N-ERGY’s Thoughts on Changes in Battery De-rating in the UK
14th February 2018
The department of Business, Energy, and Industrial Strategy (BEIS) announced on the 4th of December changes on the de-rating factors for batteries in the capacity market in the UK. The previous de-rating factor of 96% did not change for batteries with 4+ hour duration but was lowered down to almost 18% for batteries with less than 30-minute duration.
The change of de-rating factors came at the most unexpected time possible as it was published only one day after the T1 2018/19 and T-4 2021/22 auctions prequalification results came out. The changes were unwelcomed by companies bidding on less than 4-hour duration batteries because this will decrease their revenues. Nothing, on the other hand, changed for companies bidding on 4+ hour durations.
We, at N-ERGY Power Solutions, understand where the government comes from regarding the new de-rating factors as it seeks better technology and higher quality batteries. That is when reliable discharging into the grid for longer durations is needed the most. But we realise that it is going to reduce the return on investment for small-scale projects and especially batteries with less than 30-minute duration as the losses of revenue might go down to the Fifth.
The two things that are of a concern to us; the constant change of regulations and the timing of these changes. Changing the rules of the game scares investors in the capacity market away especially that they took place in the middle of an auction. But after all, it helps to know what the regulations are as the market can be re-shaped around it and we, at N-ERGY along with other companies in the capacity market, can figure what business model to adopt.
Energy storage will play a major role in the capacity market in the UK to guarantee achieving the mission of the new electricity market to provide flexible, affordable, and stable electricity for consumers. This comes essential at the time of the renewable energy revolution as more intermittency from renewables is expected to happen with the UK moving away from coal to meet its carbon reduction targets.
There is 3 GW of utility-scale operational storage capacity in the UK, and this is expected to reach 8.9 GW by 2030 as per the National Grid Future Energy Scenario. The UK is one of eight nations to lead the storage market in the next 12-13 years, Bloomberg New Energy Finance predicts. Global energy storage market will attract $103bn of investment and the capacity is expected to reach 125GW by 2030.
New battery de-rating factors, no matter how unpleasantly received by some, can redirect some of the investments toward batteries with longer discharging durations or make companies in the capacity market switch to behind the meter market and help with price and time shift on the Demand Side Response (DSR).