Business, Economics, Planning and Policy for Energy Storage in Low-Carbon Futures

Decarbonising the energy system in many countries (including both China and the UK) is likely to involve the large-scale deployment of renewable electricity generators with intermittent output and the electrification of energy services such as heat and transport that have very low load factors. These changes in electricity supply and demand will lead to a great need for energy storage. Our work for the Carbon Trust has estimated that the effective deployment of energy storage in the UK could reduce the cost of a low-carbon electricity system by £15 billion in 2030.

The deployment and operation of storage is a complex task, since it can provide many different services, including energy arbitrage (buying off-peak and selling at higher peak prices), energy reserves, resolving transmission and distribution constraints and improving system reliability. The weight placed on each of these could affect the pattern of investment, and sophisticated planning tools are required to ensure that optimal decisions can be taken. We will improve these tools so that we can accurately represent a variety of storage systems. Much of the existing work on storage assumes that it might be used simply to postpone the "like for like" replacement of network assets that would otherwise be overloaded, but we will consider more radical options, using storage to actively manage the distribution network as part of the broader smart grid.

We can use our models to calculate the economic value of energy storage when it provides a range of services to network companies and system users. We will measure the option value of having a storage system that can be deployed in much less time than it takes to get consent to build a transmission line, adding flexibility in how we respond to uncertainty over the future evolution of the energy system. It is important that such decisions are made on the basis of appropriate models, capable of quantifying the wide range of services that storage can provide, taking account of the way that electricity generation and demand varies over the course of the day and the year, and measuring the impact of transmission and distribution network effects.

It is important to recognise that many countries (including the UK) have liberalised their electricity industries, and storage will only be pursued if companies believe that a viable business case exists. Work has started (via the Low Carbon Networks Fund) to test particular business models for demonstration projects, but this needs to be generalised. We will provide a quantified assessment of whether there is a business case for energy storage at present, and of what needs to be done to create one. This will involve a detailed study of the contracts that would be written around electricity storage, drawing lessons from existing arrangements for other kinds of storage, such as for gas or agricultural commodities. We will study how the rules of the electricity market could affect the choices of storage and generation technology.

We will ask what policies are needed to ensure that storage can be economically viable when sensibly deployed and operated. We will identify technology policies that can help move energy storage from prototypes to large scale deployment. International transmission may complement energy storage within a country, and we will assess the potentially conflicting incentives if neighbouring countries adopt different strategies for dealing with intermittency.

Too many debates around energy policy today are based on assertions without sufficient evidence. The models that we will develop, and the analysis that we will perform, will provide numerical estimates of the effectiveness of a range of policies, allowing regulators and other policy-makers to choose options that will lead to decarbonisation in the most effective way.

This project aims to provide badly-needed quantitative evidence to the policy debate over how best to deliver energy storage as part of a low-carbon energy system. In doing so, it will be relevant to the entire decarbonisation process, for the barriers to storage may well affect other technologies, and our models will consider the entire energy system.

The project will deliver new techniques and insights for planning the electricity system with significant amounts of intermittent generation and energy storage. These will be most relevant to transmission and distribution network companies, which already have to plan for an uncertain future. We will show them how storage can be deployed instead of network assets, and how it can be used as part of a new paradigm for distribution network design, in which active management based on using energy from storage when there is a danger of overloading assets supersedes the "like for like replacement" philosophy commonly used.
We will create new methods for appraising the economic value of storage technologies. These will be valuable for all the companies wishing to invest in storage devices, or accommodate them on their networks, and also for the equipment manufacturers. They will be able to learn which features of a technology will be most valuable, and hence what they should place most weight on during the development process.

We will analyse a range of business models to check whether they are viable and would allow storage to be deployed on an appropriate scale. The results will be useful for the companies hoping to invest in storage devices, since we may steer them towards the most profitable business model. They will also be useful to policy-makers and regulators, who need to know whether existing market rules and regulations are compatible with a viable business model.

We will analyse the policies needed to ensure that storage developers, owners and the electricity industry face the right incentives to create an efficient low-carbon power sector. This work will be relevant for the companies involved, and particularly so for policy-makers who need to know how to respond to this new part of the electricity industry. They receive too much advice which is not grounded in firm evidence, and our modelling results should provide a reasoned basis for decision-making.

Our improved techniques for optimisation and planning will have commercial potential and we will take steps to protect and then exploit the Intellectual Property created. Our policy work is not suitable for this kind of protection; indeed, recommendations are most likely to be followed if they have been widely disseminated. We will take steps to ensure this dissemination, and hope that through the adoption of our policy suggestions, the ultimate beneficiaries of our research will be electricity consumers.