That follows a consultation into its original proposal, which ran from January to March, with industry feedback received and some changes made.
A technical decision document will be published by DESNZ this winter.
Amendment to the proposed exclusion of lithium-ion technology
The most significant change from the original proposal to the government’s new plan—which could still be changed by Ofgem—is that lithium-ion projects will no longer be excluded on the basis of their technology alone.
The original consultation paper from January said: “We consider it appropriate to exclude electricity storage technologies that can already be funded under existing market arrangements, such as lithium-ion Battery Energy Storage Systems (BESS).”
However after industry feedback, including 39 ‘disagree’ responses out of 96 respondents to the above suggestion, this has now changed.
The government’s position is still that projects should not be eligible to receive support from the scheme if they can already readily be deployed via existing market revenue opportunities. The UK has over 4GW of lithium-ion BESS online today, and this sector is rapidly growing, but barely any large-scale LDES projects are being built (using the government’s own definition of 6-hour duration or more).
“However, we would not wish projects to be excluded solely on the basis of their technology type. The principle of additionality would entail that support be available only to projects that are technically feasible, but are not otherwise commercially feasible without a guaranteed minimum revenue,” the government response said.
“This may, for example, include novel iterations of lithium-ion batteries which are specifically developed for longer-duration electricity storage, so long as they also meet the other eligibility criteria that apply.”
In effect, a 12-hour lithium-ion duration BESS project could potentially qualify, because although the underlying technology is being widely deployed, a 12-hour system would struggle to secure financing from private backers today; the longest duration project financed today is a little over three hours.
The main proponents of lithium-ion’s inclusion have been BESS developer-operators already deploying the technology, including Field CEO Amit Gudka, whose comments were included in Monday’s coverage.
Minimum efficiency, duration and project size remain unchanged
Minimum size
As mentioned before, Ofgem is now tasked with designing and delivering the first round of the procurement next year, and further changes to the DESNZ’s position on the scheme could be made.
Potential changes that DESNZ pointed to, implying they are the most likely to happen, are around increasing the minimum duration required for projects from six hours, and amending the minimum 50MW project size for the Stream 2 procurement. Stream 2 is intended for more novel technologies, with Technology Readiness Level (TRL) of 8 versus 9 for Stream 1, and the minimum project size is 50MW versus 100MW for Stream 1.
We suspect that the main consideration is to decrease the minimum size for Stream 2 projects. The government response to the consultation comments said that the minimum size for Stream 1 had majority support while the minimum size for Stream 2 raised more concerns, though didn’t specify whether people said it should be increased or decreased.
“The government acknowledges that the responses to this question regarding the Stream 2 capacity criteria raised more concerns. To properly explore this, we will further consider the minimum capacity for Stream 2 and will update on this position in a technical decision document this winter,” it said.
Minimum duration
The responses to the question ‘Do you agree with our proposal for a minimum duration of six hours?’ were among the most mixed, with 44 agreeing and 51 disagreeing. Some respondents pointed to other definitions of LDES as 10-hour duration or 12-hour duration, and pointed to LCP Delta/Regen analysis showing greater system benefits of 12-hour or more.
The government acknowledged these benefits, and the higher definitions elsewhere, but said: “Setting a higher minimum duration also reduces the potential supply of LDES that this scheme could deliver, and this downside must be weighed against the benefits of restricting the scheme to higher duration storage only.”
DESNZ will work with Ofgem to determine the most appropriate figure, and set out its final position in the technical decision document.
No minimum round-trip efficiency
Also noteworthy is that the government has maintained that it will not stipulate a minimum round-trip efficiency (RTE) for technologies to qualify. RTE is a measure of how much energy is lost in the process of charging and discharging. It is typically over 90% for lithium-ion, 70-85% for pumped hydro energy storage (PHES), 65-85% for flow batteries, 60-70% for compressed air energy storage (CAES) and can be lower for other LDES technologies.
Respondents largely agreed with not setting a minimum efficiency criterion.
See the government’s full response to the consultation results here, setting out its current position for the LDES scheme.
Views from RheEnergise
A spokesperson for high-density PHES technology firm RheEnergise shared the company’s views on the latest iteration of the LDES scheme.
As Energy-Storage.news suggested might be a consideration earlier, the company called for a reduction in the minimum project size, and also suggested lithium-ion should be excluded from the Stream 2/TRL 8 scheme to allow for more novel technologies to be funded.
See the company’s full statement below:
“We strongly advise on a reduction in the minimum project size in both streams for the following reasons:
- For the TRL 8 scheme, a 50MW hurdle is likely to cost at least £100m. For an emerging technology, raising this level of equity and debt could prove a preventative barrier to commercialisation. We therefore suggest a lowering of the threshold from 50MW to 10MW, to enable smaller TRL8 projects in sequence, that bring greater technological learnings and a feasible scale of required finance.
- For the TRL 9 scheme, developing more, smaller LDES projects means they can be connected sooner, resulting in greater system benefit. Larger projects take much longer to develop and grid connections are very slow. LCP Delta’s modelling showed that 100MW of energy storage connected in 2027 provides more system benefit than 100MW connected in 2032, reducing the need for new gas. Hence, we see a lowering of the threshold for these from 100MW to 50MW as appropriate.
- Distributed wind and solar generation have demonstrated the benefits of distributed generation assets, increasing the share of distribution-connected capacity from 14.5% in 2011 to 34% in 2022, and leading to lower system costs per MWh.
- We see smaller, agile projects as key to accelerating the deployment of LDES, supporting the further deployment and utilisation of renewable generation.
6-hour minimum duration:
- We see 6-hour minimum as the lower bound of how LDES should be defined and would support a higher minimum of eight hours, or alternatively we would suggest that the financial benefit given to a 8-hour system is greater than a 6-hour system and greater again for a 10-hour system, even when offering projects with smaller peak power capacity.
- We are concerned that a minimum duration target alone is an over-simplification of what a model for LDES should solve. LDES could encompass a broad range of needs—from within day to seasonal storage, so only having a minimum duration (hence the point above) may lead to unintended consequences of too much of one type of storage/technology/duration, taking up the available grid connection points, and a dearth of other types/durations that will also be required in a secure, low-carbon energy system.
- Aurora’s analysis finds that, of the 24GW of projected LDES requirements by 2035 (defined as 4-hours or longer duration), 10GW of 8-16-hour systems, and 8GW of 16-hours or greater are required. These types of storage need to be sufficiently incentivised in addition to 6-hour systems.
Li-ion inclusion:
- We agree that technologies should not be excluded all together—the cap and floor scheme can support projects of existing technologies for longer durations where there is not a business case under current market structures, but there is a strong case from a system perspective. However, there’s value in keeping the TRL8 scheme to novel technologies that promise lower-costs and environmental impacts, and more secure supply chains than technologies being deployed today. Having new technologies compete with mature solutions too soon could jeopardise their ability to reach commercialisation and realise their advantages.”
