Market Segment Watch: Great Britain -...

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MarketSegmentWatch:GreatBritainThelargestEuropeanenergystoragemarketin2016

CleanHorizon,theEuropeanexpertteamonenergystoragesince2009,releaseditsnewmarketsegmentwatchonGreatBritain.Due to the increasing shareof renewables inGreatBritain’s generationmix, theTransmissionSystemOperatorNationalGridwillcontract200MWofenergy storageassetstostabilisethegridthisyear.Theseso-calledEnhancedFrequencyResponse(EFR)contractswillrepresentoneof the emerging revenue streams for energy storage systems. EFR is indeed particularly wellsuited forenergystoragesystemsandputsGreatBritain in thespotlightof theenergystorageworld.Additionally,theislandedcountrypresentssomegrowingopportunitiesformediumandsmall-scalestoragesystems.Theaimof thisstudy is to identifyandquantify those interests,andtobetterunderstandhowenergy storage project developers work and what they lack in the developing Great Britainmarket.Therefore,morethan15interviewswithprojectdevelopersandutilitieswereled,theresultsofwhicharepresentedinthisreport.In the first part of the report, the Great British electricity supply chain is explored to set thesceneforthemarketstudy.Then,thedifferentrevenuestreamsastorageassetcanpretendtoarelookedat.Amongthoserelevantrevenuestreams,twoaredetailed,asCleanHorizonbelievestheyarepromising.Finally,themarketstudyanditsresultsarepresented.Keyquestionsaddressed:

§ HowdoestheGBenergymarketwork?§ Whataretherevenuestreamsforenergystorageassets?§ WhataretheemergingbusinesscasesforenergystorageprojectsinGB?§ Whatdoprojectdevelopersexpectfortheirprojects?§ Whataretheneedsofthetechnologyend-users?

Whoneedsthisreport?

• Energystorageequipmentmanufacturers• IntegratorslookingattheGBmarket• ProjectdeveloperswillingtobetterunderstandtheGBmarket• Investorswillingtobetterunderstandtherisksassociatedwithstorageandtherevenue

streams• Utilitieslookingforopportunitieswithenergystorage• Commercialandindustrialelectricityconsumers

21,ruedufaubourgMontmartre

75009Paris,France

contact@cleanhorizon.comTél:+33(0)178765704www.cleanhorizon.com

Tableofcontents

Executivesummary 1

Introduction 5

1 TheelectricitysupplychaininGreatBritain 61.1 Generation 61.1.1 UKelectricitymix 61.1.2 Theelectricitymarket 71.1.3 Renewabletargets 71.1.4 Small-scalerenewablessupport 91.1.5 Large-scalerenewablessupport 9

1.2 Transmission 101.3 Distribution 111.3.1 TheDistributionNetworkOperators(DNOs) 111.3.2 Issuesonthedistributionnetwork 11

1.4 Supply 121.5 Consumption 12

2 Revenuestreamsforenergystoragesystems 132.1 Powerintensiveservicestothegrid 142.1.1 EnhancedFrequencyResponse(EFR) 142.1.2 CommercialFrequencyResponse(CFR) 152.1.2.1 FrequencyControlbyDemandManagement(FCDM) 152.1.2.2 FirmFrequencyResponse(FFR) 15

2.1.3 Fastreserve 172.2 Energyintensiveservices 172.2.1 ParticipationintheBalancingMechanism(BM) 172.2.2 ShortTermOperatingReserve(STOR) 192.2.3 DemandTurnUp(DTU)service 19

2.3 Distributionnetworksupport 202.4 TheCapacityMarket(CM) 202.5 Embeddedbenefitsforcommercialandindustrialapplications 222.5.1 Transmissionfeesavoidance(TNUoScharge) 222.5.2 Distributionfeesavoidance(DUoScharge) 23

2.6 Residential 242.6.1 Residentialstoragesystem 242.6.2 PVplusstorage 25

3 ThepromisingrevenuestreamsforstorageaccordingtoCleanHorizon 253.1 Ancillaryservices 263.2 Transmissionanddistributionfeesavoidance 263.2.1 Marketsizetodoubleinthecomingyear 263.2.2 Increasingcharges 27

3.3 Emergingbusinesscaseforstorage:combiningservices 283.4 Riskslinkedtothoserevenuestreams 29

4 Presentationofthecustomersurvey 304.1 Structureandaims 304.2 Resultsandrecommendations 304.2.1 Currentlevelofimplicationregardingenergystorage 30

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4.2.2 Storagetechnologiesconsidered 314.2.3 Applicationsconsidered 324.2.4 Whatwouldfacilitatestorageprojectdevelopment 324.2.4.1 Regulatorychanges 334.2.4.2 Technicaladvisors 334.2.4.3 MarketandBusinesscasesintelligence 33

4.2.5 Favouritepartnersofprojectdevelopersforenergystorageissues 344.2.6 Solutionsthatprojectdevelopersbuy 344.2.7 Guaranteesprojectdeveloperslookfor 354.2.8 Financingthechosensolutions 364.2.8.1 Criteriaforthechoicebetweenprojectfinanceandcorporatefinance 374.2.8.2 Criteriaforthechoicebetweenequityanddebt 384.2.8.3 Bankabilityissues 38

4.3 Listofrecommendations 384.3.1 Recommendationsforvendors 384.3.2 Recommendationslinkedtofinancing 38

4.4 Listofparticipatingcompanies 40

Conclusion 41

21,ruedufaubourgMontmartre

75009Paris,France

contact@cleanhorizon.comTél:+33(0)178765704www.cleanhorizon.com

ListoffiguresFigure1:GrossUKgenerationmixevolutionfrom2012to2014 6Figure2:Wholesaleelectricitypricesontheday-aheadmarketfrom2013to2015 7Figure3:Linkbetweenrenewableenergysourcespenetrationandenergystorage 8Figure4:ImplementationoftheElectricityMarketReform(EMR),fromROtoCfD 9Figure5:Electricitytransmission 10Figure7:UnplannedSAIDIincludingexceptionaleventsin2013intheUK 11Figure8:Non-HHmeteredprofileclassesandtheircharacteristicsasofMarch2016 13Figure9:Tworemunerationstrategiesforenergystoragesystems 13Figure10:EFRproductcharacteristics 14Figure11:CommercialFrequencyResponseproductscharacteristics 15Figure12:April2016amountofdynamicFFRrequired 16Figure13:April2016amountofstaticFFRrequired 16Figure14:Balancingmarket-netimbalancevolume(longandshortsystem) 18Figure15:Monthlyaveragesystempriceoverthelastyear 18Figure16:Transmissionzonesandfeesonthe1stApril2016 23Figure17:Tablesummarisingthedifferentrevenuestreamsforanenergystorageasset 26Figure18:BreakdownofenergyusersbymeteringtypeasofDecember2012 26Figure19:BreakdownofenergyusersbymeteringtypeasofMarch2016 26Figure20:NumberofHHMconsumersandannualenergyimported 27Figure21:HistoricalandexpecteddemandtariffforTNUoS 27Figure22:EstimatedfutureTriadaveragedemand 28Figure23:Triadsduringwinter2015/16 30Figure24:InvolvementofprojectdevelopersregardingenergystorageinGB 31Figure25:Technologiesconsideredbyprojectdevelopersfortheirprojects 31Figure26:Applicationsconsideredbydevelopers 32Figure27:Missingelementsaccordingtoprojectdevelopers 33Figure28:Favouriteinterlocutorofprojectdevelopers 34Figure29:Solutionsprojectdeveloperslookfor 35Figure30:Guaranteesprojectdeveloperslookforbeyond2yearspartsandlabour 36Figure31:Financingsolutionschosen 37Figure32:Twodifferentreasoningpatternsregardingthefinancingmethod 37

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