I have heard some interesting discussions about gas storage recently. The industry has argued for several years that we need more storage. And, the argument runs, since the market doesn’t seem to support an expansion, customers should provide a subsidy.
Let’s leave aside the argument that in theory we have a market-led system – in practice we provide subsidies of one kind or another for most of our energy. Do we need subsidies for gas storage at this time? Or would we get more for our money if we thought more widely about storage as a whole-energy issue?
More gas storage is premature
Take gas first. Forget the frequent comparison that some European countries have a few months of storage and we have much less. They have one supplier at the end of a pipe, and (in Gazprom) largely a single supplier. We are in a very different situation and until North Sea extraction finally ends and unless our gas terminals and various pipelines all close, it’s hard to image how all UK imports could be blocked.
Nevertheless, ex energy minister Charles Hendry argues strongly that we have had at least four winters where gas stocks have run very low. He’s perfectly right, but I think he’s taking away the wrong conclusion.
I’d say the market had it right: we haven’t overbought in advance, and supplies have met demand. Despite the ‘tight’ supply, in these years National Grid has hardly even called on its measure to ask some companies – well-paid to provide this voluntary service, incidentally – to cut their use to help balance the system.
In some periods during these ‘tight’ years we have been exporting gas to our neighbours – not so much a cause for concern as a nice little earner.
In future, Ofgem is changing market rules to allow UK prices to float up at times of shortage, which should mean gas coming our way at those times. And we have plenty more capacity for imports: as customers, we have already invested in several gas import terminals and they are very under-used. You might say we already have lots of paid-for but unseen gas storage at sea, and storage that is much more flexible than digging another hole under Cheshire.
We may need new gas storage in future – the largest store, Rough, is certainly ageing and its capacity is falling. But we should give new market rules and our sunk investment in gas terminals a chance to respond first.
Let’s be more inventive
One option Charles Hendry puts forward to increase gas storage is to force each energy supplier to retain a certain amount in stock. That’s a possibility, but as I have argued, it’s not gas where we need to increase storage.
Instead of a gas storage obligation, we would do better to place an obligation on suppliers for electricity storage.
We do have some electricity stores – pumped hydro, for example. But we desperately need more at specific points in the system to help manage variable electricity supplies and to make the most of renewables.
There are several technologies available at a key stage of development where they need to scale up, and where mass deployment should bring price reductions as has been seen in PV or wind. Technologies exist at various scales and can be used for different purposes, so a supplier could meet its obligation to provide in-home stores alongside PV in the southwest, or invest in large battery store in the windy eastern counties where the network is under strain. A compressed air pilot plant is ready to take forward in the northeast. An obligation to provide storage could even pull small scale pumped hydro out of the existing water system – believe me, there is plenty of opportunity.
This benefits the system in a way that gas storage does not, because it also provides technical assistance in managing electricity across the grid. In fat, this type of assistance could provide an important revenue stream for storage, but it is one that has been hard to pull together with other storage revenue streams. An obligation on suppliers might prove away to pull together those existing, but disparate revenue streams and support the small step to making storage economically attractive.
Heat and cooling could be tapped now
We could allow for much more innovation if we bring heat into the equation.
Heat storage has the great advantage that huge amounts of it exists out in the system already.
There are heat stores everywhere. At their simplest, they come in the form of domestic hot water tanks, but commercial and industrial heat (and cooling) loads have vast untapped flexibility. Major energy uses may also find it easier to offer heat flex (again, and cooling) flexibility than electricity.
Since the majority of our gas supplies are used, directly or indirectly, for heating, it’s easy to see that we could do as much to improve gas supplies by storing heat as by storing gas.
In a really sensible system we would be soaking up excess power in storing heat first, and calling on gas to top up – its something that has become much more practicable because of the increasing use of centrally controlled ‘building management systems’ .
How much heat storage is already existing that we can tap? That’s not clear at this point. But if it is the cheapest option for providing energy storage it is something we should find out.
Energy supplies will be tight over the next few winters and while it’s not a crisis, there is no reason not to be prepared and to seek out new options that could, at this point, be cheaper and more flexible than new gas storage.
An obligation on energy storage, and flexibility on whether to achieve that using gas, electricity or heat (and cooling) could provide the platform for some really innovative solutions. And it could provide a kick start for options that don’t mean building kit, but instead use current resources more effectively.