Fluence Chases More Robust Role in UK Grid With 60MW Storage Portfolio
The company will supply Advancion systems to U.K. Power Reserve, while scoping out new ways to make money in an evolving market.
A U.K. flexible power developer recently chose Fluence, a Siemens and AES Energy Storage joint venture, to supply three 20-megawatt storage systems to serve the country’s increasingly renewables-heavy grid.
U.K. Power Reserve (UKPR) will use the 1-hour duration Advancion systems to fulfill the first half of its obligation under the 2016 Capacity Market auctions. They are expected to be operational this winter. The 15-year capacity contract will anchor the storage business case, but the system will play in other grid services markets in the meantime.
The move comes at a time of transition for the British grid.
The nation is phasing out coal power and ramping up wind power. As an island nation on the periphery of Europe, it lacks the interconnections that have helped Germany and its neighbors manage the ups and downs of renewable generation.
Energy storage can help with that, both by maintaining the power quality of the grid and time-shifting excess generation for later use. At the moment, though, the economics of this resource are challenging.
In 2017, the government decided to significantly reduce capacity market compensation for storage systems with less than four hours of duration. Most systems had been built with shorter duration, so they had to derate and lose revenue to comply.
A market for long-duration storage has not developed yet, so developers juggle revenue from a range of services to make projects pencil out.
UKPR waded into that transitional period as a flexible gas developer, siting projects close to load. Since its founding in 2010, the firm has built around 500 megawatts and contracted another 500 megawatts. It jumped into storage with the December 2016 auction.
Luckily for UKPR, it got into the storage business before the capacity derating took effect. But while the capacity contract makes up some of the Fluence project’s revenue, the bigger share will come from market services like frequency response and balancing, said Paul McCusker, Fluence’s managing director for U.K. and Ireland, Middle East and Africa.
With that in mind, Fluence designs its systems around flexibility of speed and function. Even if market products don’t yet exist to compensate for some of these abilities, the company wants to be able to tap them if those products develop in the coming years — which, based on broader grid trends, doesn’t sound crazy to assume.
“In most markets on this side of the water, the regulatory framework is still evolving, so there can be a great bit of uncertainty about what the asset will be doing a few years out,” McCusker said. “We encourage our clients to think about that, and we work to be as flexible as we possibly can.”
Researchers from Queens University Belfast have analyzed operational data from Fuence’s 10-megawatt Kilroot system in Northern Ireland to quantify some of the new roles storage could play for the grid.
They determined that grid-scale batteries can effectively replace the inertia service traditionally provided by spinning generators. Inertia has been an unpriced byproduct of conventional generation; by pricing it and clearing regulatory barriers, the researchers concluded, batteries could offset a much greater capacity of fossil fueled inertia providers, saving money and carbon emissions.
That project gives a sense of how Fluence aims to use its field experience to open up new market opportunities for its technology.
“We bring with [our systems] a response capability way beyond what the market requires today,” McCusker said. “It’s all part of future-proofing as much as you can for the evolving market situation.”
On the horizon for the market is saturation in the frequency market, said Rory McCarthy, a senior analyst covering the European storage market for GTM Research. He predicts this will cause a bottleneck for new projects beyond what’s already contracted.
Solar-plus-storage remains difficult to finance, he added, and flexible market tenders from the distribution network operators are still few and far between.
“Things will likely slow down in the coming years since the ramp-up experienced last year, with things picking up in the early 2020s if wholesale market signals and other revenue streams outside of frequency response pick up,” McCarthy said.
With that market outlook, there might be a slowdown for projects of this scale, which the companies hail very carefully as “the single largest energy storage portfolio transaction with one technology provider announced in the U.K. to date.”
Then again, UKPR still has another 60 megawatts it needs to deploy from the auction, and the battery vendor for those hasn’t been contracted yet.