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OFGEM’S CONSULTATION ON THE PROPOSED DEFINITION OF ENERGY STORAGE

Introduction

Ofgem are consulting on the legal definition of “energy storage” and the introduction of a new condition in the electricity distribution licence designed to ensure that distribution system operators, also known as distribution network operators or DNOs, cannot operate energy storage assets (https://www.ofgem.gov.uk/publications-and-updates/clarifying-regulatory-framework-electricity-storage-licensing). The Ofgem consultations both close on 27 November 2017.

The UK has eight distribution network operators (DNOs). They operate the regional networks that deliver electricity to consumers after it has been transmitted on the UK’s national high voltage transmission network. As natural monopoly service providers, DNOs are arguably well placed to develop energy storage facilities.  Indeed, several DNOs are already actively developing energy storage projects, including Western Power Distribution and UK Power Networks.                                          (http://innovation.ukpowernetworks.co.uk/innovation/en/Projects/tier-2-projects/Smarter-Network-Storage-(SNS)/Smarter%20Network%20Storage%20FAQs.pdf).

Proposed change to EU law

Ofgem’s position appears to be influenced by proposed changes to EU law. The European Commission’s recast of the Electricity Directive recognises the need for consumers to actively participate in electricity markets, including storage, it provides:

“The electricity market of the next decade will be characterised by more variable and decentralised electricity production, an increased interdependence between Member States and new technological opportunities for consumers to reduce their bills and actively participate in electricity markets through demand response, self-consumption or storage.

The present electricity market design initiative thus aims to adapt the current market rules to new market realities, by allowing electricity to move freely to where it is most needed when it is most needed via undistorted price signals, whilst empowering consumers, reaping maximum benefits for society from cross-border competition and providing the right signals and incentives to drive the necessary investments to decarbonise our energy system. It will also give priority to energy efficiency solutions, and contribute to the goal of becoming a world leader in energy production from renewable energy sources, thus contributing to the Union’s target to create jobs, growth and attract investments”. 

In terms of specific detail, Article 36 of the recast for the Electricity Directive proposes a general prohibition on DNOs owning, operating or managing energy storage facilities:

Article 36
Ownership of storage facilities
  1. Distribution system operators shall not be allowed to own, develop, manage or operate energy storage facilities.
  2. By way of derogation from paragraph 1, Member States may allow distribution system operators to own, develop, manage or operate storage facilities only if the following conditions are fulfilled:
(a) other parties, following an open and transparent tendering procedure, have not expressed their interest to own, develop, manage or operate storage facilities;
(b) such facilities are necessary for the distribution system operators to fulfil its obligations under this regulation for the efficient, reliable and secure operation of the distribution system; and
(c) the regulatory authority has assessed the necessity of such derogation taking into account the conditions under points (a) and (b) of this paragraph and has granted its approval.
  1. Articles 35 and Article 56 shall apply to distribution system operators engaged in ownership, development, operation or management of energy storage facilities.
  2. Regulatory authorities shall perform at regular intervals or at least every five years a public consultation in order to re-assess the potential interest of market parties to invest, develop, operate or manage energy storage facilities. In case the public consultation indicates that third parties are able to own, develop, operate or manage such facilities, Member States shall ensure that distribution system operators’ activities in this regard are phased-out. (http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:52016PC0864&from=EN)

The prohibition on DNOs owning energy storage in paragraph 1 of the proposed Article 36 is subject to a derogation in paragraph 2 that provides that DNOs can own, develop, manage and operate energy storage facilities if they are needed to ensure that a distribution network is efficient, reliable and operates securely. Paragraph 2(c) provides that it is for the regulatory authority of a Member State to assess the necessity of a derogation.

DNOs as neutral market facilitators and the new reality of the UK’s energy market

The rationale for the proposed prohibition in Article 36 is that DNOs should act as neutral market facilitators. A white paper published by the Agency for the Cooperation of Energy Regulators (ACER) on 15 May 2017 explains the decision to adopt this policy position:

“European Energy Regulators advocate that DSOs must act as neutral market facilitators performing regulated core activities and not activities that can efficiently and practicably be left to a competitive market. This approach is important because:

  • Competitive markets are generally better than regulated markets in delivering outcomes that provide best value for money for consumers;
  • When DSOs get involved in competitive activities – such as storage – there is a risk that they would favour their service over potentially cheaper services (e.g. storage over demand-side response), thereby raising costs and deterring investment and innovation;
  • DSOs could unfairly favour different types of consumers if they are direct market participants for these services; and
  • Confidence in the neutrality of DSOs is a key element of the market.”

In contrast, 10:10, a UK registered charity that focuses on tackling climate change at community level, has argued against the UK adopting a general prohibition on DNOs owning energy storage facilities:

“If [DNOs] are not permitted to own and operate their own storage assets, this is likely to increase costs for end users as a consequence of increased transaction costs between network and storage operators. Network companies should be allowed to judge where and when to procure storage from a third party, and when and where to own it themselves.”

A recent survey by Energyst, the energy magazine, has also noted National Grid’s need for more firms to help it balance the power system (https://theenergyst.com/20-firms-outline-what-is-stopping-them-providing-demand-side-response/). According to Energyst:

“With some 35GW of renewables on the system, more than a third of it solar PV, summer may become as much of a challenge as winter. That equates to a year-round revenue opportunity from National Grid alone. Yet relatively few firms provide balancing services via their onsite generation or ability to shift loads. Why?

According to The Energyst’s reader surveys, this is for a few key reasons, mainly fear of technical failure and/or incompatible processes and insufficient financial reward. But lack of understanding and the fact that the most UK firms have not been approached by either aggregators or energy suppliers regarding DSR are also factors…

…But these early survey findings suggest there remains a need for better communication and cost effective technology solutions if DSR is genuinely going to trickle down from large power users to the broader market.”

The problem with DNOs acting merely as neutral market facilitators is that a lot of energy storage is likely to be needed in the UK (http://fes.nationalgrid.com/media/1253/final-fes-2017-updated-interactive-pdf-44-amended.pdf – see pages 104-105).

Energyst’s research suggests that there may not be sufficient interest from third parties to provide energy storage. 10:10 have put forward the argument that DNOs would be well placed to provide storage at the lowest cost. If this is correct, a complete prohibition on DNOs owning energy storage facilities would not reflect the “new reality” of the UK’s energy market and would also overlook the derogation in paragraph 2 of the proposed Article 36.

Conclusion: Are DNO energy storage targets a potential solution?

Notwithstanding Brexit, Ofgem seem to want to follow the EU’s proposed position on this issue.

A potential solution would be for the UK to set individual targets challenging each DNO to procure a certain level of energy storage facilities. Should a DNO be unable to meet its target through an open and transparent tendering process, then it should need to develop, own, manage and operate the balance to ensure that it has an efficient, reliable and secure distribution system.

It should be possible for the UK to draft a regulatory solution that is compatible with the derogation set out in paragraph 2 of Article 36 of the proposed Electricity Directive.  However, whether or not this solution would satisfy Professor Helm’s desire to remove all regulatory interventions from the UK energy market is another question.

Tim Malloch, 03 November 2017

About the Author

Tim Malloch trained at Macfarlanes and subsequently moved to Freshfields Bruckhaus Deringer, where he advised on corporate transactions and finance projects. After 7 years at Freshfields and a sabbatical spent abroad, Tim joined ClientEarth, an award-winning legal NGO, and devised a litigation strategy that helped persuade the UK Government to abandon its plans to build a new generation of coal power stations.  Tim returned to private practice in 2010 and has advised on a wide range of high-value commercial disputes.

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Tim Malloch on 020 7947 5354 or by email on: tmm@prospectlaw.co.uk.

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THE ENERGY STORAGE QUESTION: SPINNING FLYWHEELS, PUMPED HYDRO AND COMPRESSED AIR

Introduction:

E-ON recently completed a 10MW lithium iron battery, designed to hold roughly the same amount of power as 100 family cars, at the 30MW Blackburn Meadows biomass plant near Sheffield. (https://www.eonenergy.com/about-eon/media-centre/eon-completes-uk-first-battery-installation-at-blackburn-meadows-biomass-power-plant/).

The unit has been hailed as a breakthrough in the switch towards greener energy and the development of energy storage solutions capable of holding energy generated by wind farms and gas power stations, for release in times of excess demand.

The Issue of Energy Storage:

The National Grid is tasked with producing enough energy to meet supply. Excess energy from one source, such as solar, will prompt the grid’s operators to switch off another.

Currently, renewable energy can only make intermittent contributions to the grid’s output. As the sun does not shine 24/7 and some days are windier than others, the renewables sector eagerly awaits technology capable of storing energy.

There have been numerous suggestions as to how the energy storage conundrum may be solved.

Spinning Flywheels:

Through storage of kinetic energy, a flywheel operates like a mechanical battery, with some designs now able to spin at rates of up to 60,000 revolutions per minute. Although early models were generally very heavy, modern carbon fibre flywheels have the ability to contain twenty times more energy then a steel wheel (http://www.economist.com/node/21540386).

A spinning flywheel will speed up when it receives electrical energy, and slow when there is a need to release the energy that it stores, at which point the kinetic energy will be transferred back into electrical energy.

Flywheels are an efficient method of storing energy. Round Trip Efficiency is generally 85% – 90%, meaning a spinning flywheel only wastes a seventh of the energy it absorbs. In comparison, coal and gas generators are half as efficient.

Compressed Air:

Compressed Air Energy Storage is currently the second biggest method of energy storage, and works by transferring electrical energy into high pressure compressed air that is stored underground

In times of short supply, the compressed air will be heated and expanded to drive a turbine generator.

Currently there are two CAES plants in operation; one in Huntorf, Germany, and another in McIntosh, Alabama (http://www.powersouth.com/mcintosh_power_plant/compressed_air_energy).

Aquifers and porous rock are generally the ideal sites for CAES systems. Underground salt domes, which have long since been used to store natural gas, have also been used in the past, and are generally found at coastal sites where the potential to generate a lot of wind energy is high.

Geographically, there is thought to be good potential for CAES systems across Europe, including in Great Britain.

Pumped Hydro:

Pumped Hydroelectric Storage requires an upper and lower reservoir, and works by using excess energy to pump water to the higher reservoir, for storage as gravitational potential energy.

In times of short supply the water will be allowed to flow down to the lower point through a turbine and generator, transferring back to kinetic and then electrical energy in the process.

Whilst PHS schemes have been considered the best mass energy storage solution, they can only be installed at very specific terrains. The largest PHS scheme is currently near Dinorwig in Snowdonia National Park, one of four across the UK, and has become something of a tourist attraction (http://www.electricmountain.co.uk/Dinorwig-Power-Station).

It is thought that the hydroelectric facilities across Europe are now able to hold roughly 5% of the continent’s electrical generating capacity.

Conclusion:

Renewables provided nearly 30% of UK Energy Generation between April and June 2017, and it is thought that the UK will need to be able to store around 200GWh of electricity by 2020.

E-ON’s unit at Blackburn Meadows, designed to offer the grid energy in less then a second, comes as National Grid recently released a tender with a view to helping it manage supply and demand.

There is clearly as yet no clear answer to the energy storage question, but battery storage appears to have become very topical.

Other energy firms are developing similar projects to the one at Blackburn Meadows. EDF Energy is developing a 49MW plant at West Burton Power Station, Nottinghamshire, whilst Centrica are developing a project of the same size at a site in Barrow-on-Furness, Cumbria (https://www.centrica.com/news/centrica-start-construction-new-battery-storage-facility-roosecote).

About the Author

Prospect Law is a multi-disciplinary practice with specialist expertise in the energy and environmental sectors with particular experience in the low carbon energy sector. The firm is made up of lawyers, engineers, surveyors and finance experts.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

For more information please contact Adam Mikula on 020 7947 5354 or by email on: adm@prospectlaw.co.uk.

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FACTORS TO CONSIDER BEFORE INVESTING IN BATTERY STORAGE: PART II

This new series of blogs highlights the factors which a prospective end-user should weigh up before deciding whether and how to invest in electric storage.

In terms of optimisation, such energy management can be done in-house or outsourced. Although there is no hard and fast rule, outsourcing can bring efficiency and expertise that can far out-weight its cost in commissioning. Fortunately, there are various ways of going about this task and the use of third party agents or an Agency Trader is fairy well established and several firms can offer Agency Trading services.

Although much of the financial model can be prepared by the user’s agent, supplier or prospective manufacturer, the question of intangibles comes up again. Only the user can really determine what the value of continuity and ‘security of supply’ to the business will be: the resilience value overall. It is important, therefore, for the user to be involved in the modelling process.

The cost of modelling varies, as does the quality of much of the work; not always in tandem. In some cases, the cost of modelling should be deducted from the cost of any purchase, if charged. Reputable manufacturers will also inform the prospective buyer of cheaper leasing options which they may have on offer, as well as other alternatives which the user may wish to explore if the financials begin to look marginal.

To clarify, the visible savings of a financial model should include:

  1. Reductions in annual electricity bills: potentially over 50% through Power Purchase Agreement (PPA) tariff reductions or under a bespoke Storage PPA agreed with the supplier.
  1. Future income from Frequency Response services to local distribution networks under private-wire agreements or, in the majority of cases, services to National Grid under reverse auctions.
  1. Optimisation using the battery: This task could be outsourced to an Agency Trader, e.g. a Big Six, independent generator or other energy merchant, who will optimise the battery through their own supply pool and access to the Elexon, OTC, Nord Pool, APX and other markets. This task is less complex than it may sound. Like the battery itself, once in place the process requires little resource from the user, and there are various energy merchants who already offer Agency Trading services, some paid on performance only.
  1. Peak Shifting: the ability of the user or embedded generator to ‘time’ their exports of the electricity they sell into the system and so attract higher ‘peak’ prices in trading markets. Again, an Agency Trader could facilitate if the end user does not wish to becoming involved in trading directly, as many may not.
  1. Enhanced Plant Efficiency: alleviating excess loads, avoiding ‘cold starts’ and mitigating other impacts to prolong the life and reliability of turbines, minimise wear on machinery and preclude erroneous reset of control systems which some ‘black box’ DSR systems might place at risk.

It is worth adding here that larger businesses have the option of a Guest Battery. The business will not buy the battery nor pay for anything related to it, but will simply make land available and allow the Provider to install and operate the Guest Battery. The user receives pretty much the same electricity bill savings outlined in paragraph 1 above and the Guest Battery also adds a valuable degree of ‘free resilience’ as well. To compensate the Provider for such benefits, which entail practically zero cost and zero risk, the user must agree to share any resultant cost savings with the Provider.

In evaluating the resilience benefit for the company, it is important to consider:

  • The cost to the business of any ‘worst case scenario’ occurring within five, ten or fifteen years without any emergency cover or 100% dependable back-up. These will include direct contractual losses and/or consequential damages relating to any power outage, whether it was caused internally or by an outside issue with the local distribution, high-voltage transmission grid or generator: be it human error, one of the cyber attacks targeting grids of late, a force majeure or any other unforeseen event, which may or may not lie within the user’s control but remain his financial responsibility.
  • The alternative cost of buying ‘critical loss’ cover or very high premium catastrophe insurance (if it is available) that may be sure to protect the business from damages resulting from short-term or prolonged outages.

Whether or not a battery is finally purchased or leased, the process of exploring this investment can be useful as it will focus attention on optimisation options for the plant itself. The exercise can serve as a ‘de facto’ energy heath check and is offered free by some providers. This exercise must also establish what battery chemistry is best suited for the user, the size and performance specification of any battery, as well as the exact type of long-term warranty on offer, with questions pertaining to its operational life, the number of complete and partial cycles; its flexibility, its depth of discharge, specified breeches and allowed tolerances that may void a guarantee.

The forward service provision is just as important as the battery itself. It is another key question which the agent, supplier or manufacturer will need to be asked.

This article has analysed the visible savings a financial model should include, and has also introduced factors to take into account when evaluating the resilience benefit for a company. Click here to read Part I, which discussed the importance of valuing benefits, visible and intangible, and including them in a financial mode.

By Dominic Whittome 

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and various private entities on a range of energy origination, strategy and trading issues.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

Click here for a PDF of this blog

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FACTORS TO CONSIDER BEFORE INVESTING IN BATTERY STORAGE: PART I

This new series of blogs highlights the factors which a prospective end-user should weigh up before deciding whether and how to invest in electric storage.

The decision whether or not to invest and, if so, exactly which type of package to go for, will depend on a host of factors. These include the nature and configuration of any embedded generation, the user’s demand profile and the value of ‘security of supply’ to his business.

We should split the ‘all in’ value of electric storage in two parts.

  • Visible benefits: these include the added value to the business through reduced annual power bills; enhanced micro-generation efficiency; improved power quality; energy efficiency and additional plant income, such as Frequency Response revenues from grids or other customers. Each Visible benefit should be quantified and included in the financial model.
  • Intangible benefits: these cover security of supply or ‘resilience’, i.e. the added value to the corporation in the form of ‘business continuity’, ‘catastrophe avoidance’ amongst other liabilities a plant manager may hold responsibility for.

In each case, especially the first, it is important to avoid double counting when valuing benefits and including them in a financial model. For example, if a user employs a battery to sell a specific service to a third party, like a high-flexibility Frequency Response service to National Grid, this could conflict with other uses the battery may be needed for in the event. Fortunately, there are now twenty-seven different Frequency Response categories which National Grid is inviting through its 2017 reverse-auction process, i.e. these include cheaper, less flexible types of service, precisely to address such conflicts and to encourage storage users to free up and sell them any surplus capacity they may have to spare.

Above all, the commercial payoff of a battery will ultimately depend on how well it is specified and installed and how well it is optimised subsequently, both on-site and out in the marketplace.

Some batteries installed recently operate profitably as ‘standalone projects’. Here the visible benefits alone justify the expenditure; resilience is just a bonus. The main benefits involve Frequency Response income and/or annual electricity bills savings of circa 50% to 60% by virtue of an effectively flattened demand-profile, avoiding the Climate Change Levy, TRAID and Red Zone capacity payments to the system.

Other batteries might only be considered worthwhile once visible and intangible benefits are considered together, chiefly in cases where ‘business continuity’ is seen as critical and so resilience becomes the principal value that a battery will provide.

The visible benefits may be of secondary importance. This value still needs to be evaluated separately and be viewed as a way of subsidising the battery.

Financial modelling relies on detailed user profile, power market data and complex forecasting techniques. The storage arena is relatively new and highly sophisticated, even by power generation industry standards. However, some robust financial models have been developed, prepared by a prospective end user’s own agent, battery supplier or manufacturer. Although not perfect, certain models should give a prospective buyer a good ‘feel’ of the investment return they can expect, also flag up whether or not storage itself is a sensible option, and if not what alternative optimisation or Resilience options may be worth looking at.

This article has discussed the importance of valuing benefits, visible and intangible, and including them in a financial model. Part II of this series will analyse, in greater detail, the visible savings a financial model should include, and will also introduce factors to take into account when evaluating the resilience benefit for a company.

By Dominic Whittome 

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law Ltd and Prospect Advisory Ltd and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and various private entities on a range of energy origination, strategy and trading issues.

For more information please contact us on 020 7947 5354 or by email on: info@prospectlaw.co.uk.

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LARGE SCALE BATTERIES FOR ENERGY PROJECTS: FLOW TECHNOLOGY

This series of articles highlights the commercial case for two different types of large scale battery. Large scale batteries widely differ in terms of their flexibility, life-time resilience, day-to-day reliability, initial purchase price (or CAPEX) and the ongoing cost of their maintenance & upgrades (OPEX). It is, obviously, crucial to identify the right battery design and manufacturer.

Flow technology (1974) is older than Lithium (1986), but is not portable and generally less well understood. As recent technology breakthroughs makes Flow an alternative to Lithium and Sodium Sulphur, a quick background explanation may be useful.

Flow Batteries: 

Electricity is stored in electrolyte liquid in two storage tanks. The tanks feed (via pumps) into their own half-cell, each separated by an ion-exchange membrane or ‘exchanger’ (a delicate graphite film manufactured by Du Pont).

The same substance, vanadium is dissolved in sulphuric acid (solving the contamination problem which dogged other designs) is stored in both tanks but at different states of charge.

Vanadium ions are exchanged across the membrane as pumps are activated. Chemically-stored energy is 100% transferred into electrical energy (and 100% back from electrical energy to chemical energy when the battery is recharging).

Pros:

  • High round-trip efficiency, but slightly below ‘high-end’ Lithium and Sulphur designs. Yet significantly more flexible, reliable and versatile out in the field. Flexibility to charge / discharge up or down to any level with no wear or tear issue.
  • Capacity to reverse-flow i.e. charge-discharge-charge inside a 100th of a second’s notice.
  • This Flexibility makes them suitable for both Frequency Response and for Primary Control. Reserve/Storage i.e. one can use the same unit battery to fulfil both tasks and avoid overspend.
  • This cycling/frequency-response flexibility makes Flow suited to successive peak-shifting and arbitrage. This can earn a second revenue for the owner and help to pay down CAPEX. A commission Agency Trader (e.g. big six generator on commission can optimise the battery and extract trading economies of scale for the battery investor).
  • The storage capacity of a Flow battery is simply determined by size of the storage tanks.
  • Flow batteries have a higher CAPEX than Lithium or Sodium-Sulphur. However Flow batteries are more reliable and they require less maintenance. Also OPEX is low – circa 2.5% of CAPEX (less than Lithium or Sodium-Sulphur). For this reason, Flow batteries are generally the cheapest option when the full life-cycle of the system, including maintenance, repairs or part replacement are included in the calculation.

Cons:

  • Flow batteries are a less well known, less common and less understood technology. For this reason alone, they can be harder to win support from internal finance directors and external financers.
  • Flow batteries are less portable than many solid-state batteries due to their low energy density.
  • There are fewer Flow battery manufacturers and still many different variants of flow battery.
  • They use corrosive acid as the electrolyte which requires a robust and expensive membrane (the exchanger) for use in every cell. This cost can mount up and it partially explains the high price of Flow batteries. Continuous RND costs is another significant overhead which the consumer ultimately pays for in terms of CAPEX.
  • A Flow battery has a lower energy density than any Lithium Ion or Sodium Sulphur battery and so the actual space required to house this storage is significantly greater.

Lithium Ion v Flow Battery: Conclusion

A Flow design involves significantly less maintenance than a Lithium Ion or Sodium Sulphur.

The Vanadium variant battery (same electrolyte solution used in each tank (i.e. on both sides of the exchanger) has solved the ‘cross contamination problem’ with Flow technology.

OPEX is more quantifiable at the project outset than in a Lithium-ion battery. OPEX will be lower: ca. 2% of CAPEX vs. a significantly higher OPEX figure for Lithium Ion. e.g. replacement cells, annual maintenance and inspection of fire-prevention systems.

Consequently, the Flow battery is claimed to be the cheapest ‘Lifetime Option’ as well as the most robust and flexible alternative.

Recent trends in global Lithium Carbonate prices may conceivably lead to unaccounted for (all prices quoted are subject to change) increases in CAPEX cost or (perhaps more likely) increases in future OPEX costs.

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and various private entities on a range of energy origination, strategy and trading issues.

For more information please contact us on 020 3427 5955 or by email on: info@prospectadvisory.co.uk.

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LARGE SCALE BATTERIES FOR ENERGY PROJECTS: LITHIUM BATTERY DESIGNS

This series of articles will highlight the commercial case for two different types of large scale battery. Large scale batteries widely differ in terms of their flexibility, life-time resilience, day-to-day reliability, initial purchase price (or CAPEX) and the ongoing cost of their maintenance & upgrades (OPEX). It is, obviously, crucial to identify the right battery design and manufacturer.

Battery Designs

It is easy to waste money on an over-specified battery that offers expensive features and benefits you will seldom use.

It is also easy to waste money on a battery which is simply not up to the job, vis-à-vis Balancing & Back Up requirements and / or the climatic conditions faced and final costs of system failure there.

There is a multitude of different battery types. Their characteristics vary hugely. The manufacturers and the designs of each type vary widely too, in terms of the robustness, reliability and long-term performance and maintenance, warranty and general aftercare requirements.

Prices vary as well and price itself is not always a reliable guide to value or performance. In short, the large scale battery market is still evolving. Fragmented, unregulated, opaque: It is a challenge, but the rewards for getting it right are huge.

Lithium Battery Designs

Lithium ion is a ‘conventional solid-state’ battery which involves the exchange of free ions across an exchanger, a technology which was pioneered by Sony in the late 1980s. It is now over-taking sodium sulphur as ‘battery of choice’ in large scale battery applications.

Pros:

• Has the highest energy / power densities of any battery – 0.250 kWh/kg / 0.325 kW/kg.
• Simple ‘plug and play’ installation.
• Well known, commonly-understood technology with a large number of producers.

Cons:

• OPEX may be unpredictable and rise in the future if cell-replacement costs escalate – but some manufacturers offer a 10 year/100% performance guarantee.

• Batteries produce toxic and non-recyclable waste products, including hydrogen which is explosive, hence the need to assiduously manage the delicate operating balance of these batteries at all times using the control systems and maintaining fire prevention systems. In tropical climates there is a residual fire risk, however robust the product chosen.

• The price of the main raw material (Lithium Carbonate) is rising. This may affect CAPEX/purchase price in the short-term and OPEX over the long-term. Between 5% and 8% of fuel cells typically need replacing every year, although this will depend on how they are used & cycled. Whatever the figure is, this cumulative degradation effect needs to be reflected in the OPEX of any financial model.

Conclusion:

Lithium Ion is a proven and increasingly favoured technology which is fast becoming the large scale battery of choice among European smart grid and embedded generation developers.

That said, there is still concern about some safety and security issues, especially if the batteries are to be stored in a confined enclosure or catacomb where temperatures may surpass 35 – 40oC, or where humidity may change rapidly, or where they are left in exposed areas which may also be prone to very high ambient temperatures.

The risk of fire and of explosion are known risk factors with any lithium battery.

Large scale Lithium batteries are now believed to be illegal in New York for example. Fears of terrorism (or a proximate fire) may be the thinking behind this move. Whether these fears are founded or not, the concern is that a lithium battery may be a target object/hazard, even if the battery itself is properly maintained.

Prospect Law and Prospect Advisory provide legal and business consultancy services for clients involved in the infrastructure, energy and financial sectors.

This article remains the copyright property of Prospect Law and Prospect Advisory and neither the article nor any part of it may be published or copied without the prior written permission of the directors of Prospect Law and Prospect Advisory.

Dominic Whittome is an economist with 25 years of commercial experience in oil & gas exploration, power generation, business development and supply & trading. Dominic has served as an analyst, contract negotiator and Head of Trading with four energy majors (Statoil, Mobil, ENI and EDF). As a consultant, Dominic has also advised government clients (including the UK Treasury, Met Office and Consumer Focus) and various private entities on a range of energy origination, strategy and trading issues.

For more information please contact us on 020 3427 5955 or by email on: info@prospectadvisory.co.uk.

For a PDF of this blog click here