UK Distribution Utility Reveals Financial Viability of Energy Storage

UK Power Networks shows that the cost of its storage project could be offset by savings and revenues valued at about £7.93 million.
Published: Thu 12 Feb 2015

British utility UK Power Networks has found a way to make energy storage financially viable.

The company has put together a business case to justify an £11.4 million (US$17.4 million) investment in battery storage even though it costs £6.3 million (US$9.6 million) more than conventional grid reinforcement measures.

Battery technology price cuts

For over a year now, the utility has been testing a 6MW/10MWh battery storage system as a way to harden a local substation. Recently revealed figures show how the lifetime installed cost of the Smarter Network Storage (SNS) facility in Leighton Buzzard, UK could be offset by savings and revenues valued at about £8 million (US$12.2 million) over the life of the project.

Assuming the project is scaled for other areas of the grid, the majority of the savings are a direct result of the drop in price of battery technology in the year since SNS was commissioned in 2013. The business case today would have to be adjusted to account for cuts of up to 30% in battery prices. According to Nick Heyward, SNS project lead, these cuts alone would knock £2.9 million (US$4.4 million) off the cost compared to the initial project and an additional £2.6 million (US$4 million) could be deducted through future income streams made possible by the storage system. In addition to this, UK Power Networks estimates that load-balancing services could generate between £300,000 and £400,000 (US$457,000 and US$610,000) a year. This would leave SNS approximately £800,000 (US$1.2 million) short of beating the cost of traditional grid reinforcement measures such as building new overhead lines and primary transformers.

The utility says that SNS has the potential of delivering around £2.5 million (US$3.8 million) in "societal benefits," such as displacing the need for additional peak generation capacity and cutting carbon emissions.

Heyward points out that these profits don’t always appear on the corporate balance sheet which represents a blind spot in regulatory schemes not just in the UK but also in other markets.

Storage will benefit the entire utility sector

The SNS project is important not just in helping to show how grid-scale energy storage could make financial sense in practice, but also in delivering real-life data on costs and benefits to the utility sector as a whole.

A breakdown of project costs shows, for example, that capital expenditure on storage technology accounted for 69% of the total lifetime installed cost of the project. Operational costs, over a decade, represented a further 9%. The remaining 23% corresponds to design work, civil and electrical engineering. Within this area, one-third was typical civil engineering work that would need to be carried out in any project of similar characteristics. A further quarter of that 23% (5.75% of the overall cost) was typical electrical work. About 4% of the overall cost was on project-specific work such as raising the battery warehouse 2 meters above the ground to avoid flooding risks, since SNS was built on a flood plain.

Energy storage- creating maximum value for distributors

SNS, a 765m2, purpose-built facility featuring 12 arrays of 264 Samsung lithium-ion battery strings with advanced management systems, was built to create maximum value for the distribution network operator.

UK Power Networks has an energy supply and tolling agreement with SmartestEnergy, Britain’s leading purchaser of independent energy generation. It also has an aggregator services agreement with KiWi Power, a demand response company.

Working with these partners, UK Power Networks can offer response and reserve services to the grid, wholesale energy market buying and selling, peak shaving, reactive power, and voltage support for its own network.

The facility was built with £13.2 million (US$20.1 million) from the Low Carbon Networks Fund provided by Ofgem. UK Power Networks invested a further £4 million (US$6.1 million), and the balance of the funding came from project partners including SmartestEnergy and KiWi Power, plus AMT-Sybex, Swanbarton, Pöyry, Newcastle University, National Grid and Imperial College London.

In Engerati’s The Energy Storage Clinic – Live Panel Discussion, three of the panelists are involved in the UK power Networks SNS Project at Leighton Buzzard and speak with authority on technical market and regulatory challenges with reference to the live project.