Batteries not included? – Why local authorities should take the lead in developing ‘standalone’ electricity storage solutions

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

According to the respected Institute for Fiscal Studies (IFS), council revenues in England are 26% lower in 2016/17 than in 2009/10 before the Coalition Government came to power. In Scotland and Wales the cuts have been smaller at 15% and 11.5% respectively but combined with council tax freezes have still had a serious impact on local services. Even considering the return of 50% of business rate income to local councils in England, the discrepancy in revenue terms is still extreme and it is the poorest areas of the country that are hit the hardest.[1] There was no respite for local authorities in the Chancellor’s Autumn Statement with the pressure on social care budgets likely to increase further impacting upon future revenues to support other 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 and they still have many assets including their own corporate buildings and land which can be effectively utilised to maximise income generation. The key is turning capital resources into new revenue streams.

Despite the Government resetting energy policy in November 2015 with a reduction in financial support through the Feed in Tariff (FiT) for renewable energy generation, energy projects can still represent a long-term and sustainable way of delivering savings and/or income generation. The problem for local authority projects is that the sudden change in policy and reduction in subsidies for renewables like solar and wind has impacted adversely upon the business cases for such projects so that the return on investment simply disappears. Without new routes to market for the sale of and/or use of the electricity accompanied by falling technology costs, there is just no way to make projects happen in the short to medium term.

That’s where energy storage through batteries starts to become an alternative and attractive proposition for councils wishing to maximise their asset base. With the eventual phasing out of large coal fired generation capacity and Ofgem looking to find 2 gigawatts to balance the peak use of electricity through Demand Side Response (DSR), battery storage has become the next ‘Klondike’. Viable commercial scale battery storage is now a factor to be taken seriously. There is a danger that local authorities will, in much the same way as they did with the evolution of commercial scale wind and solar farms, see this a purely planning issue and miss the boat, rather than understanding the value proposition offered by battery storage and the leading role that public bodies can play both from a regulatory perspective, but also in terms of community leadership and exploiting their own assets to support strategic goals.

Globally electricity storage is forecast to increase massively over the next few years from 2.5GW in 2016 to approximately 9 GW by 2020, with batteries making up the vast majority[2]. This rate of growth will be mirrored in the UK.

According to the National Grid, storage has a wide variety of applications which could deliver value to consumers.

They cover three categories:

  • balancing and ancillary services provided to the System Operator
  • asset services for Distribution Network Operators (DNOs) and Transmission Owners (TOs)
  • wholesale and arbitrage opportunities whereby storage would help market participants (e.g. suppliers) to balance their positions.[3]

Local authorities can play a pivotal role in these services. The principle of the approach is that electricity is purchased from the grid when prices are at their lowest, stored in batteries and then resold on the electricity market when the highest prices can be obtained. This process is arbitrated via an energy trader whose responsibility is to manage the battery and maximise the financial income achievable through Firm Frequency Response (FFR), the capacity market, triads and GDUos.

This also links very closely to the Government’s desire to achieve greater energy security and balance supply with demand, smoothing out the peaks and troughs in the distribution network. It contributes to improving the local energy infrastructure in partnership with the DNOs and can also be made to work with renewables.

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

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 is equivalent to a 40ft. container or 90 sq. m of land. Most local authorities have plots of land which could accommodate batteries which are unobtrusive and have little other value in terms of either sale or rental, but by putting batteries on that land will increase its value tenfold.

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

Battery storage is an attractive proposition for local authorities in terms of the financial returns which can be considerable depending upon the scale of battery projects. The return on capital can be above 10% with payback in under 7 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.

Councils can limit the risk involved in projects in several ways, either 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 where for instance a local authority could invest 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, where local authorities felt comfortable in terms of managing the risk and given the low cost of capital, the local authority could procure, install and manage the battery itself and keep all the financial benefits.

Now, several local authorities are undertaking feasibility on grid connections and their available land assets to determine whether to proceed with projects. Gloucestershire County Council are one of the leading local authorities with ambitions to install and operate up to 53MW on land owned by the county council. Asset Utilities an energy and grid specialist company are 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 queue whilst the private sector takes all the glory. 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.

Mark Bramah, Managing Director of Municipia a public sector consultancy: email mark@municipia.co.uk tel 07858 465003 and Marc Wynn, of Asset Utilities Ltd. grid and energy project specialists email marc@assetutilities.com

[1] IFS presentation to the local government finance and devolution consortium 26 October 2016

[2] National Grid, Future Energy Scenarios, July 2016

[3] National Grid, Future Energy Scenarios, July 2016

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