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The UK’s largest battery storage fund has warned that investment in the sector is at risk because the way the country’s electricity system is run means the technology is not used widely enough.
Ben Guest, managing director of the new energy division at Gresham House, said National Grid is underusing battery storage that is already incorporated in the system, although it is seen as a crucial part of efforts to cut carbon emissions.
“The underutilisation of batteries by the ESO [National Grid’s electricity system operator] risks reducing investment,” Guest told the Financial Times, adding that this was “throttling the development of battery solutions in the UK . . . not to mention slowing the UK’s legal commitment to meet net zero[carbon emissions] by 2025.”
Battery developers have also been affected by falling power prices and increased competition from a surge in capacity, hitting revenues and share prices.
Batteries are an increasingly important part of the electricity system, because they help smooth out surges and lulls in the supply of electricity from wind and solar power.
Their number has grown rapidly in recent years in Britain as renewable power production has increased, with about 130 sites providing 4GW of total capacity, according to industry group Regen.
Battery storage facilities earn revenue by buying and selling power in the wholesale market and can also be paid by National Grid’s ESO to store and discharge power to smooth out supply and demand.
However, the ESO frequently ends up buying electricity from other sources, such as gas-fired power plants, even when batteries are available. In some cases this has been for technical reasons such as older computer systems that are ill-suited to running multiple small assets such as batteries.
Lower volatility in the wholesale market has also affected battery developers’ revenues, while their earnings from providing other services to ESO have also fallen.
Sachin Saggar, an analyst at Stifel, calculates that battery storage revenues had fallen to about £50,000 per megawatt by the end of 2023, down from £150,000 per MW in 2022.
“If it’s sustained at this level, they aren’t making enough money [for it] to make sense to build a new battery,” he said.
Gresham House, which has a battery storage portfolio of about 640MW, scrapped its fourth quarter dividend in February, and warned it would be “challenging to generate the cash required to cover the dividend this year”.
National Grid has been making changes to try to use batteries more. However, Olly Frankland, an electricity storage specialist at Regen, said they had been “a little bit slower than they should have been”.
“There is encouraging messaging and good direction of travel, but I think what we’re asking for is a wider role for battery storage.”
The industry had been to an extent a “victim of its own success” he said, with about 1.6GW coming online last year.
“There’s been a lot of battery storage coming on to the system,” he said but noted that demand had not kept pace.
National Grid ESO declined to comment.
