io consulting – Supplementary written evidence (LES0043)

 

Based on experience in other jurisdictions, Hydrostor recommends that the United Kingdom procure medium-duration (6-12 hours) and long-duration (24+ hours) through separate competitive processes, as they address different market needs. Hydrostor predicts that the UK will require medium-duration storage ahead of longer-durations, as daily and intraday needs will predate weekly and seasonal requirements. 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.

 

Long duration energy storage assets will need a financeable contract ahead of the development of market arrangements that adequately value their attributes. Other jurisdictions have been able to procure longer duration storage resources with 15-20-year contracts like the Contract-for-Differences arrangement deployed for renewables in the UK.

 

Other jurisdictions have also successfully procured longer-duration energy storage through competitive processes. For example, the government of New South Wales is executing on their goal to procure 2,000 MW of long-duration (8 plus hour) energy storage by 2030 via a technology-agnostic contracting process. In California, the Public Utilities Commission (CPUC) has mandated that load-serving entities procure 1,000 MW of long-duration storage, in the aggregate, before 2030. These examples underscore the viability of leveraging competitive processes to procure LDES, regardless of whether its from pumped storage, A-CAES, or another suitable technology.

 

California, USA:

In California, the Long Duration Energy Storage projects, such as Hydrostor’s Willow Rock project (500 MW, 8hr+) is funded through the Resource Adequacy (RA) program, which is a type of capacity market. This contract was made possible through the mid-term reliability decision by the California Public Utilities Commission which mandated that 1,000 MW of storage with at least 8 hours of duration be procured.

 

The Resource Adequacy program specifies the amounts of different types of capacity that should be procured through its “Maximum Cumulative Capacity buckets”. This allows for LDES technologies to compete with other similar assets providing similar grid services, rather than having it compete with technologies such as shorter duration battery storage, which have different characteristics and project requirements.

 

The contracts were awarded bi-laterally based on negotiations between the service providers (such as Hydrostor) and the Load Serving Entity (LSE). The contract lengths vary from less than a year to up to 25 years, as longer contract terms are preferable for assets such as Hydrostor’s A-CAES system and pumped hydro storage to match the lifetime of the asset more closely and to allow for more appropriate repayment terms on the initial capital expenditure of the projects. Hydrostor has access to other revenue streams through participation in the ancillary services market and energy trading market, through arbitrage, in addition to the RA contract.

 

 

New South Wales, Australia:

The Long Term Energy Storage Agreement (LTESA) is a program aimed at supporting low carbon generation which is administered by the Australian Electricity Market Operator. The LDES LTESA program aims to procure 2,000 MW of eligible storage over a 6-year period. The minimum requirement to be eligible for an LDES LTESA is to be able to provide 30 MW of energy for 8 hours. The contract length for the LTESA is up to 40 years, which allows it to cover the lifetime of a Hydrostor A-CAES asset (20-to-30-year range). The in-service date for the agreement is also suitable for A-CAES assets, at 4 to 6 years from the awarding of the contract.

 

An LTESA consists of an annuity payment to the LDES technology owner, which is equal to the difference between the Net Operating Revenue of the provider and a minimum amount that is bid as part of the contract award process. Fifty percent profit above a maximum amount which is also part of the bid is shared, with the limit on profit sharing being the amount of money paid to the technology owner through annuity payments previously.

 

The LTESA encourages the asset owner to explore all possible revenue streams to maximise the chance for increasing the amount of revenue that the asset receives. In this case, the asset’s revenue streams included energy arbitrage, frequency regulation, emergency reserves. The nature of the agreement also allows flexibility to adapt to future market changes.

 

28 September 2023