GLOBAL INFRASTRUCTURE UK BATTERIES energy sources and other small generators and demand reductions due to Covid have complicated the process for the National Grid to balance the system , requiring further actions to be taken and increased costs which are passed on to the market through the BSUoS . The average BSUoS £/ MWh charge in 2020 increased by about 40 % against 2019 based on settlement final ( SF ) BSUoS run data and halfhourly charges reached peaks as high as £ 40 / MWh in January 2021 . However , the introduction by Ofgem of caps and payment deferrals have helped mitigate against these increases .
Relatedly , Ofgem has also clarified that the final consumption levies ( FCLs ) that are payable by end consumers to fund the government ’ s subsidy schemes should not be payable by energy storage licence-holders , provided the electricity they import is used only for the activities of energy storage . This became effective on 29 November 2020 . Again , the philosophy being that storage is not a final consumer of electricity . The changes to the licensing regime at condition E1 now require information to be provided to relevant electricity suppliers to allow for the correct application of final consumption levies . To benefit from this relief from the FCLs , a licence would be required – so the numerous energy storage projects which benefit from a licence exemption would have to consider if the relief from FCLs outweighs the obligations flowing from being a licence-holder .
Similar modifications will be made to industry codes to exclude storage facilities from the application of the residual charge element of other network charges . The intention is that storage is not subject to residual charges for demand where the intent is to export the energy back onto the system . The changes again reflect Ofgem ’ s position that storage is temporary and so should not be treated as final demand . These reforms are expected to come into force in April 2021 and April 2022 .
These various clarifications to the regulatory and charging status of electricity storage facilities and simplifying the charging regime lowers the barriers for connection , increases the economic viability and investment prospects of energy storage projects and will ultimately increase the number of electricity storage facilities in the UK .
New services introduced Dynamic Containment is a new faster frequency response service that was rolled out by the National Grid on 1 October 2020 and that has attracted particular interest from the storage market . This product requires a very swift and accurate response for which battery facilities provide a natural fit with the fast and highly precise response times that battery storage provides .
It operates as a post-fault service to redress the deviation in frequency caused , for example , by a generator or interconnector fault . The National Grid has been presented with recent challenges in keeping the country ’ s grid frequency steady at 50Hz . The proliferation of renewables sources now integrated into the grid contributes to more rapid and regular deviations to the system frequency .
Speedier frequency response services are therefore key to address this issue , particularly considering the further renewable integration that is anticipated . The value in Dynamic Containment is the speed of response . It can deliver a response in 0.5 seconds as opposed to 2 seconds for the existing Dynamic Firm Frequency Response .
It is tendered daily in 24 hour blocks one day in advance currently capped at an availability fee of £ 17 / MW / h . This is a price that is significantly higher than other current response services and , due partly to a relatively low demand , the fee has not so far departed materially from this cap . The National Grid ’ s plan was initially to procure 500MW daily response and for this to be increased to 1GW thereafter . The high bar to participate ( due mainly to high performance and data reporting requirements to tender for the service ) has initially led to a shortfall in full uptake , but , as above , bolstered the impressive availability fees for those participating . This new service presents an attractive revenue stream for the battery market – and appears tailor made for it .
Financing issues The financing of battery storage projects on a standalone , limited recourse basis remains at a nascent stage in the UK . From a project financing perspective there is a larger than usual tension between debt and equity in a battery storage project : in a traditional project financing the relevant asset is limited in its application – which suits risk averse debt providers , whose return is typically limited to the interest on their loans – whereas a battery storage project would ideally be granted the flexibility to perform a variety of services ( which suits shareholders whose return on their investment is , in theory , unlimited ). For developers , ideally the covenant package in their loan agreements would , for example , expressly to permit the various uses the battery is intended to serve , or could serve in the future . This runs somewhat contrary to the traditional project finance model where tight controls are placed on the project company .
Alongside this issue is that of control . Usage is directly related to the life-cycle costs of a battery storage system , and manufacturing warranties will often require that the project is operated within certain operational parameters . Lenders will need to work through these issues on a case by case basis , and the anticipated revenue profile of the project will be the key determinant in resolving the risk allocation on this and other points in the loan documentation .
From an EPC and operations and maintenance ( O & M ) perspective , the fact that battery storage is a relatively nascent technology gives rise to two broad bankability considerations .
Firstly , contractors are not yet used to , or have not been willing to accept , risk positions which are a typical feature of project-financed construction contracts elsewhere in the
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