UK energy storage: why a Brexit may be good

Britons discussing the Brexit in a pub yesterday. Photo: www.animam.photography.

Britons discussing the Brexit in a pub yesterday. Photo: www.animam.photography.

By Jason Deign

UK renewable energy interests could face significant market disruption if Britons vote to leave the European Union (EU) in a referendum this month.

But while sectors such as wind energy fret over what a so-called ‘Brexit’ could mean for European-led subsidy programmes, whether or not a departure could harm the UK’s nascent energy storage market is less clear-cut.

In particular, the fact that storage is already being deployed in the UK without any form of government support means further growth in the market may not be dependent on political links with Europe.

Last month, for example, the UK’s National Grid launched the first battery system in Great Britain to provide sub-second frequency response services.

Hertfordshire, England-based Renewable Energy Systems won the bid to provide 2MW of storage capacity under a four-year contract.

Storage does not require support

No subsidies were involved, demonstrating that storage does not require government support to be viable in the UK.

Furthermore, the regulatory hurdles that UK grid-scale storage faces are not related to EU membership, but to the way the national regulator defines the assets.

“Storage is not an asset class yet, so government can’t support it,” said Alistair Marsden, commercial director at Welsh renewable energy services provider Dulas, which is corporately against leaving Europe.

“Because of that, the industry has gone ‘Well, sod it, we don’t need your support. We’re going to make this work.’”

Lack of government funding does not appear to have held back the growth of storage so far in the UK, Marsden noted. “Stuff which never had government support is cracking on at breakneck speed,” he said.

Current estimates for growth in UK

Current estimates for growth in UK energy storage range from 1GW by 2020, forecast by the Renewable Energy Association, to twice that much, by the Electricity Storage Network.

None of this appears related to EU regulation, targets or membership, though.

Another reason why energy storage interests may not have much to fear from a Brexit is that a departure from the European Union could delay progress on grid interconnections with other countries.

The UK has 4GW of interconnector capacity and is due to almost double that, to 7.3GW, by 2021, according to figures from the electricity regulator Ofgem.

Building interconnectors is a major plank of European Union energy policy but it is unclear how these complex, slow-moving infrastructure projects would fare if the UK cuts ties with neighbouring countries.

Leaving Europe’s Internal Energy Market

A report by Vivid Economics says things could hinge on whether a Brexit also prompts the UK to leave Europe’s Internal Energy Market (IEM). That need not be the case: Norway, for example, is outside the Union but inside the IEM.

However, if the UK does exit the IEM then Vivid says the consequences could include decreased market coupling, cuts in cross-border capacity and balancing market trading, and lower investment in new interconnectors.

This is bad for the UK’s electricity sector as it would likely hit the cost of energy, albeit that Brexit’s most pernicious effect, which Vivid says would be raising the cost of infrastructure investment, would happen regardless of IEM status.

Paradoxically, though, the same conditions that could harm Britain’s energy system might favour investment in storage.

Put simply, the more the UK remains as an energy island, the more it might need storage to keep the lights on.

Retiring coal-fired generating capacity

It should be remembered that the UK is already operating on a historically tight capacity margin after retiring more than 8GW of coal-fired generating capacity.

Until recently, these coal-fired power stations were not only providing base-load generation but also helping to balance the grid. Storage is already taking on this secondary role, as demonstrated by the National Grid tender.

And renewables appear ever more set to step into the energy generation breach, regardless of EU targets and incentives.

For example, the UK government has recently put the brakes on subsidising grid-scale solar, meaning the PV industry is already largely having to fend for itself in the energy mix.

In a Brexit, solar panels would no longer be subject to minimum import pricing, so UK PV projects would become even more competitive. More PV on the grid could increase opportunities for energy storage above current levels.

Brexit impact on investor sentiment

None of this is to say that storage companies should look forward to a split with Europe, however. Many renewable energy observers are wary of a Brexit because of the impact it could have on investor sentiment.

A recent editorial in industry newsletter A Word About Wind, for example, said: “At present, institutional investors feel confident about investing in wind because they know that countries are bound by EU targets.

“Removing these targets would hit their confidence and mean less money for wind, which can only impede the growth of the sector.

“And that is not to mention the threat that a collapsing EU would pose to a global financial system that remains shaky and skittish.”

A pullback in infrastructure investment could hit storage as badly as any other part of the energy system.

At least, though, it is probably fair to say that if the UK does decide to cut ties with Europe then storage project developers may not feel as much pain as their peers in other parts of the energy ecosystem.

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