The scheme aims to enable investment into LDES projects, defined in the scheme as 8-hour duration or more, which current market revenues and opportunities do not support. The National Energy System Operator (NESO) estimates that 11.5-15.3 GW of LDES will be required by 2050 to support an electricity system comprising mainly intermittent renewables.
The scheme was initially set to exclude lithium-ion as an eligible technology but following opposition this was reversed.
Despite this reversal, the leaders of some of the UK’s biggest battery energy storage system (BESS) operators have now signed an open letter published last week (22 April) saying the scheme is biased against short-duration BESS, will reduce its buildout jeopardising the government’s deployment targets and cost consumers billions.
The signatories are Gresham House Energy Transition, Harmony Energy, Zenobē, Field Energy, Eku Energy, Adaptogen Capital and Voltwise Power, which collectively operate 1.9GW/3.1GWh of BESS in the UK. That is roughly one-third of the 6.4GW/9.1GWh that is online today according to Solar Media Market Research’s data.
Unsubsidised short-duration BESS will compete against subsidised LDES
In response to Energy-Storage.news asking why, Zenobē’s founder director James Basden said that it is still unclear how much LDES the UK needs and that subsidising it will disadvantage short-duration BESS.
“Nobody has done the proper thinking about the problem we are trying to solve. Nobody has really though about the duration, the power and how we could fill that duration gap without LDES,” Basden said.
“We’ve done no proper thinking on how demand side management could help grids operate differently by affecting customer demand, for example.”
He claimed that instead of LDES you could use a combination of short-duration BESS, demand response (DR) programmes and some amount of ‘clean’ gas, which could be a much more efficient and lower cost way to solve generation gaps of a few days when they appear.
The open letter signed by Basden stated: “The LDES Cap & Floor scheme distorts the market for shorter duration BESS as these have no revenue support while LDES projects will. This support directly impacts bidding behaviours and pricing in markets.” Our sister site Solar Power Portal covered this letter in more detail.
Building on this point Basden told us: “The scheme gives an unfair advantage to LDES as they’ll be competing into the same markets with a subsidised lower cost of capital. We need five times more short-duration BESS onto the grid and this scheme will reduce the incentive to build those.”
The government has a 27GW target for short-duration BESS as part of Clean Power 2030 plans.
Lithium-ion BESS can do LDES, but faces discrimination
The other part of Basden and his co-signatories’ argument is that when the LDES support scheme first started to be formulated, more than two years ago, lithium-ion BESS technology was not seen as a viable, cost-effective technology for LDES.
“When LDES came out nobody believed that lithium-ion BESS could be a solution, but the change in technology has come along so fast since then. We have heard of people saying by 2030 you could buy an 8- to 10-hour solution for the price of a 2-hour solution today.”
One of the technology companies leading this conversation is lithium-ion OEM Envision, which has argued that lithium-ion BESS can be cost-competitive up to 10-hours in duration, and recently revealed to Energy-Storage.news that it is preparing to launch a specific product for that application.
The open letter from Zenobē et al even claimed BESS is “very likely to be competitive at durations including >20-hour projects”.
Owner-operators are nonetheless able to bid into the scheme using BESS technology. A partner at Gore Street Capital, manager of the Gore Street Energy Storage Fund (GSF), which has over 100MW online in the UK, told us recently it is looking at adding capacity to its projects. Note that Gore Street Capital did not sign the open letter.
The letter claimed the LDES scheme has a bias towards pumped hydro energy storage technology, saying it uses outdated cost assumptions for lithium-ion dating back to 2020, since when prices have fallen 40%, while Basden said the payback and project delivery periods were further evidence of this.
It also pointed out various advantages lithium-ion BESS has over pumped storage, including quicker construction, smaller land impact and better round-trip efficiency (RTE).
“The scheme is clearly there to incentivise pumped storage” Basden said. “Our sense is that there is a belief in DESNZ (the Department for Energy Security and Net Zero) that pumped storage is needed, and the pumped storage lobby is strong.”
However numerous other technologies are expected to bid in too. Just recently, developer Frontier Power partnered with vanadium redox flow battery (VRFB) firm Invinity Energy Systems and zinc battery firm Eos Energy Enterprises to bid projects into the LDES scheme.
In response to follow-up questions from Energy-Storage.news, Zenobē elaborated on how the LDES scheme discriminates against lithium-ion BESS.
The company pointed to the cost-benefit analysis’ (CBA) 25-year lifetime, claimed that BESS will be excluded from future rounds of the scheme and indicated that the 8-hour duration was set by ‘arbitrary policy’. They also said the 100MW minimum size did not take into account BESS’ ability to be built at smaller scale and aggregated virtually into a larger unit.
