30% fall in battery storage costs necessary for future viability of UK projects
According to Foresight, leading UK battery storage investors, a 30% reduction in energy storage costs is required to make future UK projects feasible without relying on revenues from frequency response contracts.
Katherine Vinnicombe, investment manager for Foresight, said that four-year enhanced frequency response contracts make up 70% of development costs of two of their battery energy storage projects. This leaves just 30% of development costs to be recouped from other revenue streams.
Frequency response services are a lucrative revenue stream for UK energy storage projects but the market is already reaching saturation point. National Grid currently expect to need approximately 400 MW of such services, of which 200 MW has already been allocated. This leaves a meagre 200 MW on the table for other energy storage projects.
With more battery storage capacity expected to be completed this year, Vinnicombe expects frequency response contract prices to fall as saturation increases. Claire Spedding, head of business development for National Grid, warned energy storage developers not to depend on frequency response contracts for their future revenue streams.
Without access to income from frequency response contracts, Vinnicombe predicts storage technology costs must fall 30% further to make standalone battery storage projects economically feasible.
Vinnicombe highlighted the possibility of co-located projects, adding battery energy storage to existing wind and solar facilities, as an economically viable way of adding energy storage to the grid. This method has seen recent success with Anesco’s Clay Hill solar farm project, the first to be developed without subsidies in the UK. Vinnicombe stressed, however, that such projects require particular circumstances to be viable.
While currently, standalone energy storage projects without revenue from frequency response would have to rely entirely upon income from arbitrage and balancing mechanism access, Vinnicombe suggested that future opportunities could be available in behind the meter applications such as peak shaving.
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