Energy has become a national security agenda item in the UK. In April 2022, as the country faced soaring electricity bills and calls to disengage completely from Russian fossil fuels, Prime Minister Boris Johnson published a British energy security strategy for the future.
“If we’re going to get prices down and keep them there for the long term, we need a flow of energy that is affordable, clean and above all secure,” Johnson said. “We need a power supply that’s made in Britain, for Britain—and that’s what this plan is all about.”
A growing demand for energy storage and increasing range of market opportunities means the fundamentals for battery plant investment have never been better.
So, what is in the plan? The main pillars of the strategy are:
- Energy efficiency, where the government plans to upgrade 700,000 homes by 2025 and make give all buildings low-carbon heating by 2050. New and replacement gas boilers are to be phased out by 2035 and insulation will be zero rated for VAT for the next five years.
- Oil and gas, where there will be a return to drilling in the North Sea, but this time accompanied with an expansion in carbon capture and storage to ensure emissions are curtailed. The North Sea Transition Authority plans to launch a licensing round in the autumn.
- Renewables, where the emphasis is on increasing offshore wind capacity up to 50 GW by 2030 and pushing for a fivefold increase in national solar installations by 2035. Onshore wind, which has been stalled in England and Wales, will be included in Contracts for Difference auctions.
- Nuclear, where there are plans to increase capacity threefold, up to 24 GW, so that up to a quarter of Britain’s power can come from reactors by 2050. Government intends to get three projects to final investment decision stage over the next two parliaments.
- Hydrogen, where there are plans to install up to 10 GW of production capacity by 2030, doubling the country’s previous level of ambition. The government is aiming to run annual allocation rounds for electrolytic hydrogen, moving to price competitive allocations by 2025.
- International delivery, where Britain is looking to sever ties with Russia and extend trading partnerships with the US for shale gas and Europe for renewable electricity delivered over interconnectors.
- Networks, storage and flexibility, where the strategy aims to ensure a more flexible, efficient system for generators and users by smartening up electricity networks with more time-of-use tariffs and battery storage through electric vehicles.
Compared to the ambitious targets for strategic pillars such as offshore wind, nuclear and hydrogen, the strategy’s support for energy storage seems somewhat lukewarm. But make no mistake: this strategy simply cannot work without a massive buildout of energy storage.
While new nuclear and hydrogen could add stability to the system over time, in the short term the UK will need to vastly increase its energy storage capacity to counter variability in offshore wind production as the country moves to reduce gas imports.
Battery storage is the only clean technology that can scale up today to the level required to meet the immediate goals of the energy security strategy.
Even with the best political will in the world, green hydrogen and new nuclear plants will take decades to make a substantial dent on the UK’s energy market. Meanwhile, battery storage can be scaled up rapidly to meet immediate and future grid flexibility requirements.
One emerging need is for long-duration energy storage, which in future may involve novel technologies but which for now will probably have to be satisfied through massive lithium-ion battery arrays.
Citing an Aurora Energy Research report published before the strategy came out, Reuters in April said that to meet its net-zero emissions targets the UK would need 24 GW of long-duration storage. Meanwhile the market for traditional battery systems is booming.
Last year, deployments increased 70% on 2020 levels, according to Solar Media Market Research, and the pipeline of future projects grew by 11 GW to a total of 27 GW.
“Total installed capacity of utility-scale storage is now approaching 1.7 GW across 127 sites,” said Energy Storage News in March.
“There is an increasing amount of longer duration storage starting to emerge within the pipeline, which is partially due to the treatment of longer-duration projects in the capacity market but also reflected in the access to the other services available for battery storage.”
This growing demand for energy storage and increasing range of market opportunities means the fundamentals for battery plant investment have never been better.
At Pacific Green, we are looking to give investors a low-risk route into the UK energy storage market through developments such as the 100 MW, 100 MWh battery system we are building at the Richborough Energy Park in Kent.
Once operational, the project is expected to have a value of more than £60 million, based on a discounted cash flow on the project’s forecast performance combined with an analysis of UK battery asset transactions showing conservative valuations of more than £600,000 per MW.
While £28 million of finance will come through senior debt, we have created a bespoke opportunity for investors to invest the balance of the construction costs through a preference share structure providing downside protection, preferred returns and a share of the upside.
Richborough Energy Park is just the first in a series of energy park opportunities we are planning to offer.
Thanks to an exclusive agreement with Tupa Energy, which specialises in developing utility-scale battery storage, solar generation and rapid electric vehicle charging infrastructure, we are due to develop 1.1 GW of capacity by the end of 2025.
This is around 10% of all the battery capacity that the UK might end up installing this decade. Clearly, energy parks are a big opportunity for UK investors—and are only set to get bigger under the government’s energy security strategy.