Oliver Schmidt

Grantham Institute - Climate Change and the Environment

​South Kensington Campus

Imperial College London

London SW7 2AZ, UK

tel: +44 79 345 487 36

e-mail: o.schmidt15@imperial.ac.uk

LinkedIn: www.linkedin.com/in/oliver-schmidt/

UK Electricity Storage: Quantifying the Impact of Policy Barriers on the Residential Investment Case

This study examines the impact of policy on the adoption of large (4kWh) residential batteries in the UK. It aims to quantify the impact of different policies on the investment case and propose policies that accelerate adoption. It is focused on the impact of benefit-stacking to the investment case. 

Benefit-stacking describes the provision of multiple services through an electricity storage solution. The principal distinction is between “end-user” services that directly benefit the individual or “grid” services where the battery provides benefits to the wider system which are accessed via an aggregator. Grid services are segmented into three categories: network services, generation services and ancillary services reflecting the principal part of the electricity system benefitting. Figure 1 uses this segmentation to show how stacking revenue could capture value from these services via an aggregator.

Figure – Revenue Stacking with a Residential Battery. Homeowners can supplement the direct income they receive from EES (the reduction in their electricity bills) with income from Grid Services.

Combining self-consumption, arbitrage and peak shaving, the dispatch algorithm suggests the battery generates IYI of £257, £161 from Self-Consumption, £67 from Arbitrage and £28 from Peak Shaving. Income in a stacked scenario is 50% higher than the most lucrative standalone service. Losses on investment fall to 34%. Adding £75 to the existing 2020 revenue stacking scenario boosts returns by 20ppts to -14% (assuming @5% CoC) and brings breakeven forward by two years to 2022. This highlights the value of revenue stacking to the investment case (Fig. 2).

Figure 2 – Figure 61: Increase in IYI from stacking Peak Shaving, Self-Consumption, Arbitrage and Frequency Response and corresponding fall in losses.

Six key quantifiable policy issues were identified and modelled:

  1. Making Time of Use tariffs available (enabling Arbitrage between peak/off-peak rates)

  2. Cutting the VAT rate applicable to standalone residential batteries from 20% to 5%

  3. Introducing a £1,000 subsidy to part fund the initial capital cost

  4. Removing the “deeming4” of solar export tariffs

  5. Establishing a “Peak Shaving” service to monetise the value provided to the network

  6. Reducing the cost of financing the initial capital cost from 5% to zero.

The impact of these policies on returns is shown in Fig 3. Policies that enable “revenue stacking” (shown in red) boost returns by a total of 34ppts (26ppts for policy 1 and 8ppts policy). Reducing the cost of financing from 5% to zero improves returns by 14ppts and a introducing £1,000 subsidy improves returns by 12ppts.

Gardiner, D, Schmidt, O, Staffell, I, Gross, R, Heptonstall, P.  Quantifying the impact of policy on the investment case for residential electricity storage in the UK [submitted]

Figure 3 – The impact of policy on returns for residential electricity storage in the UK.