Is there a market?
The global market has been analysed by Storelectric as having three phases:
- Enabling renewables to power variable demand;
- Enabling them to power baseload demand;
- Enabling them to support the energy transition of heating, transmportation and industry.
The first is ~$1trn capital costs (~10trn p.a. operational costs) globally. The second is 3-6 times that, and the third 3-10 times the second.
In the UK, National Grid’s Future Energy Scenarios identifies a need by 2040 for 20-28GW of mostly long-duration (>4hrs) storage – and this is for the first phase (an analysis supported by other reports too), and to target 80% carbon reductions; much more will be needed for a Net Zero grid. But 20-28GW equates to $20-25bn capital costs.
This is just for the energy. It is worth noting that during the 2020 Lockdown, on days on which renewable generation was able to meet most demand, National Grid undertook very expensive Control Room actions to bring an additional 3.4GW fossil fuelled generation onstream, purely to maintain sufficient levels of inertia and related stability services – which our plants also provide.
Why has no CAES plant been built for 30 years?
Past projects relied heavily only on arbitrage (balancing and ancillary services being low). As the price difference between peak and off peak was too low the economics were unviable. With the increased renewable generation and the reducing fossil generation the need for balancing and ancillary services has increased the number of revenue streams a CAES plant can attract. These additional revenue streams and the capacity mechanism make the right CAES technology viable.
The lower efficiency of the existing plants (42% for Huntorf and 50%for McIntosh), required a much larger arbitrage ratio making them uneconomical. Storelectric CAES technologies are calculated to be substantially higher efficiencies reducing this ratio.
Nevertheless, in 2007 Huntorf was re-fitted and expanded from 290MW to 321MW because it is so useful to the system and, more recently, McIntosh has also been retro-fitted with updated equipment throughout.
The development of large-scale renewable generation has created a need for balancing, ancillary and stability services, all of which Storelectric’s CAES is uniquely able to offer.
CAES can also provide unique benefits if built in conjunction with the power cables from such large-scale renewable generation farms – see “Operators” page.
Are there operational CAES plants?
The 2 references are Huntorf in Germany (originally 290MW, now 321MW, operating since 1978) and Alabama Macintosh in the USA (rated at 110MW, operating since 1991). The first has a round trip efficiency of ~ 42% and the second 50% (upgraded later to 54%), the increase being due to the waste heat recovery employed in the US plant. Storelectric roundtrip efficiencies vary between 60-70% depending on size and configuration, a significant improvement on the original designs.
While Storelectric’s solution has further refined these technologies the components and process flows remain similar. All the improvements serve only to enhance, simplify and improve functionality of the earlier plants.
Does the contract structure secure investors' interests?
A similar structure to that used on CCGT plants will be employed using either an EPC contractor or an external consortium between the main equipment supplier and the erection civil contractor with combined wrap around guarantees.
Several schemes are being considered including possible bonus/malus schemes to incentivise all sides to execute the first projects.
How will Storelectric maintain its market position in the medium and long terms?
Storelectric is active with support of partners and university collaborations to further evolve the technology along 3 distinct energy vectors: enhanced storage options; hydrogen and blended fuel options; cross technology integration options for distribution & transmission networks. All represent game changers in growth sectors and as such position Storelectric in the most favourable position to maximise market share and profitability ratios.
Storelectric also has a further programme of R&D to keep ahead of the field.
Is the regulatory framework a support or a hindrance to CAES?
The market is not yet set up optimally for storage projects. However this is noticeably changing with both the recent UK consultations and the storage definition initiatives in the EU. Almost all the regulatory changes over the past few years have been driving in the right direction. Storelectric is actively involved in consultations, and National Grid is developing numerous additional means of contracting services that Storelectric’s CAES is uniquely able to offer, but are not currently remunerated. These include their Stability Pathfinder, Distributed ReStart (Black Start) and Early Competitions (constraint management). This allows forward looking companies to invest in a market that is on a start trajectory for substantial and continued growth. Subject to additional fund availability Storelectric expects to be fully prepared for this take-off: those who don’t start now will be playing catch-up later.
Is long term certainty of revenues possible particularly in case of non recourse financing?
There are several channels developing.
The CfD market mechanism was deliberately introduced to provide developers and investors the revenue security that longer term contracts afford. Ministers and BEIS have indicated that storage may in the near future be eligible for CfDs. The CfD route requires several important pre conditions to be met before a successful completion can be assured, one of which is ensuring that planning permission is secured (or very likely to be secured within a defined time window) and that a CfD counterparty is confirmed. Several CfD counterparties have been identified and discussions have already been initiated. Initial investment will provide for these up-front costs. The process is well defined and can be managed by a competent and experienced team. Storelectric is well versed in the nuances of this process and has developed contacts with both council bodies and the Planning Inspectorate. This is one of several options in securing longer term revenue certainty thatStorelectric is pursuing.
As explained above the recent consultations (to which Storelectric has already contributed and continues to do so) are expected to result in regulatory and legislative changes to strongly promote longer term revenue certainty for storage.
It should be noted however that much higher IRRs can be achieved by avoiding being locked into longer term contracts. Analysis from well reputed, independent industry analysts confirms that the increase in peak prices and reduction in off peak prices from 2021 onwards under almost all scenarios. These levels will reduce linearly over the next 5 years. Our financial models use the off-peak and peak price levels as of 2015 which show a considerably lower spread than we now see in 2016 and will continue to evolve. Our IRR is continually improving and this makes the merchant arbitrage business model an incredibly attractive investment proposition with limited down-side.
Isn't it something like fracking?
No, nothing like it.
- Fracking uses a geological layer (stratum) of shale.
- Salt caverns us a stratum of salt (usually Halite).
- Fracking injects water, chemicals and sand into the shale. The water is at high enough pressure (~2,000 bar) to crack the rock; the sand keeps the cracks open and the chemicals leach the hydrocarbons from the rock.
- We use pressures that are in equilibrium with the rock (~50-100 bar) and so don’t de-stabilise it; and we inject and dispose of nothing noxious.
- Fracking requires 24/7 drilling, pressurising and traffic to carry in the clean sand and chemicals and to remove contaminated waste which needs special disposal.
- Our solution mining activites are much quieter (due to the lower pressures) and once-off (while making the caverns, not during their operation).
- Fracking is known to cause earth tremors.
- Since the technology of salt caverns was mastered many decades ago, they are stable and while about 1/3 of the natural gas stocks in Europe (along with most oil stocks and much special waste) are in such caverns, none of them has ever had an underground accidental release.
- Finally, fracking is well known to contaminate aquifers and drinking water.
- Salt cavern operation does not.