The government is to go ahead with plans to derate electricity storage facilities that provide power for less than four hours: the change will apply in the forthcoming Capacity Market auctions for 2021/22 and 2018/19. Some 6GW of storage has prequalified for the 2021/22 auction and 2GW has prequalified for the 2018/19 auction, BEIS said.
The Department for Business, Energy and Industrial Strategy (BEIS) dismissed concerns that the change could damage the business case for some storage installations. It said there was a real concern that batteries with discharge times of as little as a half-hour would be ‘over-rewarded’ if they were treated as if they could cover a four-hour Capacity Market call. What is more, it said the large numbers of batteries pre-qualifying raised concerns over security of supply – analysis showed that Capacity Market events typically lasted two hours. It noted that similar capacity markets elsewhere already applied derating to facilities that provide short-duration power.
BEIS said unless it acted, it was likely that high levels of short-duration power in the 2021/22 auction would mean it may have to procure more power later. In the auction for 2018/19 it would have to procure more capacity to ensure it met security standards. Both actions would increase the cost to consumers – BEIS estimates by £50-500 million over 15 years, with a central estimate of around £200 million (2017 prices, discounted).
The problem for battery developers is that the capital cost of storage is higher for long-duration options. Other revenue streams such as frequency response favour fast-response, short-duration plant.
BEIS declined suggestions it apply derating only where companies had not already taken Final Investment Decisions on plant, saying that would mean different treatment for parties entering the auction.
Batteries with existing Capacity Market contracts will not be affected by the change.
Opening door for renewables
BEIS promised a consultation in the spring on changes that could allow renewables to take part in the Capacity Market. Regulator Ofgem will consult on proposals to amend the technology classes encompassed within the market. BEIS said, “These include proposals to enable unsubsidised renewables to participate in future auctions and to accommodate hybrid technologies within the framework.”