2024
Energy Storage Report
Key Regional Markets
United Kingdom
The UK’s energy storage market has grown rapidly to meet the demand imposed by a rising renewable energy penetration in the grid. Renewable energy sources contributed over 40% of the total power supply by the end of 2023 (Carbon Brief, 2024). The grid operator has the responsibility to provide flexible energy supply options, including battery-based storage units, to maintain stability and reliability as the demand for offshore wind energy increases. The introduction of capacity auction contracts has facilitated the development of the storage capacity pipeline. However, further efforts are required, especially in market design, to boost the usage of battery storage units.
GDP (Current Prices) USD (2022) | 3,082bn |
GDP Growth Forecast (constant prices) (2023-2027) | 1% |
10yr Govt Bond Yield (12-month rolling average) | 4.14% |
Country Credit Rating (S&P) | AA |
Battery Storage Capacity | 14GWh/3.5GW |
Pumped Hydro Storage Capacity | 27.6GWh/2.8GW |
RE share of Total Electricity Capacity | 49.5% |
Battery Storage Outlook | 24GW by 2030 |
Note: Battery Storage Capacity Expressed in GWh assuming an average 4 hours of duration.
Source: IMF, Fred Economic Data, S&P Global, Solar Power UK, MDPI, Energy Institute, Rystad
For pumped hydro storage: (applied sciences, 2022)
Energy Mix and Case for Storage
Source: Energy Institute Statistical Review of World Energy
Capacity: Status and Trend
Since 2014, capacity auctions have incentivized grid-scale storage and attracted battery-based capacities in the UK’s power market (Reuters, 2023). The number of battery storage units winning contracts has been increasing every year. In February 2023, the system operator confirmed that 627MW of battery capacity was procured in the T-1 capacity auction for 2023-24 delivery, which is an increase from the previous year’s 385MW. The latest capacity market auctions of February 2024, held for 2024-24 delivery, awarded 655.1MW in standalone battery storage at £35.79/kW/year (Energy Storage News, 2024).
Utility-scale units are the main drivers of the UK’s battery-based energy storage market. They focus on managing the grid and play a significant role in the country’s storage capacity growth. Auctions provide price transparency for contracted capacity and encourage new investments. Regulations related to grid frequency management in the power market are crucial for the revenue models of utility-scale storage. Battery storage from residential and commercial segments represents a relatively small share. However, since 2022, the rise in energy costs has led to growth in these segments.
Policy and Regulation
The UK government aims to achieve net zero by 2050 and requires the power sector to be decarbonised by 2035 as part of its net zero target (UK Parliament Post, 2023). Such a target sets the base for energy storage, as a flexible energy supply is a critical part of the energy transition. The energy market policy and regulations thus seek to accommodate energy storage business in the otherwise legacy-driven wholesale power market.
The UK regulatory authorities are reviewing the wholesale power market structure so that alternative sources such as energy storage have a fair chance (UK Government, 2022). Natural gas continues to skew the market, dissuading potential investments in other technologies. As indicated in the consultation process undertaken for the upcoming market reforms, there is a general view that the existing regulations do not fit the requirements. Key focus areas in this context include reforming the capacity market to improve the participation of various flexible energy solutions, including battery storage (UK Parliament, 2023).
Capacity market regulations constitute the most essential part of the regulatory framework towards supply security and reliability (BEIS, 2023). The procurement process, in place since 2014, is technology-neutral. The generators/suppliers across technologies must compete for capacity commitments instead of guaranteed payments. Lately, with the rise in clean energy generation, the role of energy storage systems in the capacity market has come to the fore. This is observed in the capacity auctions for T+1 (one year ahead) and T+4 (four years earlier) contracts in the capacity market, wherein storage technologies have progressed even if they are still behind the conventional capacities.
A few other regulatory steps in the recent past that contributed to the easing of energy storage projects include exemption (April 2023 onwards) from the charges that non-domestic (commercial and industrial) properties are liable to pay for local services. Per the policy statement, this exemption was valid until 2035. During the same period, the government also expanded the scope of contracts-for-difference (CfD) auctions to include those renewable energy projects with storage options attached. In February 2024, the UK government exempted retrofitted BESS from the 20% value-added tax available only for domestic BESS if installed with a new solar system. The exemption applies to residential and charitable building BESS retrofitted to an existing solar/heat pump installation and will continue till 31 March 2027 (Energy Storage News, 2024). In July 2022, the energy market regulation was amended to recognise energy storage as part of the generation resources.
The most important focus point is on long-duration energy storage, where the UK authorities plan to devise a policy and regulatory structure. As the UK’s Department of Business, Energy and Industrial Strategy (BEIS) reports show, such projects face entry barriers due to the high upfront costs, uncertainty in the revenue streams, and weak market signals. Instead, the current market structure is tuned to the shorter duration flexibility requirement.
Market Developments and Opportunities
Investors are optimistic about the UK’s battery storage market and are committing funds accordingly. Some of the leading investment groups and fund houses have already made significant investments. In March 2023, the UAE-based company Masdar announced its plan to invest £1 billion into the UK’s battery storage market. Earlier in 2022, Masdar had also acquired the UK-based storage developer Arlington Energy. Many other assets are being developed with co-located energy storage and generation to take advantage of potential grid arbitration and merchant trading opportunities.
The system operator’s capacity auctions are a significant catalyst for new battery storage investments. The revenue stream visibility acts as a substantial incentive. As of February 2023, about 5GW of new-build battery storage systems secured the 2026-27 T-4 capacity auction contract (National Grid report, 2023). Almost half of the contracted capacity is based on a two-hour storage duration. During the same period, the battery storage projects ranked third (after gas and nuclear) in securing the 2023-24 T-1 capacity auction contracts. There was a 63% rise in the capacity won by battery-based storage (National Grid report, 2023). Furthermore, the auction clearing price in this process, at £60/kW, was the second-highest after the previous year’s £75/kW.
Source: National Grid
Frequency response services have been the primary revenue-earning source for most storage assets commissioned. By the end of March 2023, the system operator increased its high-frequency dynamic containment procurement volume (Modo Energy, 2023). A record level was procured, as battery storage systems were called up for managing short-duration grid management services. Also significant is the progressive shift in the business model of grid-scale storage assets. Battery storage assets’ revenue is aligned with the merchant business models of trading energy and moving away from the saturated ancillary service segment (Current, 2023). An example is the low Firm Frequency Response (FFR) auction prices as of May 2023. The FFR prices reached the lowest level since 2019.
The potential revenue streams for battery storage assets also include the wholesale power markets (half-hour slots for transactions with a range of contracts), balancing mechanisms (varying timescales for power system balance in daily half-hour trading periods, or for other system requirements), deployment as embedded or behind-the-meter assets and in local flexibility markets (Next Energy, 2023).
UK’s Energy Storage Commissioned/Finalized Construction
| Project | Location | Capacity | Details |
|---|---|---|---|
|
Buxton BESS |
Buxton, Derbyshire |
60MWh |
In January 2024, the project’s construction is completed, which is a joint venture between Atlantic Green, Israeli renewables developer Nofar Energy Ltd, and investor Interland. |
| Blandford Road BESS |
Dorset, Southwestern England |
25MW/50MWh |
In January 2024, the project came online. It was developed by the Norwegian oil and gas group Equinor ASA and operated by UK-based battery storage company Noriker Power. |
|
Tiln BESS |
Lincolnshire, England |
25MW/50MWh |
In February 2024, the project became operational. This is developed by Lightsource bp and is co-located with its 61MWp Tiln solar farm. |
|
Richborough Energy Park BESS |
KENT, England |
100MW/100MWh |
The project is connected to the National Grid’s transmission network and is developed by Pacific Green on the former site of a coal plant. The project is connected to the 400kV Richborough substation. |
Outlook
The project pipeline attests to the UK’s emerging prominent role in the global grid-scale energy storage market. Over 66GW worth of battery capacity is in the planning stage (Solar Media, 2023). In July 2023, the UK-based Carlton Power secured the planning permits to develop a 1GW battery storage system in Manchester, UK. The project, due for commissioning by 2025, is regarded as the world’s most significant (Energy Monitor, 2023). Rystad Energy’s report, as of April 2023, projected 24GW battery-based energy storage capacities in the UK by 2030 (Rystad, 2023). UK’s Energy System Operator, National Grid, projected this even higher, at 31GW by 2030 (National Grid, 2023).
An essential precondition for the projected storage market growth is the timely transformation of the grid network and the transition to achieve net-zero and decarbonisation objectives. The progress in retiring coal-based generation (the only remaining coal-based power plant will operate till September 2024) and expanding renewable energy penetration (40% of total power generation) helps strengthen the base for the grid-scale energy storage systems (Guardian, 2023). In fact, with the changing grid profile, the need for storage systems is also poised for a shift – from existing short-duration systems to ones capable of longer-duration support.
Long-duration energy storage systems are likely to constitute the next area of focus to support the ongoing energy transition as a flexible power generation resource, besides contributing to managing transmission capacity constraints. The technologies in this regard are nascent, with government support enabling the demonstration and commercialisation process. A well-defined policy approach for long-duration storage, expected by 2024, could help set the growth roadmap.