• Behind-the-Meter Energy Storage
  • ESS
  • DER Technologies
  • Market Effects

UK Storage Markets and Potential Business Cases

Roberto Rodriguez Labastida
Aug 20, 2020

Guidehouse Insights

At the highest level, energy storage serves demand for more flexibility in the power system. This flexibility can be used to defer investments in grid infrastructure when electricity demand exceeds transmission capacities or to improve the system’s resiliency to better deal with extreme weather events. But predominantly, flexibility in the power system is needed for the integration of variable renewable energy. Energy storage helps to deal with the variable power flows from solar PV and wind power generation. It is the key infrastructure component that allows for higher renewable energy shares in the power mix.

While the coronavirus outbreak slowed the deployment of renewables in 2020, the UK is still committed to achieving zero net emissions by 2050. This goal creates a huge opportunity for renewables and energy storage. The impact of renewables on the grid varies significantly, creating a complex business case for storage.

UK Markets Offer Variability to Energy Storage Systems

In the UK, there are up to nine different markets where energy storage systems (ESSs) can participate. Markets can have fixed contracts or be a merchant market. Examples of fixed contract markets include capacity markets, demand side response, or enhanced firm frequency response (EFFR) at transmission level. Another example of contract markets are for new asset referral and maintenance markets at the distribution system operator level. Merchant markets vary from the wholesale traded market (day-ahead and intra-day), which is deep and has some predictability. However, other merchant markets like EFFR are shallow and difficult to predict but can be profitable. Other markets for ESS are the balancing mechanism, which helps energy suppliers avoid cash-out payments to National Grid and the newly created Optional Downwards Flexibility Management.

Storage Developers Should Prepare and Take Advantage of Market Features

Successful storage developers need to be flexible and optimize most of these markets’ capabilities. The optimization process must start in the design phase with size (power), technology (lithium ion batteries, flow batteries, or hybrid batteries that use both technologies), and location of the ESS (colocated with generation, at the transmission grid, at the distribution grid, and behind-the-meter). The optimization process should continue all the way to the potential cash out payments when the market is about to settle. Guidehouse Insights analyzed UK storage deployments in its Country Forecasts for Utility-Scale Energy Storage  and Country Forecasts for Distributed Energy Storage reports.