Energy storage | The long view
The UK’s ‘cap and floor’ regime has brought forward several interconnector projects. It is hoped that can be repeated with long duration energy storage
Janet Wood
During the winter, especially January to March, it is common for northern Europe to experience periods of low wind lasting several days or weeks. When they coincide with low sun levels (dunkelflaute (dark doldrums)) and very short days as well as with the ‘heating season’ for domestic customers, they present a challenge for countries aiming for energy systems that rely largely or wholly on renewables for heat and power. So-called ‘long duration energy storage’ (LDES) is needed to manage this problem. LDES could take many forms, storing energy as heat (Finland’s fourth largest city, Vantaa, is planning to store enough waste heat in summer, in underground caverns, to cover its heat need for the winter), as hydrogen, or using technologies (such as pumped storage) that will produce electricity directly. It could encompass energy stored for hours, weeks or months, and released over days or weeks.
The problem for all these LDES options is that they are typically high capital cost and slow to build, while the timing of returns from selling energy at periods of scarcity is uncertain. That contrasts with very short term storage options, like batteries, which have attracted investor interest because they are quick to build and can earn returns in within-day and balancing markets immediately. LDES developers have been calling for government support to kick-off their industry. The UK is particularly interested in LDES, as it is already spilling wind from North Sea wind farms that could be used to cover periods of wind drought. Meanwhile, developers have a variety of projects waiting in development. Although the UK already has a capacity market that provides a 15-year revenue stream for new-build capacity, the government recognised that it alone “would be unable to provide enough revenue certainty to support the necessary investment into LDES, due to [LDES’s] high upfront capital costs coupled with long build times.” Now the UK is hoping to move to construction on some projects under a new ‘cap and floor’ support scheme, modelled on one that has been used successfully to bring forward interconnector projects and following an initial consultation earlier this year.
In general, a ‘cap and floor’ scheme provides a minimum revenue certainty, which gives security to investors that debt will be repaid (the floor). It also places a regulated limit on revenues (the cap). The security provided by the floor reduces the cost of financing the project, transferring some risk to consumers, while the cap ensures consumers benefit from any excess revenues.
32 | November/December 2024|
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Cap and floor agreements will be offered for up to 25 years, and allocated via a competitive process. The government said the first round of the cap and floor model is expected to be open to applicants in 2025, following a second consultation in the autumn, and (as with interconnectors) the process will be run by Ofgem.
The allocation process will have two tracks. One will be for mature technologies (technology readiness level 9), with a minimum capacity of 100 MW and a six-hour duration. The other is for less developed technologies (technology readiness level 8) which may be based around lower capacity and longer duration. Pumped storage hydro was named as the most mature LDES technology (several projects are in development), but the government also highlighted “more novel technologies” such as liquid air energy storage (LAES), compressed air energy storage (CAES), gravitational, high-density
Happy about the proposed cap and floor scheme for long duration energy storage? Richard Butland, chief executive of liquid air energy storage system developer, Highview Power, with LAES model. Photo: Highview Power
pumped hydro and flow batteries, that are “at varying stages of commercial readiness and deployment.”
There was disappointment in some quarters that the new scheme would be based around electricity rather than energy. Some consultation respondents argued it should be supporting thermal energy storage, or other approaches such as demand response that can act as forms of long-duration energy storage by using the wider infrastructure (such as data centres or heating and cooling networks). But the government decided that “an LDES scheme is primarily to support the power system and grid, rather than wider outcomes such as low-carbon heat which are best regulated separately, and therefore should not support technologies which do not meet the electricity storage definition.” Using an existing electricity storage definition also would also allow the new scheme to be brought into operation more quickly, it said.
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