Mark Bramah of Municipia and Marc Wynn of Asset Utilities argue that local authorities should take the lead in developing electricity storage to develop a new income stream

 

Councils undertake energy projects for different reasons: as a means of helping hard pressed communities by addressing fuel poverty; to improve the energy efficiency of their own corporate estate or local housing; as part of a wider climate change strategy; or as a means of saving money or generating new and sustainable revenue streams by utilising assets more effectively.

According to the Institute for Fiscal Studies (IFS), council revenues in England are 26% lower in 2016/17 than in 2009/10. In Scotland and Wales the cuts have been smaller (15% and 11.5%, respectively) but combined with council tax freezes they have had a serious impact on local services. Unless councils can identify significant new savings or generate new income, the cuts threaten the viability of vital front-line public services.

However, in an era of historically low interest rates and subject to prudential rules, councils can borrow money for investment in projects that can generate sustainable and long-term returns. The key is turning capital resources into new revenue streams.

Although in November 2015 the government reduced the Feed in Tariff (FiT) for renewable energy generation, energy projects can still be a long-term and sustainable way of delivering savings or income. The problem for local authority projects is that the sudden change in policy and reduction in subsidies for renewables like solar and wind has harmed the business case, so that the return on investment disappears. Without new routes to market for the electricity, accompanied by falling technology costs, there is no way to make projects happen in the short to medium term.

That’s where energy storage through batteries starts to become an attractive proposition. With the eventual phasing out of large coal fired generation capacity and Ofgem looking to find 2GW of demand side response (DSR), battery storage has become the next ‘Klondike’. Viable commercial scale battery storage can now be taken seriously.

But there is a danger that local authorities will see this a purely planning issue and miss the boat in the way they did with wind and solar farms. Instead they should understand the value offered by battery storage and the leading role that public bodies can play, not only from a regulatory perspective, but also in terms of community leadership and exploiting their own assets.

Globally, electricity storage is forecast to increase from 2.5GW in 2016 to 9GW by 2020, with batteries making up the vast majority. The UK is no exception.

National Grid highlights three applications that could deliver value to consumers.

• Balancing and ancillary services provided to the System Operator
• Asset services for distribution network operators (DNOs) and transmission owners
• Wholesale and arbitrage opportunities whereby storage would help market participants (e.g. suppliers) to balance their positions.

Local authorities can play a pivotal role. Local authorities are ideally placed to take advantage of the expansion of battery storage by utilising land and built assets. Only small parcels of land are required. For instance, 1MW of battery storage requires  only 90 sq. m -  equivalent to a 40ft. container. Most local authorities have plots of land which have little other value in terms of either sale or rental but could accommodate batteries, which are unobtrusive.

This also links with government’s desire to achieve greater energy security and balance supply with demand. It contributes to improving the local energy infrastructure in partnership with the DNOs and can also be made to work with renewables.

Battery technology is still, relatively speaking, in its infancy and there are risks, not least in forecasting potential returns. Whereas the subsidy regime for renewables was  predictable, the market for storage is more volatile, which is why it is important that the right battery technology solution and arbitrage arrangements are chosen carefully.

Councils can limit the risk involved in several ways.

They can increase the value of land by getting grid and planning approval for sites and then taking a rental income from a developer; or they can enter joint ventures, investing the land value and grid connection costs whilst a developer took on the risk of installing and managing the battery, in return for some form of income share. Alternatively, the local authority could procure, install and manage the battery itself and keep all the financial benefits.

The financial returns can be considerable. The return on capital can be above 10% with payback in under seven years. It is also possible to increase the financial yield from storage projects by linking them to for instance electric car charging ports, renewable generation or even by using the electricity on site.

But there is a need for urgency. As many councils found with solar farm projects, there is limited connection capacity to the electricity grid and already private developers are ‘capacity bagging’. National Grid has allocated storage contracts to energy traders and they are available to battery owners on a ‘first come first serve’ basis.

Several local authorities are undertaking feasibility on grid connections and their available land assets to determine whether to proceed with projects. Gloucestershire County Council has ambitions to install and operate up to 53MW on land owned by the county council. Asset Utilities is working with a group of councils to undertake the first stage of work to develop realistic business cases and undertake the necessary regulatory activities such as planning. Working together, councils can share expertise, learning and reduce overall costs.

Local authorities need to get ahead of the curve or risk being at the back of the. This is an opportunity which is unlikely to present itself again and unless councils carry out the necessary due diligence and preparatory work batteries will definitely not be included.

This article first appeared in the March 2017 issue of New Power Report. Subscribers login to download the issue

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