National Grid is considering moving away from one and two year contracts within its grid balancing tenders, which according to the system operator’s UK director do not reflect the transition needed within the energy system in the future.
Speaking at this week’s Energy Storage and Connected Systems conference, Cordi O’Hara suggested that the current financing durations for storage and other balancing technologies such as demand side response are limited by the short term contracts.
“At the moment the system operator is incentivised largely by one or two year schemes by the regulator to balance the network. Beyond that there is no understanding of how we will be held to account for economic and [efficiency] test as a system operator.
“There are arguments to suggest we should move away from one and two year incentivisation timelines that don’t necessarily reflect the transition that we’re going to face on the network and the need to build the new flexibility tools of the future,” she said.
O’Hara pointed to the National Grid’s recent four year Enhanced Frequency Response (EFR) tender, which saw battery storage projects win nearly all of the 200MW capacity, as an example of when the contract “landed on a fair and reasonable duration for that point in time.”
“But there’s more work to be done and where those contract durations sit within the various markets needs to be explored.
“This is a difficult area that we are trying to work through at the moment, be assured I am having the right conversations about duration of contracts in the longer term of the system operator,” she added.
A number of short term contracts have been awarded to storage projects in recent auctions, with only four projects winning 15 year contracts within the 500MW of battery storage capacity contracted in the T-4 2016 auction in December.
The lack of long term security for large scale storage projects has been identified repeatedly as a barrier for the investment community when considering a move into the battery market. Many consider that without longer-term incentives, investors will remain sceptical of the technology’s financial viability as long as prices remain high.
Speaking at last week’s Solar Finance and Investment Europe conference, Ancala Partners’ director Lee Mellor said: “In terms of the revenue streams, there's quite a good visibility up to four years but after that…there's no certainty of what the revenue profile will look like.”
With the ancillary services market rapidly developing as National Grid commits to further tenders for frequency control, industry will be looking to the SO to provide greater long term certainty over financing.