Hydrostor – Written evidence (LES0037)
Hydrostor Inc. ("Hydrostor") is pleased to submit comments to the Right Honourable Science and Technology Committee members regarding the United Kingdom's ("UK") need for medium and long-duration energy storage. Hydrostor Inc. is a Canadian technology provider and developer of long duration, utility-scale energy storage facilities, which use our proprietary Advanced Compressed Air Energy Storage (“A-CAES”) technology.
• A-CAES technology is commercially ready with two facilities deployed in Canada and is currently developing multiple large-scale A-CAES projects in California and New South Wales.
• Compressed Air Energy Storage is considered the third pathway for long-duration energy storage with Batteries and Pumped Hydro.
• Clear signals or targets for long-duration energy storage will need to be provided for developers to begin development of long-lead time large infrastructure assets.
• A clear commercial pathway (contract) with certainty will need to be established as long-duration energy storage assets will not be built through the current market arrangements.
The former Department for Business, Energy, and Industrial Strategy ("BEIS") awarded £1 million to the StrataStore Consortium, composed of Hydrostor, EDF, and io consulting, for the early-stage development work on an Advanced Compressed Air Energy Storage ("A-CAES") facility at EDF's Hole House site near Cheshire. The consortium completed its deliverables for a 5 MW and 100 MW A-CAES project in January 2023. After this, the consortium elected to suspend further development efforts since the UK Government had not outlined a commercial pathway for long-duration energy storage.
Transformation.
The United Kingdom must prepare for seismic changes to its power grid as it pursues the 2035 Net Zero program. The UK's ambitious goal to overhaul its power markets will require tens of gigawatts of renewable power, energy storage of varying durations, and thousands of kilometers of new electrical transmission infrastructure to connect energy generation further from population centers.
As other jurisdictions, such as California, USA and New South Wales, Australia, discovered, medium and long-duration energy storage ("M+LDES") assets are critical infrastructures that maintain grid reliability as intermittent generation displaces dispatchable plants. As energy market analysis in other jurisdictions demonstrates, medium and long-duration energy storage is necessary to avoid black and brownouts as renewables' penetration exceeds 40%. Not only does M+LDES investment secure baseload power, but it also ensures ratepayers can fully realize the value of depreciating prices of renewables against exposure to increasingly volatile natural gas and oil fluctuations.
M+LDES investment faces three fundamental problems within the UK. Firstly, a clear separation of medium and long-duration needs. Legislatures must realize against a plenary of technological solutions that medium and long-duration suit different use cases. Immediately consequential is planning: The UK will require medium durations before long duration for economic sense. Daily and intraday storage predates weekly or seasonal needs. Conversely, medium and long-duration assets are long-lead infrastructures requiring approval and financial support several years before operation. Further, conflating the medium and long-duration use cases often yields incoherent procurement targets, exacerbating a program's costs to ratepayers and broader reputation. Specific procurement carveouts for medium and long-duration energy storage send clear market directives.
Secondly, building off the first fundamental problem is adequately valuing medium and long-duration energy storage. The UK must balance the low-cost, no-emissions generations with modern-grid reliability to meet its Net Zero obligations. Competitive, market-based solutions, such as the Contract-for-Differences ("CfD") style arrangements, fulfill such obligations. Longer-term CfDs enable superior project financing options for developers, which they can pass to ratepayers. Past precedence includes California's Resource Adequacy ("RA") framework per the UK's definition of medium duration. The New South Wales government recently implemented the Long-Term Energy Service Agreement ("LTESA") structure for 8-hour storage.
Thirdly, Net Zero goals necessitate transmission infrastructure development. As energy generation transitions from fossil fuels to renewables, so does the asset's location relative to load centers. Existing transmission strategies need improvement, as evidenced by the estimated 2036 interconnection date provided to the StrataStore project near Liverpool and Manchester. M+LDES assets can subvert some transmission costs as possible Non-Wire Alternatives ("NWA") - but again, the UK must develop clear use case directives.
In the background of the three fundamental problems plaguing energy storage investment in the UK is project permitting. Multi-year permitting pathways yield greater uncertainty from longer project gestational periods, particularly those with long-lead equipment, and diminish investment attractiveness.
Viability.
Hydrostor's point of view is that the UK's Net Zero goals will require diverse solutions. Hydrostor's A-CAES technology is technically and commercially ready for utility-scale deployment, as evidenced by advanced development projects nearing financial close in California (500 MW, 8-hr Willow Rock Energy Storage) and Australia (200 MW, 8-hr Silver City Energy Storage). Hydrostor believes A-CAES will be an economically advantageous solution in a competitive, market-based procurement for medium-duration energy storage.
The technical innovations that differentiate A-CAES from Compressed Air Energy Storage ("CAES"), namely adiabatic heat storage and hydrostatic compensation, are widely used in other industrial applications, representing minor technological step-outs from CAES. The adiabatic heat storage means A-CAES operates emissions-free, while the hydrostatic compensation system within salt or hard rock caverns increases siting abilities. It is essential to highlight that CAES is a proven asset class with multi-hundred MW facilities operating for decades in Germany (Huntorf) and the USA (McIntosh)—the US Department of Energy views compressed air as a low-cost, mature solution.
Hydrostor has already deployed A-CAES technology at two facilities in Canada, utilizing existing proven equipment with mature supply chains. In late-2021, Hydrostor secured a $250 million investment commitment from the Private Equity and Sustainable Investing businesses within Goldman Sachs Asset Management and an investment from the Canada Pension Plan Investment Board. Hydrostor's 500MW, 8-hour Willow Rock project in California is under advanced development and a signed 25-year PPA with Central Coast Community Energy ("3CE"), one of California's largest community choice aggregators.
Response to Questions:
3. Which technologies can scale up to play a major role in storage?
• Which timescales for storage are different technologies most suited to? Is there a preferred technology for medium-duration and long-duration storage?
Different resources will be more efficient and cost-effective for different system reliability needs. This will be based on the attributes that each type of resource brings to the market. By identifying the system reliability need or the problem trying to be solved, and properly valuing the attributes of medium and long-duration storage, through competition among longer duration resources, the right type of resource will be procured. Any competitive procurements for medium or long duration storage should be technology neutral. As a start, the UK will require medium durations before long duration as daily and intraday storage predate weekly or seasonal needs.
Many medium and long duration storage resources are large infrastructure assets with long lead times. For example, Advanced Compressed Air Energy Storage (further explained in the response below), takes approximately 5 years for development and construction for a 500 MW 8+ hour project. Other long-lead time resources may take much longer to develop such as pumped hydro due to the large infrastructure nature of the resource.
Different medium and long duration energy storage technologies will be important tools in the toolbox of solutions that must be leveraged to meet the future system reliability needs based on the government targets of a decarbonized grid by 2035.
• What are the technology readiness levels for these energy storage technologies?
Advanced Compressed Air Energy Storage (A-CAES) is based on the proven compressed air technology (since the 1970s) but solves the two main constraints of traditional compressed air energy storage by storing and using heat, eliminating the need for natural gas, and leveraging rock caverns instead of exclusively salt caverns. The resource is a 100% emission free solution that can be strategically located where needed. A-CAES also benefits from being intentionally designed around existing supply chains that are proven for directly analogous applications which are widely deployed in the conventional energy industry. This means that A-CAES not only can be commercially deployed today but is already being deployed in multiple markets globally.
There are compressed air energy storage assets that have been operating for decades in Germany (Huntorf) and the USA (McIntosh). Today, A-CAES resources are being developed by Hydrostor in California (8 hour; 500 MW project) and New South Wales (8 hour; 200 MW). This development is occurring based on a $250 million investment commitment from the Private Equity and Sustainable Investing businesses within Goldman Sachs Asset Management.
A-CAES has unique advantages as a long-duration energy storage solution. It can be constructed in places where other forms of large-scale synchronous generator-based storage cannot (like pumped hydro and traditional-CAES). Unlike battery storage technology, A-CAES is cost-effective at long durations (6 hours+), has an exceptionally long service life of over 50 years without degradation and without any requirements for augmentation. It also provides numerous grid benefits like synchronous inertia. A-CAES is entirely non-emitting and provides reliable long discharge durations which offers a compelling alternative to carbon emitting capacity technologies.
The A-CAES technology has been independently reviewed by leading engineering firms. Further information can be shared with the Committee upon request.
4. What policy support is currently in place to support deployment of storage technologies? Is it sufficient to support deployment at scale?
• How good is the economic case for long-duration energy storage? What policies and market structures need to be put in place to make the business case viable?
Based on current market arrangements, there is not a sustainable revenue model for longer duration energy storage in the United Kingdon. There is a need for industry and decision makers to work together on market reforms to enable medium and long-duration energy storage projects to be fully compensated for the services they provide to the grid. The current market arrangements do not support capital-intensive long lead-time assets as the market does not look far enough into the future to value the needs of a changing emission free grid.
In parallel with a market design review and discussion, separate competitive procurements focused on medium duration storage (8-12 hour) and long-duration storage (24 hour +) should occur to ensure the long lead time large infrastructure have time to be developed and constructed in advance of net zero 2035 targets. Since the current market construct displays the disparity between compensation based on immediate, single-year reliability needs versus the longer-term value of the resources, a market arrangement, such as Contract For Differences, is required for the projects selected in a competitive procurement.
• How will the grid need to change to support long-duration storage? Which stakeholders (e.g. energy companies, the Electricity System Operator, National Gas) should be planning for these changes?
All key stakeholders and decision makers need to be involved in planning for the future decarbonized grid. This includes the review of market mechanisms to value the long-lead time large infrastructure resources, such as A-CAES, that values the attributes and benefits brought to the grid by medium and long duration energy storage resources.
To meet the 2035 decarbonized grid goals and the 2050 net zero targets, a clear and transparent path to permitting and interconnection needs to be enabled. Connectivity delays will cost the ratepayer as constraints payments and more expensive solutions to meet the goals and targets may need to be pursued. The role of non-wire alternatives also needs to be facilitated to assist with constraint management and maximise the total renewable capacity currently and expected to be on the grid. Medium and long duration energy storage solutions, such as A-CAES, can alleviate cost and capacity pressure on the system through non-wire alternative arrangements.
• What role does the Review of Electricity Market Arrangements need to play to support medium- and long-duration storage development?
As noted in the October REMA report, the existing market arrangements may not meet the challenges of the next phase of decarbonization that secures supply in a cost-effective manner. The Review of Electricity Market Arrangements needs to continue the work it is pursuing to create a new set of market arrangements. Understanding and valuing the benefits and attributes of medium and long duration storage from large capital infrastructure projects will assist the electricity system to meet the future arrangements required.
• Is the Government’s current reliance on market actors and technology competitions likely to deliver the storage needs on time?
Competition will lead to cost effective solutions, however any competitive procurement for medium and long-duration storage will need to occur in 2024 and annually thereafter to meet the electricity system needs of a decarbonised
grid in 2035 and beyond. In advance of the development of future market arrangements that value the attributes of longer duration storage, a competitive procurement should be launched in 2024 for medium and long duration separate from other programs/procurements to ensure longer duration energy storage resources are procured, developed and constructed for 2035.
For A-CAES resources (500 MW; 8 + hour resource), approximately 6 years will be needed for development and construction activities, assuming a clear interconnection and permitting pathway has been enabled.
6. Beyond the cost of deploying long-duration energy storage, what major barriers exist to its successful scale up (e.g. the availability of a skilled workforce, the ability to construct the necessary infrastructure on time, or safety concerns around new technologies)?
The lack of market arrangements valuing the attributes of longer duration storage resources is the main barrier to successful scale up of this type of resource. Please see comments in response to Question 4 for further information.
The uncertainty of Grid Connection Timing and Grid Connection Costs are a key barrier for the development of longer duration storage resources. As an example, discussions on an early stage longer duration development project in Cheshire led to a speculative connection timing in the range of 2028 to 2036. A date in the 2030s has the potential for the stoppage of the project. The grid connection costs for the project are also extremely uncertain based on the range provided, with the higher end of the range making the project uneconomical to develop.
• How long is it likely to take to develop the necessary infrastructure?
For 200 – 500 MW 8+ hour A-CAES resource, a development and construction timeline is approximately 5-6 years based on an efficient grid connection and permitting process.
If the longer duration storage resources are used as a non-wire alternative, deferment in upgrades to existing or new transmission infrastructure could occur.
7. What steps should the Government take now to ensure this storage can come online later in the current decade?
• Can the UK learn from other countries that have successful policies for supporting large-scale energy storage, or from pilot projects elsewhere?
To procure competitive longer duration storage resources based on experience in other jurisdictions Hydrostor recommends competitive procurements are held separately for medium term storage (6+ hours) and for long term storage (24+ hours) as they will be needed to solve different market needs. Daily and intraday issues can be solved by medium duration storage and will predate weekly or seasonal needs. Having similar duration resources compete against each other is key to procuring longer duration storage (versus short term storage resources) as the attributes to the electricity system are different.
To meet the revenue needs of longer duration storage resources, a contract will need to be in place in advance of the development of market arrangements that value the attributes of the longer duration storage resources. Other jurisdictions have been able to procure longer duration storage resources with 15 – 20-year contracts similar to the Contract for Differences arrangements for renewables in the UK.
Other jurisdictions have already begun the successful competitive procurement process for longer-duration energy storage to meet expected system needs in the future. For example, New South Wales has targeted 2,000 MW of long-duration storage (8+ hours) by 2030, using a state-run procurement to allow all technologies with 8+ hours of storage capability to compete for contracts on a technology-neutral basis. In California, the California Public Utilities Commission has mandated 1,000 MW of long-duration storage (8+ hours) be procured by load-serving entities before 2030, with these entities using competitive avenues to procure LDES from various providers. These examples show the viability of competitive processes for LDES procurement, whether it comes from Pumped Storage, A-CAES, or another viable technology that can provide the same services.
11 September 2023