Open Letter Cites Market Distortion
BESS developers have written an open letter to Ofgem, the UK’s energy regulator, and government, expressing concerns that the long-duration energy storage (LDES) support scheme introduced by Ofgem may introduce biases against battery energy storage systems (BESS).
- The scheme, designed to support the deployment of long-duration energy storage technologies, could distort the market for shorter-duration BESS projects by excluding them from revenue support.
- This, in turn, could lead to a 12% reduction in operating margins for shorter-duration BESS projects, which could have significant implications for the energy storage sector as a whole.
The open letter cites an LCP Delta report, which argues that although long-duration BESS is cheaper for the system, market signals do not sufficiently support BESS projects to build at long durations without the cap and floor.
| Eligible Technologies | TRL | Minimum Project Size |
|---|---|---|
| Novel iterations of lithium-ion batteries for longer-duration electricity storage | 8 | 50MW |
| Mature technologies (including lithium-ion BESS) | 9 | 100MW |
Concerns Over Technical Decision Document (TDD)
The signatories argue that the technical decision document (TDD) published by Ofgem in March still presents barriers to entry for BESS projects.
- The TDD focuses on pumped storage hydro (PSH), which has longer lead times, and other technologies that are not yet commercially viable.
- Despite this, BESS projects are still being considered for the LDES scheme, highlighting the need for greater clarity and consistency in the TDD.
Exclusion Threatens Clean Power 2030 Targets
The open letter also argues that the exclusion of BESS from the LDES scheme threatens the government’s Clean Power 2030 Action Plan (CP30) targets.
- According to LCP Delta’s report, the CP30 target of 23-27GW short-duration energy storage capacity is threatened by BESS being excluded from the cap and floor.
- This is because the minimum duration element distorts incentives to build below the minimum supported duration.
Industry Perspectives
The signatories to the open letter represent a collective 37% of the UK’s 5.3GW operational storage capacity. They include experienced investors, industry leaders, and experts in the field of energy storage.
- Ben Guest, managing director of Gresham House Energy Transition, stated: “The alternative – government trying to pick winners – sends a signal that the UK is closed for inward investment and fair competition.”
- James Mills, managing director of Adaptogen Capital, argued that the LDES scheme distorts market signals for shorter-duration BESS projects, making it “very likely” that BESS projects would be competitive at durations including 20-hour and higher projects.
Conclusion
The open letter to Ofgem and government highlights the need for greater clarity and consistency in the LDES scheme and the TDD. It also emphasizes the importance of fair competition and market signals in driving the development of the energy storage sector. In conclusion, the exclusion of BESS from the LDES scheme threatens the UK’s energy transition goals and the industry’s ability to innovate and grow. The signatories to the open letter urge Ofgem and the government to reconsider the scheme and ensure that it does not introduce biases against BESS.
