The changes, announced today by the Department for Business, Energy, and Industrial Strategy (BEIS), would cut de-rating of battery projects by 80 per cent in upcoming auctions. As a result, participating in the auction could become unprofitable for short-duration battery projects.
The de-rating factor is a measure of the expected availability of a storage installation during a so-called System Stress Event. These events could potentially last longer than a given battery’s capacity, especially if the battery was not fully charged at the start of the event.
In its response to a consultation opened in July, BEIS said energy storage projects will now be split into different classes that reflect the amount of time that they can generate at full capacity without recharging, measured in 30-minute intervals.
The previous universal de-rating factor of 96 per cent is now to drop as low as 18 per cent for batteries with a 30-minute duration, with an increase for each added 30 minutes.
Larger storage projects that can generate for over four hours will still receive the 96 per cent de-rating.
BEIS said the proposed change would ensure that storage capacity is remunerated appropriately for its contribution to security of supply and reduce the risk of insufficient capacity being secured to meet its reliability standard, which is three hours of expected loss of load per capacity year.
The changes will be applied as early as February’s scheduled auction.
Some sector analysts said the changes could significantly impact the UK's energy storage sector as a large proportion of projects under development have a duration of below 30 minutes.
Frank Gordon, policy manager with the Renewable Energy Association (REA), said the changes were “slightly less drastic than those first proposed but could make it harder for a number of battery storage projects to compete”.
“The timing of these changes is our main criticism however,” he added. “As they are being applied in the midst of an on-going auction process it is akin to changing the rules of a football match at half-time.”
Flexible power firm UK Power Reserve, which announced this week that it has pre-qualified 1 GW of new battery energy storage and distributed gas-fired power projects ahead of February’s auction, said it “accept[s] and understand[s] the government’s decision to de-rate battery storage ahead of the Capacity Market auction in February next year.
“We agree with the conclusions from BEIS that de-rating factors should reflect technology duration, and believe that this is in the best interests of the market and the consumer.
“This decision provides the incentive for developers to build the higher quality, longer duration batteries that can help secure the UK’s electricity supply when it is threatened during a stress event,” the firm added.
In its statement, BEIS acknowledged concerns that the changes could affect the business case for storage projects, particularly batteries, “and so appear contrary to the government’s position on storage as set out in its Smart Systems and Flexibility Plan”.
The department said its review of the auction rules was prompted by “(a) emerging evidence that market signals were driving the deployment of limited duration batteries that could generate continuously for a maximum of 30-60 minutes, and (b) initial analysis from National Grid that suggested that the duration of stress events may frequently exceed this.
“This raised concerns regarding the potential for storage to be over-rewarded in the Capacity Market relative to its ability to contribute capacity during longer stress events, which in turn could lead to a reduction in security of supply.”