Scottish Renewables – Written evidence (LES0022)

House of Lords Science and Technology Committee inquiry into long-duration energy storage as part of a net zero grid: Submission by the UK Pumped Storage Hydro Working Group

Scottish Renewables is the voice of Scotland’s renewable energy industry. We convene the UK Pumped Storage Hydro Working Group (comprising SSE Renewables, Drax Power, ILI Group, Buccleuch, Foresight, Dorothea Pumped Hydro, CCSQ, Gilkes Energy and British Hydropower Association). We welcome that the Committee is examining the critical need for energy storage and we are pleased to provide a response to this call for evidence on behalf of the group.

The UK already has 3.6GW of pumped storage hydro (PSH) capacity, built during the last century to address the then need for power system flexibility. These plants are still operating well and have many decades of future life ahead of them. Our members currently have a combined pipeline of over 7GW of new PSH projects with over 135GWh of storage capacity.

We note that the Committee defines medium-duration energy storage as between 4 and 200 hours, and long-duration energy storage would store energy for over 200 hours. PSH generally has operating durations that range from 4-12 hours or 12 hours or more. As such, our response mainly addresses these medium duration storage capabilities, which we consider to be most critical for secure, low-carbon, electricity system operation.

The inquiry asks whether the Government has sufficient policies in place to support medium and long duration storage and whether delivery of these resources is on track. While we welcome that Government has for some time been considering how it may address this issue, likely delays in promised policy decisions are jeopardising investment in PSH. We recommend that urgent policy intervention is needed to realise the considerable benefits that PSH can deliver to the GB electricity system.

In this submission, we have addressed some of the key questions raised by the Committee as well as giving some background about our engagement to date on the storage challenge.

Background – our engagement with Government

It has been evident for some years that a dramatic increase in flexible low carbon electricity supply would be needed to enable an acceleration to renewables and to meet Net Zero targets. In 2021, BEIS published an update on their Smart Systems and Flexibility Plan (SSFP), indicating that around 30GW of flexible capacity could be required by 2030 to meet net zero targets. Around 60% of this flexibility capacity was assumed to be interconnectors with the remainder from storage and demand response. The SSFP suggested that some £10 billion per annum could be saved by 2050 by the introduction of such flexible technologies.

At the same time, Government launched a call for evidence on the need for large-scale, long-duration storage (LLES) on the future power system, the available technologies, and to identify appropriate, cost-effective market interventions to deliver these resources. We responded to this call for evidence by explaining how PSH could provide flexible, secure, and low cost long duration storage using a proven technology with around 95% of storage worldwide is provided by PSH. We highlighted the following benefits of PSH:

• Dispatchability: providing dispatchable low-carbon capacity when renewables are not available, displacing the fossil-fuel generators that would provide this flexibility.
• Maintaining system stability: providing dispatchable system ancillary services, such as inertia, voltage flexibility and restoration, which renewables may not provide.
• Reduced electricity curtailment: providing flexible demand on the system at times of low consumer demand, reducing the need for renewable curtailment.
• Lower network costs: providing flexible demand or generation in constrained grid areas to reduce the need for investment in transmission networks.

Our analysis showed that PSH investments are economic and provide benefits to consumers without any need for subsidy. But the pipeline of PSH investments cannot attract finance because there are no long-term price signals or contracts available. We recommended that the investment issue be addressed by implementing a ‘cap and floor’ revenue mechanism, like that already used for UK Interconnectors with Europe. We consider the existing ‘cap and floor’ approach can be easily adapted for PSH with appropriate qualifying criteria and a ‘soft cap’ design to maintain incentives for efficient operation while protecting consumers.

In August 2022, the Government published its response to the call for evidence, stating that: ‘The government response confirms that we will ensure the deployment of sufficient large-scale, long-duration electricity storage to balance the overall system by developing appropriate policy to enable investment by 2024’. This commitment to enable investment by 2024 is welcome, but there has been no further announcement or consultation about this policy and it appears behind schedule.

During 2023, the independent Net Zero ‘Mission Zero’ review by Chris Skidmore MP was published. The review highlighted the importance of dispatchable capacity, using the ESO’s FES ‘Leading the Way’ scenario showing over 80GW of dispatchable capacity being needed by 2035. The vast majority was expected to be provided by interconnectors (24GW) and storage (52GW). This is a significant increase from the 30GW of dispatchable supply in 2030 envisioned by the 2021 SSFP. Urgent action will be needed ensure that this capacity can be provided by storage, especially if interconnector capacity cannot reach the required levels.

Summary of our submission

Turning to the specific questions raised by the Committee, we have summarised our key points below and provided further detail on the specific questions in the attached annex.

• What is the need for medium and long duration storage? – as illustrated by the ESO FES scenarios, the need for storage is increasing, with potentially 50+GW of capacity needed by 2035. We consider storage durations from around 4-20 hours will be particularly valuable to replace gas plant (and expensive gas peaking plant) and reduce curtailment of renewables.
• Which storage technologies? – the scale of the flexibility challenge is such that a variety of low carbon storage and flexibility technologies will be needed and to be helped by government support. While it is appropriate that government policy is to not ‘pick technology winners’, PSH, while cost competitive, does appear to be disadvantaged by a lack of government action.
• What policy support? – electricity markets currently do not provide long-term price signals for storage resources, resulting in uncertain future revenues which are a barrier to investment in high capital value assets. Until major market reforms are enacted to provide long term price signals for dispatchability, stability, and locational services, alternative methods of providing revenue certainty will be needed.
• Technology and deployment readiness? – PSH is a proven technology and a 7+ GW pipeline of PSH projects with over 135GWh of additional storage capacity is available. While PSH projects have lifetimes of more than 100 years, construction of each project will take around 5 years, so decisions are needed now for 2030 operation.
• What next steps? – we consider a market mechanism (such as a ‘cap and floor’) to enable PSH investment is urgently needed. Internationally, the benefits of PSH are increasingly being recognised. For example, the US, China, India, Australia, and Europe have introduced measures that help accelerate investment in PSH projects.

Based on our experience, we do not consider that the Government is on track to deliver medium- and long-duration energy storage investment to enable a net zero energy system.

In summary, there is already a pipeline of over 7GW of PSH projects, many of which can begin construction soon after the delivery of an appropriately designed cap and floor mechanism. More are likely to follow once policy is clarified. The lack of a mechanism is the only barrier to unlocking the huge benefits these proven technology projects can deliver for consumers and the wider economy for the next 100 years and beyond. These benefits include:

• Economic – a recent Scottish Renewables report found that six PSH projects currently under development could deliver £5.8 billion of GVA and almost 15,000 jobs by 2035.
• Energy security – PSH can deliver home-grown energy security by limiting exposure to international energy prices and import capacity constraints.

• Lower consumer bills – PSH can reduce network congestion costs and renewable curtailment, as well as reducing the need for costly grid reinforcement.

We trust that our response is helpful and would welcome the opportunity to discuss our views with you. The UK PSH industry stands ready to make a significant contribution to the energy transition, as well as enhancing security of supply and delivering lower costs for consumers.

Annex: Answers to Call for Evidence Questions

Question 1

We agree with the latest ESO FES ‘Leading the way’ scenario that peak electricity demand may total more than 80GW by 2035 as an increasing amount of transport and heating is electrified. The ESO scenario predicts that over 80GW of dispatchable supply sources are likely to be needed by 2035.

The ESO modelling for this scenario (shown here) suggests that 52 GW of storage capacity will be required together with 24 GW of interconnectors, a major increase. We note that interconnector capacity is at risk of being constrained by low renewable output or export constraints in other countries.

We consider that the scenarios for storage use, particularly for required durations of storage capacity, are not yet well understood. The ESO model shows that there will be 178GW of wind and solar capacity - it may be expected that wind capacity will be available to meet greater levels of winter demand, thereby reducing the need for inter-seasonal storage. However, storage will primarily be needed for the hours or days when there are lulls in wind output during high demand winter seasons. We consider that PSH durations running from several hours to days should be well suited to these requirements, but uncertainty about the expected requirements (and revenues) means that investments are not being made. We suggest government should set storage investment targets without delay.

Question 2

The following chart from the 2023 ESO FES illustrates a likely mix of dispatchable electricity technologies through to 2050. This is dependent on demand and the speed at which gas plant is decommissioned, but we consider it a reasonable view of the challenge ahead. Of the technologies shown, the economic and practical deployment of new hydrogen and CCUS technologies appears uncertain, and interconnectors may also face constraints. Storage appears to offer the most certain of deploying low carbon dispatchable generation.

Figure 1: ESO FES 2023 - Dispatchable Generation (Leading the Way)

Question 3

We suggest that PSH should be the preferred technology for electricity storage durations of more than 4 hours up to days or weeks. It is a proven and simple technology, with lifetimes expected to be more than 100 years. Unlike batteries it does not degrade with use.

Question 4

Several policy initiatives are in place to encourage the development of flexible, dispatchable sources of supply. These include grants for the long duration storage innovation fund, and new revenue guarantees for CCUS and hydrogen. Short duration lithium-ion battery investments are being attracted by the market design for system stability services. All these technology support initiatives are making contribution to enabling Net Zero. But, as a proven technology, the PSH sector is unable to access sufficient policy support to justify investment.

We consider that there is a strong economic case for PSH to be cost effective over its lifetime, but the current market arrangements discriminate against this investment. If long-term price signals were available for all technologies, reflecting their value-added characteristics such as dispatchability, provision of stability services, and location then such projects could compete fairly with other technologies. Until such market reforms can be instituted, perhaps by the REMA process, PSH projects are unlikely to proceed. While other policy mechanisms could be introduced such as bilateral contracts with the ESO, we consider these to be less effective compared to our preferred ‘cap and floor’ option.

Question 5

The UK has well developed electricity markets and a world-leading offshore wind industry. The grid-scale lithium-ion battery sector is thriving, with 3GW due to be installed by the end of the year. But this industry is reliant on imports, with China dominating the global supply chain. As for offshore wind, a major expansion of PSH projects could offer the UK a significant opportunity for export of this PSH design, construction, and operation expertise.

Question 6

The essential skills required for PSH projects are expected to be largely available in the UK, and transferrable from other construction projects. While we anticipate that specialist mechanical/electrical equipment may be imported, around 70% of the project expenditure will be on civil works and based in the UK. A recent independent report commissioned by Scottish Renewables report found that the six PSH projects currently under development could deliver £5.8 billion of economic benefit and almost 15,000 jobs by 2035.

Question 7

As described earlier in our response, we consider a market mechanism (such as a ‘cap and floor’) to enable PSH investment is urgently needed. For new PSH projects to be operational by 2030, construction will probably need to commence by 2025.

Internationally, the benefits of PSH expansion are increasingly being recognised. For example, the US, China, India, Australia, and Europe have introduced measures that will help accelerate investment in PSH projects. In China work is underway to deliver more than 200 pumped hydro plants with a combined capacity of 270GW by 2025. In India, 19GW of new PSH is expected to be operational by 2032.

11 September 2023