seeing quite a large interest and volume of new entrant batteries coming into the market that can do exactly what I can do, be built at scale,” says Boland.

That will put pressure on prices in frequency response markets, he believes.

“You can easily get to a point where that X value drops quite significantly, quite quickly. So you have a degree of uncertainty over revenue because of the competition coming from high volumes of batteries that are expected to come into the market.”

Batteries will start to spill out from FFR markets and into lower value markets as their prices fall, Boland believes, enabling new business models to emerge. But for now, he says it is difficult for investors to place sizeable volumes of capital into development because of revenue uncertainty.

Eamonn Boland: Batteries are in direct competition to DSR.
Eamonn Boland: Batteries are in direct competition to DSR.

“You are confident that there is a need for flexibility and there is quite a high value to the response times of batteries. But some people see the breadth of revenues they could provide as revenue diversification and others see it as compounded risk,” says Boland. “So I think that is interesting for batteries.”

A bidder’s view on the EFR tender

Origami Energy took part in the EFR auction. Simon Wilson, the firm’s storage lead engineer, says the mere fact National Grid has created a market is breaking down barriers. Even if the company does not secure an EFR contract this time around, he thinks that having the auction values will be useful information for investors in storage projects.

Ahead of the auction results, Wilson believes there are improvements that could be made for the next tender. As things stand, the market favours larger developers, he suggests: The bid bond per megawatt was increased from £2k to £5k midway through the process. “We are a small provider and that was a hassle factor,” he says.

Because the EFR service was essentially being developed on the hoof, technical parameters also emerged as the process progressed, says Wilson. The requirement for a double circuit connection became a single connection, while “overly complex” ramp rates and duration requirements were also fluid. Wilson thinks that the duration requirement of 15 minutes in either direction was more than the service needs, leading to costs being “slightly greater than necessary”.

But he points out that it is an iterative process and is optimistic that technical parameters will be more concrete for the next tender round.

Simon Wilson: Being able to be flexible and respond to market changes matters

Overall, Wilson thinks the level of interest in EFR will lead to a “tight economic case”, because the four year contract length has struck a balance between security of investment and keeping options open to National Grid – at least this time around.

But he also thinks that locking providers into EFR is a missed opportunity.

“You can do multiple things with your site, but if you are contracted for EFR, you must do it, so you can’t switch to a merchant model. If there was a price spike for example, you can’t then use your storage to meet that,” he says.

“The problem with energy storage is that you generally have to knit together a few revenue streams. So being able to be flexible and respond to market changes matters.”

The battery business case ‘already stacks up for I&C firms’

“It is not a small investment decision”, but the business case for battery storage already stacks up, according to Richard King, of energy management engineering firm Powerstar.

King says peak shaving for DUoS and Triad combined with frequency response revenues are in some cases secondary to the value of an onsite UPS “to cover the ‘microcuts’ we are increasingly seeing on the system”. Combining the three elements makes a commercially viable proposition, he says, but early investors in the I&C sector are likely to be those who understand the value of lost load to their business.

Richard King: What is the cost of loss of power? If you know that cost, you can monetise it.
Richard King: What is the cost of loss of power? If you know that cost, you can monetise it.

“What is the cost of loss of power? If you know that cost, you can monetise it – and it can be worth a great deal. If you are part of a supply chain, you may face very punitive penalties,” says King.

“Everybody has critical systems that they cannot do without,” he adds. “The ability to respond to a power shutdown within 20 milliseconds is very valuable – as are cutting network costs and generating income from frequency response.”

This article forms part of The Energyst’s 2016 demand-side response report, published in conjunction with the DSR Event, taking place in London on 8th September.

Due to high demand, we have negotiated extra capacity at the conference venue. We can offer end-users that want to find out how to provide balancing services a free place. Click here to secure your place.

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