"Electricity storage is widely regarded to be the single most important technological breakthrough likely to happen over the period to 2030 and a complete 'game changer' in the way that the power system operates".

So says a recent report by Energy UK, Pathways for the GB Electricity Sector to 2030.

The ability to store energy at scale will revolutionise how the electricity grid works. Instead of relying on baseload power, which can be ramped up at times of peak demand, there is a move to power being generated closer to where it is used, and stored when not needed. The evolution of storage technologies, including battery storage, is expected to take off in the next few years and is now on the verge of being able to compete with traditional power stations for some of the services they provide. We look at the strengths, weaknesses, opportunities and threats that this involves.


The main strengths of battery storage are in the range of services it can offer to the electricity network as a whole.

Avoids network reinforcement: Using battery storage in conjunction with generation means that at times when generation outstrips demand, instead of the excess energy flowing along the distribution or transmission network, it can be captured and stored, to be released when needed. As more "embedded generation" (generators connected to the distribution, rather than the transmission, network) comes online, some distribution networks cannot cope with the extra demand placed on them and storage can help avoid or at least delay the need for expensive network reinforcement.

Alleviates constraints: At times when supply outstrips demand, such as on windy nights, wind turbine operators are paid to shut down. The ability to store excess energy reduces the need for such constraint payments.

Helps balance the system: Battery storage in particular can absorb from or discharge electricity to the network at a fraction of a second's notice.

Complements intermittent renewables: With the addition of energy storage, solar and wind power become more akin to traditional fossil fuel-based "baseload" generators, making total decarbonisation of energy a more realistic prospect.

Variety of technologies/uses: There are many different types of battery storage technologies in development and the UK government is keen to support research into new technologies.

Range of potential sources of revenue: Battery storage can participate in a number of ancillary services for National Grid such as Enhanced Frequency Response, Firm Frequency Response (for larger systems) or reserve services such as STOR or the Capacity Market.

Costs reducing rapidly: The cost of battery storage is predicted to fall below $100 per kWh by some point in the 2020s, at which point it will be competitive with more traditional sources of power and able to be rolled out on a commercial scale.


The main weaknesses of storage are how it is regulated and what markets there are for the services it can provide.

Regulation: Because storage is so new, the system of regulating it, based on the Electricity Act 1989, has not caught up. The 1989 Act did not contemplate storage and so it has had to be classed as a form of generation and/or an end user.

As a form of generation, a battery storage facility will need to be licensed and therefore comply with the various Grid Codes – an administrative headache – unless it is small enough to fall within an exemption.

It also means that, because of EU "unbundling" rules, DNOs and electricity suppliers cannot own storage assets, which is hindering the development of "smart grids".

If it is classed as an end user, the owner of a storage asset is charged the Climate Change Levy (CCL) on the electricity going into and coming out of the battery – so is double-charged. HMRC would need to assess each project on a case-by-case basis to decide if it is classed as an end user or not.

Cost: Battery storage is still expensive compared to other power generation/grid balancing services at the moment, and it is also very capital-extensive, requiring a large up-front cost that may put investors off.

Overlapping/complicated range of revenue sources: Although one of the strengths of storage is the range of potential sources of revenue open to it, this is also one of its weaknesses as those revenue streams are not easily aligned. For instance, the tender dates and technical specifications for the various response services and reserve services are all different, making it difficult to access a number of them at the same time.

Current markets do not match benefits that storage can offer: Although (as mentioned in Strengths) storage can help to avoid or delay investments in distribution infrastructure, at the moment there is no reward available for this. Similarly, storage is unable to bid for a Contract for Difference, either on its own or in conjunction with a renewable power generator such as a wind farm.


There are many opportunities for battery storage.

Next 5-10 years: All industry commentators, and the National Infrastructure Commission in the UK, seem to agree that electricity storage is due to take off in the next 5-10 years. The merger of Tesla (manufacturer of electric cars and the Powerwall domestic battery) with SolarCity, the biggest rooftop solar provider in the US, is the sign of things to come, when storage and renewable energy will go hand in hand.

Enhanced Frequency Response: This new service from National Grid is aimed predominantly at storage assets that can provide frequency response in one second or less. The first tender, for around 200MW, took place in July 2016 and attracted interest from 1.3GW of power, nearly 70% of which was battery storage projects.

Capacity Market: Recent reforms have lowered the threshold for participation to 500kW, which should enable smaller projects to participate in their own right rather than having to go through an aggregator, but no new battery storage project received a capacity contract in the last auction and the clearing price (£19/kW last time) is likely to be too low to fund a new project, given the high up front costs involved.

Time of Use tariffs: Once these are more widely introduced from 2017, there will be more incentive to use "behind the meter" storage, so that energy users can use batteries to draw from the grid at cheap times and use the stored energy at the times of highest demand – and prices.

Regulatory reform: The National Infrastructure Commission in its report Smart Power recommended that DECC and Ofgem review the regulatory and legal status of storage to enable it to compete fairly with generation. The Government has said it will set out proposals for reform by Spring 2017.

New markets: Ofgem is looking at ways to make the ancillary services market more transparent, to increase participation from new entrants and new technologies. This should help to address the weakness identified above, that there is an overlapping/complicated range of revenue sources that is not easy to access.

Aggregators: For smaller battery storage systems and/or those new to the market, using an aggregator service can help to access some of the ancillary services and reserve services available.

DSOs: As the UK moves towards a "smart grid" and away from the traditional model of transmission-connected generation and distribution-connected consumers, there is arguably a need for distribution network operators (DNOs) to have more control over the power passing through their network, especially since it often flows both ways due to the increase in "embedded generation" connected to the distribution network. The NIC Smart Power report recommended that the transition to more actively managed local networks (effectively distribution system operators or DSOs) be a government priority. This would mean a much greater role for local storage systems in helping to manage the local network.


There are some threats that battery storage providers need to be aware of.

Embedded benefits review: Generators that are connected to the distribution, rather than the transmission, network get a range of benefits including not having to pay TNUoS charges (to use the transmission network) and in fact get a "triad avoidance" payment from suppliers for being able to generate surplus power at times of peak demand that gets exported onto the transmission network and in effect reduces the demand on the transmission network. Battery storage plants will be classed as embedded generation if they discharge surplus power at peak times. Ofgem are consulting on removing these benefits to ensure a level playing field for all generators.

See our article on Embedded Benefits for more detail

Technology risk: As many of the battery technologies are still being developed and tested, there is a risk that they will not perform as specified, but this should reduce over time.

Electric cars: These can compete, at least in the domestic "behind the meter" market, with other battery storage providers like Powerwall or Moixa as there is a battery in the car which can discharge electricity back to the grid and potentially make money by doing so. It may be that they become the main market for domestic-sized battery systems so that other types of battery storage will have to concentrate on larger-scale installations.

Key Contacts

Richard Goodfellow

Richard Goodfellow

Head of IPE and Co-head of Energy and Utilities
United Kingdom

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