Energy Storage: a review from Berlin.

I am glad to find myself in Berlin this week to attend the 8th International Conference on Renewable Energy Storage. This is the core European research and industry event on energy storage. There is a balance of excellent academic and industry speakers but at any instance anyone can notice that this event is dominated by German activity. The German academia and German industry are serious about energy storage... Storage for electricity grid stability, for industrial energy management, for households, for off-grid isolated consumers and on-grid consumers and most importantly storage for vehicles.

Norwich Business School is part of the event with 2 studies. A first one on the "Utility-scale energy storage for the regulation of wholesale electricity prices" and a second one on "The multiple role of energy storage in the industrial sector". The first study is a detailed examination of the arbitrage value of electricity storage for the Greek electricity market. The core theme of this work is currently developed through an institutional innovation framework for the UK electricity market by our NBS team.

The second study is the result of a collaboration with our colleagues in the Technological Education Institute of Piraeus in Greece and the Institute of Power electronics and Electrical Drives of RWTH Aachen. Nevertheless, this project would have never taken place without the contribution of our industrial partners Systems Sunlight SA in Greece and AEG in Germany. We looked into the potential revenue streams for the development of demand management and energy storage for energy intensive industries. For the first time commercialisation analytics were combined energy billing savings, participation in the spot market and a lookout for potential governmental subsidies that the value of storage is worth for.

In fact this second study has inspired our research group for further discussions for the development of a larger consortium that will enable us to apply at the forthcoming EU Horizon 2020 funding competition. Being at this conference is really the right place to explore the dynamics of possible collaborations. Simply put, most of the potential industry and academic partners we would wish for are already here. Clearly the contribution of NBS in an engineering intensive consortium is essential. Our partners do not expect us to develop technological R&D. They do however, expect us to develop innovative architectural and institutional business models that will enable mainstreaming of energy storage. They also expect us to inform policy making and inform governments about the financial and utility value of energy storage.  

Following from that last issue, our German colleagues and the panellists at the conference's sessions discuss quite extensively that funding for energy storage should not for much longer be directed to R&D but to market implementation. They are looking for direct subsidies similar to those that started-up the markets for wind energy and PV-panels. Perhaps the UK's subsidy for electric vehicles is already doing that?

Carbon reporting became mandatory!

The UK Government has regulated for carbon (ore more precisely - carbon dioxide - CO2, methane -CH4, nitrous oxide - N2O), hydrofluorocarbons - HFCs, perfluorocarbons -PFCs and sulphur hexafluoride - SF6) reporting to become mandatory since the beginning of October 2013. The legislation was introduced as part of the Companies Act 2006 (Strategic and Directors Report) Regulations and requires companies to include in their Directors' report carbon disclosures for the financial years ending on or after 30 September 2013. The legislation affects all UK quoted companies which essentially includes all UK incorporated companies whose equity share capital is listed on the Main Market of the London Stock Exchange UK or in an EEA State, or admitted to trading on the New York Stock Exchange or Nasdaq. 

Relevant guidance has been published under the broader "Environmental Reporting Guidelines: Including mandatory greenhouse gas emissions reporting guidance" scheme. The current guidance allows a lot of freedom with regards to the format and layout that the reporting should take place. Therefore companies that are already using the Greenhouse Gas Protocol Corporate Standard  or even ISO 14064-1 will not be surprised by the requirements. However, it is expected that the reporting framework will be reviewed by 2015 and 2016 with the intent to enhance its scope. 

This development can be criticised widely; lack of mandatory and comparable reporting framework; lack of commitment or even strategic reference to reducing emissions rather than just merely reporting them and the list can go on.  But the fact is that this initiative puts the UK in the lead of climate change action in the world since this is the first and only scheme currently operational in the world. The consequences of this regulation will not be limited in the UK. Quite clearly the scheme involves companies with a strong presence in international stock exchanges and their reporting in one region (UK or even the EU or EEA) will not leave unaffected their activities in the rest of the world. 

Some may even argue that the majority of companies affected were already reporting their greenhouse gas emissions. But, Delloit's "UK Carbon Reporting Survey - Lip service or leadership?" shows that this is only partially true. Indeed a very large number of companies choose to report on their emissions but  only a fraction of them does so in a transparent, accurate and complete way. Very rarely companies provide details about their emissions calculation methodologies or have their reporting verified by external auditors.

Nothing can be improved if it's not measured. The Government has made a first step in the right direction and it looks like more developments will follow. 

Capacity market and strike prices

Earlier this summer the UK Government issued a press release about the new energy infrastructure investment and reforms vital to “keeping the lights on and emissions and bills down”. In more detail, the Government expects to unlock £110 bn of investment and secure 250,000 jobs until 2020; it expects to achieve this with two main policies. The first is the Strike Prices for renewable technologies, which aims to reduce exposure of renewable generators to volatile energy prices. The second is the introduction of a capacity market, which the Government hopes will incentivise a new generation of gas plants that will be needed to support the increased role of intermittent sources.

These policies supplement the Electricity Market Reform which introduced the Contracts for Difference (CfDs) and is part of the more comprehensive Energy Bill. The strike prices for renewable energy recommended by the Government will shield investors from volatile wholesale electricity prices and in this way encourage investment. The strike price for offshore wind is £155/MWh for 2014/15 declining gradually to £135/MWh in 2018/19 while the respective figures for onshore wind are £100/MWh and £95/MWh. Solar PV projects are set to receive £125/MWh declining to £110/MWh for the same period. There are strike prices for most types of renewable sources apart from tidal range, which, according to the Government, will be further considered by DECC.

A certain degree of number-crunching is required to compare the CfDs with the existing RO and FiTs, but the Government claims that the support given by CfDs is in line with that offered by the existing schemes. The main advantage now is protection against wholesale price volatility. Price volatility and uncertainty over climate change and renewable energy targets have been blamed for deterring investment worth billions of pounds in the UK. This is not a UK specific issue, but is reported across the EU, where slow economic recovery has made governments hesitant to commit to new targets. It can therefore be assumed that if the financial support offered by the UK Government removes uncertainty in addition to being similar to existing schemes, the results will be positive.

The predicted increase in renewable energy in the UK's electricity fuel mix has forced the Government to introduce a capacity market, whereby certain generators are paid for the essential service of stand-by operation. The increased role of intermittent generation makes this auxiliary service particularly valuable for the system operator, and the introduction of the capacity market acknowledges that. Quite disappointingly, Davey was fast to name gas-fired power plants as the main benefactors of the capacity market. Plants that could use renewable energy to offer capacity services have not been mentioned and they will be examined on a case by case basis by DECC. Unfortunately, that means that there is no news for medium/large-scale hydro and tidal range plants. Their dual role of renewable energy generation and storage has been overlooked in favour of gas (and the Government's ambitions for a shale gas sector boom in the UK).

Shale gas for the UK?

It's already been a few years since shale gas started making headlines in mainstream media. Despite some first doubts now it is clear to everyone that shale gas is a "game changer" for the US energy supply. Increased gas supply meant that prices plummeted and for the first time the link between oil and gas price was broken. Gas is a very flexible resource as it can be used for power generation with very efficient combined cycle gas turbines, for industrial processes, for domestic heating and cooking or even for transport. When burnt it is cleaner than any other mainstream fossil fuel; therefore the benefits of lower gas prices can be felt across every sector of the economy. Low energy prices make the US an attractive place for energy intensive industries, some of which have already started relocating. 

It all sounds rosy about shale gas but leaving open space for the industry to operate freely (see lack of regulation) meant that shale gas operations caused numerous light tremors and in some cases were accused for water contamination. Drilling for shale gas makes use of hydraulic fracturing which is the source of all the aforementioned problems.

What about shale gas in the UK then? Do we have enough resources here? Can we drill for them in ways that will control and limit the environmental impact? Should we just let shale gas where it is because more gas will only keep us hooked to fossil fuels for longer? Recent reports show that although the UK is not among the top shale gas countries outside of the US, the indigenous reserves are not negligible. Even more recently the British Geological Survey estimated the total reserves to be at 40 trillon cubic metres (tcm).

I'll straight-forward say that if we can control and limit the industry's environmental impact then there is no good reason for not drilling. Why?

With UK's conventional gas extraction being pretty low while US LNG is ready for shipments there is no doubt that the UK gas intensive industry will sooner or later start importing. Centrica already signed a 20+10 years contract for gas deliveries starting in 2018. That's shale gas converted to LNG. Although I have no proper estimations it is fair to assume that the embedded emissions of imported LNG from shale gas is higher than indigenous LNG. I wonder how the embedded emissions comparison looks like for imported LNG from conventional Qatar's sources and indigenous shale.

Will a success story for shale gas lock-in the UK in a high carbon (gas) future? There is no need to go very far to realise that this is not necessarily the case. The US, with huge coal reserves and production made a fast shift as soon as a new and better resource (shale gas) became available. In the same way, the UK will shift away from shale gas as soon as other, better resources (wind? wave? nuclear?) become available.    

The government should be wise enough to regulate the environmental impact of the industry, arrange for community compensations and do not favour the gas industry against the low carbon energy industries.

Will the lights go out in the UK?

Quite recently Ofgem's outgoing CEO Mr Buchanan, warned us about electricity shortages and rising energy prices. For the limited attention span of busy media and public that may have come as a surprise. But it wasn't really one. Mr Buchanan, was in fact following up from Ofgem's earlier press release on the same issue. Ofgem reported that the electricity margin could fall from 14% in 2012 to the dangerously low 4% in 2015/16. But how did we arrive here?

In brief, the dirtiest UK coal-fired power plants are shutting down as a result of the Large Combustion Plant Directive (2001/80/EC). No, the EU is not to blame. The Directive was rightly agreed to control the very harmful SO2 and NOX emissions. Notice, it was agreed in 2001 and by the way it succeeded similar Directives of 1994 and 1988.There was plenty of time to prepare. Scottish Power's Cockenzie (1200MW), E.On's Kingsnorth (1940MW) and RWE's Didcot A (2000MW) are taken off the grid. That's a significant capacity loss but there are several other coal-fired power plants remaining in operation in the UK. Tighter environmental regulations will probably take them out of the market by or before reaching their lifespan. New coal-fired plants in the UK will have to be fitted with CCS systems which do not exist yet. Germany seems to have different views on that matter planning to open about 12GW of coal-fired capacity by 2020.

Germany has to do that to substitute the 23% capacity loss their will suffer after shutting down all their nuclear power plants by 2022. Which brings me to the next problem of the UK's power sector. That of underinvestment in nuclear power. In fact, there's no investment at all. After all nuclear players deserted the UK's "new nuclear scene" we're left with EDF demanding guaranteed prices for life. The Government tries to offer that in a politically correct way and in the meanwhile pushes back to 2030 (instead of 2025) its plan for 16GW of new reactors. EDF is probably less in a hurry than the Government should be. While any new capacity is being delayed the Government will have to choose between switching the lights out or extending the already extended lifespan of the existing nuclear fleet. Did I mention that nearly all of the UK's operating nuclear fleet belongs to EDF?

This stranglehold was identified in 2009 in a DECC's report "The UK Low Carbon Transition Path". The Analytical Annex, found low levels of capacity margin and significant expected energy unserved by 2025. It seems that in 2013, things only look worse.

Let me then return to the initial question. Will the lights go out? As someone who believes that power-cuts are entirely unacceptable at these times and part of the world I'll say that it won't happen. It is not my faith in existing policies that is responsible for this optimism. I just tend to believe that since the capacity exists (even if retired) it will be used for generation. We may also need to import as much electricity as possible from the continent. We may finally need to use more open cycle gas turbines than we planned.

Quite shamefully, we'll also have to bare the environmental and financial costs for these choices. The government promised to act over the looming energy gap but they don't seem to have a clear plan, let alone a plan B...


PS: Even though it certainly reads like it, I'm not frustrated only with the Coalition government. It doesn't look to me that the previous Governments treated this matter with the sense of urgency it deserves either.