The role of energy storage in Ireland’s energy future

Gaelectric hosted a round table discussion on the benefits of energy storage and how it can facilitate renewable energy development in Ireland.

How does energy storage support security of supply?

Fergal McNamara
The first obvious benefit is to fill the peaks. To move power from lower demand times to times of higher demand. There are also potential savings on T&D, providing a spinning reserve and ancillary services and soon DS3 [Delivering a Secure Sustainable Electricity System programme] services. It provides flexibility with very fast acting devices. It also can play a role in a ‘black start’. The route to market is to harness these benefits is through ancillary service payments.

Keith McGrane
There is an historical context, in that we talk about storage as if it is a new thing. It’s not as it has been around for a long time. In the wake of the 1973 oil crisis there was a decision to build nuclear across Europe and with that a build out of pumped storage to give black start capability if the nuclear plants went down. This reflects the very core of the business case for storage: its responsiveness to disturbances on the grid.

Storage in an island setting has been demonstrated to provide security of supply. In the context of Northern Ireland storage can meet system needs with 6, 8, 10 or 12 hours of storage. There is an example of a CAES [compressed air energy storage] project in Alabama, US built in 1993 that can provide up to 24 hours of continuous service. It’s about designing the storage to meet the needs of the system. CAES can also operate like a CCGT [combined cycle gas turbine] but using only a third of the amount of gas and bypass the cavern providing 330MW of generation capacity. The demonstration of CAES over the last 40 years shows that it can underpin the operation of the system and can provide services for the management of the grid.

Jo Aston
I look at storage simplistically. It can consume power when demand is low and generate when the wind isn’t blowing. A key benefit would therefore be the natural load/generation pattern which would facilitate higher wind generation overnight. Given these characteristics it has the potential to provide a valuable role in terms of security of supply and in terms of economics. It also provides the potential to maximise the amount of energy from renewables on the system and to reduce curtailment. Looking at the economics of storage, it has the ability to provide wider system services.

Sam Matthews
Firstly a disclaimer. As a TSO [Transmission System Operator] we are technically neutral. We don’t favour any particular technology and we like a diversification of things. Storage is not new on the island: it’s called Turlough Hill which is a pumped storage system. As a TSO I see a role for storage in the market and also to support the system operator – the two are different. In the market you are looking to trade day-ahead and sell power, balancing across inter-day timescales – very much market related supply.

As a TSO my timescales are shorter. I’m more interested in balancing the system across that last hour. I’m talking about an I-SEM [Integrated Single Electricity Market] world, not the current system. As the TSO I will need lots of things like ramping margin, very fast transient services which storage can deliver. It can also deliver black start capability as well. I’m not interested in the technology itself, more the services it can deliver to the system operator.

Storage can have quite a large energy component, which compressed air does have, being able to run for a number of hours across any given day. Whereas other types of storage, such as small scale batteries, that have very high MWs but little MWh capacity. That’s still valuable to the system operator. So there is a whole range of storage options ranging from 8 to 12 hours of capacity for the system through to a very short timescale where I need things in milliseconds and seconds.

Ruth Buggie
Storage offers the opportunity to make the most of our indigenous renewable energy resources and secure our long-term low carbon energy future – that’s the primary headline. At a community level, we are seeing more communities wanting to take ownership of their power and that will involve some component of storage. It’s not an either or, grid or storage. It is whatever combination is needed to make their project work. For example, the Tallaght Smart Grid project, which is being led by the local authority, has storage for grid stability and for security of supply with the Tallaght zone.

We also have another good example with the energy co-operative on the Aran Islands that is also looking at storage. Part of the attraction of the Aran Islands project is that if any solution can work on such a small remote system it can work anywhere. We are also involved with the Mitsubishi battery project. We have worked on the whole range of electricity storage options and are also looking at wider energy storage solutions, such as using hot water storage as a thermal store to offset the curtailment of wind.

Alex Gilbert
Thermal storage is particularly interesting, as most storage projects in the past have focused on just electricity. We are trying to broaden that conversation out to include heat as it overlaps with some of our investments in social housing.

As regards the benefits of storage, these can be broken down into the technical benefits and the economic benefits – with the economic benefits I’m talking broadly to include the social and environmental benefits as in the triple bottom line.

The technical benefits have already been touched on: Balancing, flexibility, bridging between sources and power quality. From a financier’s perspective we are more focused on the economic benefits. These include the boost to renewable energy and energy independence and the move away from fossil fuels. On cost, although there is an upfront cost, there should be lower costs in the longer-term with the increased efficiency in the overall use of resources.

What role can energy storage play in facilitating renewable energy?

Keith McGrane
When we looked at CAES in 2008 I felt everyone was missing the point in that they were looking at the past rather than looking what was going to happen to the grid – with the move to 40 per cent renewable energy. We looked at high levels of wind penetration and what grid services would be required to make that happen. There is a lot of complexity around storage but simply we have too much wind when we don’t need it and storage can address that. The DS3 framework is very progressive and should give the opportunity to monetise the benefits of storage. We now need to build things. There has been enough talk and enough studies. Gaelectric is absolutely committed to see the Larne CAES project built.

Jo Aston
As the utility regulator we are technology neutral. As for storage we need to see how it can be utilised and what role it has to play in the wholesale market, how competitive it is. Looking forward to I-SEM there will be three revenue streams from which such projects will look to secure funding and consider their viability. The first of these is CRM [capacity remuneration mechanism] which is no longer a pot of money everyone gets, it will be a competitive auction process from which the best solution to meet the required need will emerge. The second, DS3 will again be determined through a competitive auction process and any new investor will need to consider their financial viability informed by the outcome of these auctions. Regarding DS3, the TSOs are looking at what volume of system services they need and what value they have to the running of the system. The third stream, is the energy trading arrangement, given the technical characteristics of storage they will be able to take advantage of trading timeframes of the I-SEM to exploit any opportunities of price arbitrage between Day-Ahead, Intraday and Balancing markets.

In terms of building new things, in designing the DS3 and CRM processes we will be mindful of the need to accommodate new investments but I would stress only if they are needed. The auction process will support longer term investments for periods up to 15 to 20 years.

Fergal McNamara
The evolving distributed nature of markets and networks makes small scale storage very interesting, whether that is an electric vehicle or a home energy system or the new for example Tesla batteries. It also opens up the prospect of new partnerships and consortia offering storage solutions with other technologies.

Keith McGrane
We have done a deal with Tesla, who have been trialling their power wall storage product in California. This is economic in California because of the high rates but the costs of these storage systems will come down in the next 36 months.

Sam Matthews
At the moment on the island we run up to 50 per cent renewables and we have a programme of work through the DS3 programme, as TSOs and regulators to increase that to 75 per cent. As a TSO I’m very proud we run at 50 per cent on our synchronous system. During the winter months we consistently run at 50 per cent.

Storage is a ‘dance partner’ for renewables. If the wind is blowing or not blowing storage can complement it. As for the large scale versus small scale, I’m not sure which way it will go.

What are the economic benefits associated with the Larne CAES project?

Keith McGrane
We have covered the benefits of storage and some of the technical services for the grid. Of the 13 technical services CAES can provide 12 of them. CAES is very good at providing DS3 services.

The Larne CAES is an EU Project of Common Interest (PCI), which has attracted €6.5 million in funding and that puts us in the position to apply for a grant for works (capital grant) which can be up to 50 per cent of the capital cost of the project.

A key driver in the overall business case for CAES on the island of Ireland is the ability to take large volumes of excess wind and put it into storage. By storing that wind energy it avoids the use of other fuels. The system is not built to absorb electricity or to ramp up and down as wind increases or decreases – that translates into a saving of between £50 and £100 million per annum over 40 years according to the economics assessments carried out for the project. That’s hugely significant. Those figures have been derived from the methodology set out by ACER and ENTSO-E for storage assessment which is required to be carried by PCI projects seeking grant for works assistance. The Larne CAES project will provide a 9 per cent reduction in wind curtailment on an annual basis. The various savings can then be translated into reduced bills for consumers assuming that the reduction in wholesale price does get passed through to consumers.

Sam Matthews
The reference to the ENTSO-E 10 year network development plan is important. I know we are usually focused on this island but we are part of that wider European market that is being harmonised with the development of the day-ahead and inter-day markets. No longer can we think that we have to store every MW of wind ourselves. You can send it across Europe and also get it back across Europe. We should also look at the regional and pan-European picture. The ENTSO-E 10 year plan is very comprehensive and lists all the projects of common interest. There is a wealth of information on the ENTSO-E website that would be of interest to readers.

What are the barriers to storage development? What are the prospects of financing such projects?

Keith McGrane
It’s all about the regulatory treatment that remunerates the benefits that are then financeable. You can’t build something unless you can raise the money. There is a direct tie-in between the regulatory framework and financing. It’s capital injection based on a regulatory framework that can show the investment community an adequate return for the risk.

Jo Aston
I don’t disagree with that but it’s back to protecting the consumer. With any new innovation, we are supportive but the technology is changing fast and we have to protect the consumer by ensuring that it delivers value both in terms of service and cost. The regulatory framework should support such projects and we have that in mind when we are designing the new I-SEM. However, they need to be competitive, but if we need stuff built – and I say stuff, as it could be any shape or size of technology – it has be there for the long-term. Technology is changing quickly and so it is about committing at the right time in order to avoid costly stranded assets.

Everyone does think storage is a good idea and with DS3 there will be market signals to reward capacity, efficiency and flexibility. If CAES can provide 12 of the system services it is then about how many of them are needed and how competitive you are.

Sam Matthews
Under DS3, on the system services side the TSO can give out up to 15 year contracts and with SEM Committee approval up to 20 years. Longer-term contracts are available but we have to go through a competitive process to get that.

Alex Gilbert
It really is about capital injection based on a sound regulatory framework. At present we are trying to get a picture of the various sticks and carrots in the electricity market here. Firstly there need to be incentives for renewables generally to ensure a reliable, secure and well understood market and that’s a challenge everywhere now. Secondly, why couldn’t storage have its own subsidy mechanism?

On financing storage I’d like to introduce a different idea. Amber’s International PPP [Public Private Partnership] fund is a £1 billion FTSE-listed fund. It includes several offshore transmission arrangement [OFTO]. National Grid owns the onshore grid but of the 11 offshore transmission links we own 5 through this fund, which is a PPP type arrangement. Amber and others will put up the money based on availability payments and these is no demand risk – that is undertaken by the offshore wind farm owner. Could a similar model be used for storage here?

Keith McGrane
The DS3 framework does have 15 year contracts on a case by case basis under a capability or take or pay remuneration arrangement. Gaelectric considered PPP as a model for the accelerated delivery of the Larne CAES project, with Government involvement on the basis that the European Commission and the European Investment Bank (EIB) would provide funding under the PCI programme. Therefore the overall delivered cost to Northern Ireland would be substantially reduced under such circumstances and given an accelerated delivery by 2019 could provide Northern Ireland with a unique and strategic security of supply solution for the next 40-years. A PPP delivery model is a potential route and there is a similar scheme in the UK for CCS [carbon capture and storage] projects where there is a need to see them built. A bilateral process was run under a PPP framework and allowed for the direct contracting of the plant given its strategic nature.

Fergal McNamara
I see the route to market for storage through the CRM and the ancillary services in DS3. From an Irish Government perspective that is the preferred route to market. It is right that consumers have to be protected and the auction process technology neutral. Everyone would always like regulatory change to go faster but it will get there in the end. I would let the process for the new market arrangements continue and get the auctions in place – which will have to roll a few times. It’s only after that I would look for evidence of market failure and to see if these projects could move forward differently.

What is the one issue regulators and policy makers need to address for storage to happen?

Alex Gilbert
A certainty on subsidies is absolutely crucial. With storage you can also take more of a ‘stick’ approach. You could say if you are going to build more wind generation you must add storage by making it a planning condition. Subsidy certainty is key and the present uncertainty is not great. There is a lot of money looking to come into Northern Ireland, particularly in solar, but the uncertainty is making people nervous.

Ruth Buggie
It is widely accepted that we need storage. The issue is that we pay per kWh as if all kWhs were the same. It’s getting that understanding that a kW produced by wind at a certain time of the day is worth a different amount than at 5pm on a cold November evening. How does that translate into the financing of projects and what does it mean for consumers? How do you stop the non-energy part of people’s bills increasing? There is also an issue to ensure anyone that owns a battery can get access to the grid. Storage clearly addresses the issue of when the wind doesn’t blow but any benefits should come back to the consumer.

Sam Matthews
I can appreciate investors wanting certainty. They want low risk but does that mean no risk – because that means it goes all onto the consumer. I have also sympathy for the regulatory authorities with their crystal ball to tell them how the power system is going to evolve. It is small-scale storage? More interconnection? Will demand follow the wind in a smart grid world? Will energy storage in [electric] cars have a role? I have sympathy for both sides and appreciate the need for certainty around large scale capital investment projects because these storage projects will last for 30 years or even longer.

Jo Aston
I have already set out what actions the regulator is taking to support longer term investment essential for such projects. Considering policy, the trilemma comes to mind: price, sustainability and security. In 2010, when the SEF [Strategic Energy Framework] came out sustainability was the priority. I think we are moving into an environment where price is starting to be the dominant issue. If this is the change in focus, there may be implications for renewables, sustainability and subsidies we will have to see how that develops. The political policy backdrop is important, in southern Ireland and Northern Ireland both energy policy frameworks, the SEF and the White Paper are being reviewed.

Keith McGrane
Performance. In the US, FERC [regulatory authority] some years ago introduced a ‘pay for performance’ mechanism that distinguished the performance of storage against conventional solutions. That drew in new forms of capital and produced a performance-based investment that made it clear that flywheel, battery storage and CAES were much better at providing the required grid services. I think we could look at the FERC performance based approach and build it into DS3.

Fergal McNamara
I have a lot of respect and admiration for the entrepreneurs that come forward with these technologies and ideas. The role of government and regulators is to put in place the enabling structures to make this happen. There needs to be a ‘fair wind’ behind the TSO and regulators to get these mechanisms in place and get the auctions started. That’s what will enable these entrepreneurs to come forward with their offerings.

The participants

Jo Aston

Jo as Director of Wholesale Energy Markets, is responsible for the Utility Regulator’s regulation of the Single Electricity Market (SEM), a£2.7billion per annum market. This involves overseeing the re-design and integration of the current SEM with the European Electricity Market. She is also responsible for the re-design of the Capacity PaymentMechanism and the DS3 System Service project. Jo is a Chartered Civil Engineer.

Ruth Buggie

Ruth Buggie is the Sustainable Energy Communities and Smart Grid Programme Manager with the Sustainable Energy Authority of Ireland. She joined SEAI in 2005 and has managed a number of programmes including the SEAI Energy Poverty programme, the Better Energy Homes Scheme and the Area Based programme. Ruth holds a degree in building services and a Masters in energy management from the Dublin Institute of Technology. She previously worked for a number of years as a sustainable energy design engineer in Australia and as a project manager in an electrical engineering firm.

Alex Gilbert

Alex Gilbert is an Investment Manager at Amber Green, the sustainable investment brand of Amber Infrastructure, where his investment remit includes the successfully deployed London Energy Efficiency Fund (£112 million; www.leef.co.uk) and similar funds focused on Wales (£50 million; www.rifw.co.uk) and Scotland (£50 million; www.ambergreenspruce.co.uk). Alex has a background in clean tech venture capital and low carbon development.

Sam Matthews

Dr Sam Matthews joined SONI in 2013 and is a Grid Operations Manager. He is actively involved in the future implementation of I-SEM and DS3 system services. He previously worked for National Grid (1996-2000, 2005-2013), Entergy (2001-2004) and GEC Alstom (1995-1996). He has an MBA (Warwick), and a PhD/B Eng (QUB).

Keith McGrane

Keith McGrane is Head of Electricity Storage at Gaelectric. He is responsible for the development of Gaelectric’s position in energy storage, among a number of storage technologies and projects within its energy storage portfolio. He joined the company in 2008 from Barclays Bank where he was Relationship Director for structured finance in Ireland with a particular focus on energy and renewables. Keith was previously employed as Airtricity’s offshore wind division Corporate Finance Executive and worked on Ireland’s first offshore wind farm. Following graduation he worked as a scientific researcher with the Dublin Institute for Advanced Studies, specialising in the geophysical investigation of offshore western Ireland.

Fergal McNamara

Dr Fergal McNamara was appointed Senior Energy Advisor at the Department of Energy, Communications and Natural Resources in January 2015. Fergal joins DCENR from the UK equivalent the Department of Energy and Climate Change where he was responsible for the UK capacity market from 2012. He is a former Chairman of the Electricity Association of Ireland had held various senior positions in ESB, including Group Regulation Manager. Fergal has a breadth of international experience including representing Ireland at EURELECTIC and worked in the USA, Canada, Hungary and Tanzania.