Distributed electricity storage – a market failure?

Mr Philipp Grunewald, Imperial College London

Electricity markets in the UK have evolved primarily around large scale generators, while networks remain regulated monopolies and demand is treated as passive. With increased penetration of less flexible low carbon technologies and the possible electrification of heat and transport towards 2050, both networks and demand may need to become more active components of the electricity system, to ensure cost effective balancing of supply and demand. One technology that encompasses all three components of the system and could facilitate their improved interaction is electricity storage.

Widely regarded as too expensive, electricity storage has recently been shown to have the potential to significantly reduce the cost for the electricity system as a whole, making it a macro-economically attractive proposition.

However, the diverse sources of value, including network, operational, generation capacity and CO2 savings, are difficult to aggregate under current market frameworks. Moreover, institutions and rules developed in support of existing regimes and could potentially lock-out `disruptive’ technologies, such as electricity storage.

This paper explores these tensions through stakeholder engagement with particular focus on long term developments. We present stakeholder views relating to storage for actors from across the electricity system, and analyse them in the context of socio-technical transition pathways. These actors are reviewed based on their suitability to drive the deployment of storage, fund its investment, and their ability to operate it in the best system interest. The qualitative findings from workshops and semi-structured interviews are complemented by time resolved techno-economic modelling of specific storage applications.

We conclude that significant institutional barriers exist for the deployment of storage in the UK, and for distributed storage in particular. This could lead to missed opportunities in reducing the system integration costs during the transition towards a low carbon future and carry an associated welfare loss in excess of £3bn. Several policy implications can be identified and challenges relating to their implementation will be discussed.