The expected rate of return on battery storage facilities is rising sharply as demand is far outpacing supply. In the short-term the imbalances stemming from the fall off in the demand for electricity stemming from the COVID-19 induced downturn in economic activity is pushing up the utilisation of off grid batteries. The head trader of aggregator Kiwi Power, controlled by French utility group Engie, Aaron Lally, has seen a sharp increase in trading of batteries across services. “If this trend continued for the whole year, we could see battery costs recovered in 2-3 years,” he said, suggesting that the push to decarbonise the grid means “the business case for battery storage, driven by contracted markets, has never been more attractive”. In the medium-term, which is now only a couple of years away, the increasing share of renewables in generation will further push up the demand for storage and payments to the beneficiaries of Enhanced Frequency Response (EFR) contracts.  “We need 10GW,” said Lally. “Any less, the market is imbalanced and existing asset owners will be making profits that will make the EFR contracts look like peanuts.”

Without the greater flexibility offered by storage, balancing the system gets harder and more expensive, especially when demand is low, which puts up costs threatening the financial viability of generators and suppliers. The National Grid levies balancing charges on generators and suppliers (BSUoS) calculated at a flat daily rate and charges rise in line with imbalances. As a result of the drop in demand due to the COVID-19 pandemic, balancing cots in May alone doubled from around £60-£70m in recent years, to an expected £130m and through June to August these are predicted to be much higher, between £117m and £133m extra per month. The National Grid’s forecast of BSUoS costs for the year have increased from under £1.5bn in February, to around £2bn as of this month. 

The National Grid’s has put in place new measures to stop too much power coming on to the system to balance supply and demand. In April it launched  a new ‘footroom’ tool, which pays distributed generators to stop exporting power or businesses to consume more grid electricity. ‘Footroom, also known as ‘negative reserve’ is a continuous requirement to have resources available on the system which can reduce power output or increase their demand from the grid at short notice. The National Grid estimates that the new tool will save around £213 million in balancing costs over the summer. But energy firms are still worried. SSE says the impact of balancing actions create “a high probability of BSUoS in individual periods effectively doubling the total cost of electricity”. It has tabled a motion to cap additional Covid-19 balancing costs at £500m and defer payment until next year, spreading it out in half-hourly increments. Suppliers and generators, it argues, could not have forecasted such an increase in costs ahead of time. At present the only gainers in this scenario are battery storage operators, but since, according to the Energyst, “the current situation foreshadows how the grid may look in five years’ time in five years’ time, when National Grid has committed to run solely on renewables whenever it can.”