New scheme to encourage investment in energy storage

With the aim of backing up renewable power and bolstering the UK’s energy security, the government has announced a new scheme designed to attract investment in long duration energy storage (LDES). These technologies work like giant batteries by storing renewable energy and releasing it onto the grid and into homes when needed. This includes pumped storage hydro, which stores electricity by pumping water up a reservoir, to be released later.

The investment support scheme is a ‘cap and floor’ scheme which provides revenue support to developers should their gross annual margin (the difference between the revenues from selling electricity back to the grid, and the cost of charging) fall below a set threshold. Floor levels are set low to minimise the likelihood of their use, while still providing comfort to investors that operators can meet debt payments in the unlikely scenario that revenues are much lower than forecast. Ofgem will act as regulator and delivery body and the scheme’s first round is expected to be open to applicants next year.

Analysis has found that deploying 20GW of LDES could save the electricity system £24 billion between 2025 and 2050, reducing household energy bills as additional cheaper renewable energy would be available to meet demand at peak times, which would cut reliance on expensive natural gas. A similar cap and floor scheme is used for electricity interconnectors which connect Great Britain’s grid with other countries. Introduced in 2014, no floor payments have been made but developers have shared revenues with consumers.

“We’re reversing a legacy that has seen no new long duration storage built for 40 years – and taking steps to unleash private investment in both established and new technologies,” says energy minister Michael Shanks. “With these projects storing the surplus clean, homegrown energy produced from renewable sources, we can boost our energy security by relying less on fossil fuels, protect household bills, and help deliver our key mission to make Britain a clean energy superpower.”

Responding to the announcement, Mark Sommerfeld, deputy director of policy for the Renewable Energy Association, said: “Long-duration energy storage is essential for meeting future low-carbon energy demands in a cost-effective way while ensuring the security of supply. Today’s announcement finally confirms a scheme the REA long advocated for to unlock private investment in several ready-to-go projects, allowing construction to begin.”