Brexit fallout: higher UK energy storage costs

The UK's departure from the European Union is making storage more expensive.

The UK’s departure from the European Union is making storage more expensive.

By Jason Deign

One immediate result of the UK’s decision to leave the European Union is likely to be higher energy storage costs, Energy Storage Report has learned.

The June 23 vote to split with the Union, led by England and Wales, sent sterling tumbling against the dollar. Each pound was worth USD$1.48 on the day of the referendum, versus $1.31 yesterday, an almost 12% drop.

Sterling has also fallen almost 9% against the euro, from €1.30 on June 23 to €1.19 yesterday. This means the cost of importing storage technologies has likely risen by around 10% in the last month.

Nor is it clear whether sterling’s malaise is likely to improve over time.

Joseph Wright of Pound Sterling Forecast this week said: “Moving forward I’m expecting the financial data to continue to disappoint on release, mostly due to the uncertainty created by the Brexit.

Pressure on the pound as the year goes on

“This is likely to apply pressure on the pound as the year goes on.”

Other analysts are similarly downbeat, particularly as UK officials struggle to contain concerns over the British economy.

Bloomberg yesterday reported: “The pound dropped versus most of its 16 major peers after Bank of England policy maker Martin Weale said he’s begun to favour immediate stimulus for the UK economy.”

Elsewhere, The Independent said payouts from a European development fund had been suspended in the wake of the referendum.

The most obvious problem that exchange rate unrest will create for UK energy storage is for companies bidding for National Grid’s 200MW of Enhanced Frequency Response contracts.

Enough time to consider a weakened pound

The closing date for tender responses was on July 15 and it is not clear if that deadline, a mere 16 working days after the referendum, will have given vendors time to fully incorporate the impact of a weakened pound into their costs.

Having to pay significantly more for imported technology could represent a heavy burden for vendors already struggling to pay back the capital cost of projects within the four-year initial contract period stipulated by National Grid.

The companies and technologies selected in the bidding will likely not be revealed until National Grid publishes the results on August 26.

However, it is known the tender was heavily oversubscribed, with more than 70 suppliers offering a combined capacity of more than 7GW.

National Grid has not stated how much it is prepared to pay for the frequency response services in the tender.

Current costs for ancillary services

As a guide, though, it has published current costs for ancillary services, which average GBP£11 per MWh and in some cases go up to £20 per MWh, and has indicated it could be willing to pay up to twice that amount.

It is not obvious whether currency exchange uncertainties could tip the balance in favour of native UK energy storage manufacturers, which in any case are few and far between.

UK-based RES is known to have been pondering a bid within the tender and has already supplied storage systems for National Grid. Its battery systems will likely be sourced from abroad, though.

Among other UK-based firms, Cumulus Energy Storage is commercialising copper-zinc battery systems for grid-level storage but is not known to be participating in the National Grid tender… or to have UK manufacturing.

Highview Power Storage, meanwhile, has a novel liquid air energy storage design although this is currently at pre-commercial stage and unlikely to be suitable for National Grid’s frequency response requirements.

Not good for National Grid’s needs

And the UK tech firm Dyson has a foot in energy storage thanks to its acquisition of Sakti3 but, again, the technology is early-stage and not likely to be a good fit for National Grid’s needs.

As a result, it looks unlikely bidders in the National Grid tender will be able to avoid the consequences of sterling’s devaluation against other major currencies.

Nevertheless, Felicity Jones, a partner with Everoze Partners, an energy consultancy based in the UK and France, said the Brexit impact is unlikely to be a show-stopper for the National Grid tender because prices are so competitive.

“The very tangible impact on battery projects is that the cost goes up, since a weak pound makes it more expensive to buy batteries from abroad,” she said.

For the National Grid tender, she said: “Prices will be low, but they could possibly have been lower.

“Weak sterling will increase the bid price, except for players that are big enough or had enough foresight to hedge that currency risk beforehand.”

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