New Clause 45 - Electricity Storage Capacity

Energy Bill [Lords] – in a Public Bill Committee at 2:03 pm on 27 June 2023.

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“(1) Within six months of the day on which this Act is passed the Secretary of State must lay before Parliament a strategy for an increase in the provision of electricity storage facilities to enhance the resilience and flexibility of electricity supply and ensure fair pricing for electricity users.

(2) The strategy referred to in subsection (1) must cover all forms of electricity storage, including—

(a) battery,

(b) hydrogen,

(c) ammonia,

(d) adiabatic compressed air energy storage systems, and

(e) hydroelectric storage.

(3) The strategy referred to in subsection (1) must address considerations relating to—

(a) licensing,

(b) planning,

(c) regulation,

(d) subsidy, and

(e) taxation.

(4) The strategy referred to in subsection (1) must set out—

(a) proposed pricing mechanisms for stored electricity, and

(b) provisions ensuring consumers pay a fair price for electricity.”—

This new clause seeks to ensure the UK Government sets out a report to Parliament that demonstrates how it plans to meet the increased storage capacity that will be required with a future electricity network that is heavily reliant on renewable sources.

Brought up, and read the First time.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy Security and Net Zero)

I beg to move, That the clause be read a Second time.

It is a pleasure to serve under your chairmanship again, Ms Nokes. The new clause is derived from my frustration at the lack of movement on and support for pumped-storage hydro. For years in this place I have been calling on the UK Government to engage in constructive dialogue with industry and consider a route-to-market revenue mechanism that would allow companies to release investment and fund the various pumped-storage hydro schemes that have been developed, but all I have had to date is the odd sympathetic comment from Ministers. There has been no progress whatsoever—hence this new clause.

A cap and floor mechanism has been mooted, which would mean that companies receive a minimum price for the electricity they generate, based on some form of assessment of capital costs and the borrowing they have undertaken, as well as the operational costs of the pumped-storage hydro schemes. Importantly for bill payers, the whole point of the cap is that the companies would receive a maximum total revenue. That would make it fair for bill payers and would help to reduce bills in the long run. New clause 45(4) would require the Government to consider any relevant pricing proposals along with the provisions to ensure that consumers pay a fair price for electricity. That would be a much more transparent way forward than, for example, the back-room negotiations over new nuclear projects.

The need for additional electricity storage could not be starker. National Grid Electricity System Operator confirmed that last year system-balancing costs reached £4.2 billion, which is an amount of money that would have been significantly reduced had better grid upgrades been undertaken in advance, and it would have been massively mitigated by a better storage strategy. As it is, we have the absurd position that wind farm operators are paid to turn off their turbines while gas generators are paid to turn on their gas turbines. That is the epitome of bad planning and needs resolved sooner or later.

Additional storage would reduce methane emissions by reducing reliance on gas. Additional storage means less imported gas, and critically it means greater grid resilience in terms of day-to-day operation in meeting peak demand or balancing the intermittency of renewables. Storage also helps in repowering if a black-start scenario is encountered, so it provides additional back-up resilience. If energy security is a key aim of the new Department, surely it would want to embrace the new clause and come forward with a proper electricity storage strategy, given the benefits I have just outlined.

On the revenue mechanism, cap and floor is effectively the system used for interconnectors, so it is a principle that the UK Government could instruct Ofgem to consider and develop.

On pumped-storage hydro itself, SSE has developed Coire Glas in the highlands, which has an estimated output of 1.5 GW. That scheme alone would double the pumped-storage hydro storage capacity that is available in Great Britain. Other projects could quickly get to construction if a revenue mechanism was put in place, including Red John in the highlands, Glenmuckloch in the south of Scotland, Balliemeanoch in Argyll and Bute, and Corrievarkie in Perth and Kinross. Along with Coire Glas and the Cruachan extension, those projects would add 5 GW of additional storage capacity. I refer the Minister to the Scottish Renewables report “The Economic Impact of Pumped Storage Hydro”, which was undertaken by BiGGAR Economics. It estimates the creation of 15,000 jobs by 2035 and the generation of around £6 billion in economic benefit for the UK economy.

It should be noted that a fair pricing mechanism within a wider storage strategy is not a subsidy. Given the lack of momentum in addressing the US Inflation Reduction Act, such a mechanism is one way to get major investment moving without any Government subsidy or tax reductions. Just today, industry highlighted its concerns with UK Government inaction in respect of IRA and that fact that the EU and Canada have now acted. Tessa Khan, who is founder and executive director of the climate organisation Uplift, said:

“I think that’s a shocking delay…Given that this is ultimately a competition and a race for investment, supply chains [and] jobs, [this] just means that we end up losing a significant amount of ground.”

Clare Jackson, who is chief executive of the industry body Hydrogen UK, warned:

The U.K. has not responded and that sends a huge message to the industry, which I’d say is already on slightly shaky grounds in terms of its confidence in the government”.

She added:

“I think the longer this delay goes on without a response to IRA, the more that industries start to make plans elsewhere.”

Meanwhile, the Secretary of State’s response is, “Everybody else is playing catch-up; we do not need to worry if we are 10 years behind.” What industry is saying is that that is not the case. We need a response to IRA, and pumped-storage hydro would release that investment without having to go down some of the other routes.

Both hydrogen and ammonia are seen to be important solutions for the hard-to-decarbonise industry sector and transport. It would therefore be beneficial for the UK to consider those mediums with regard to electricity, which is why they are in included in subsection (2) of the new clause.

Returning to pumped-storage hydro, Coire Glas will cost approximately £1.5 billion. SSE has committed £100 million to advance investigation and design works. Coire Glas could generate enough power for 3 million homes for a 24-hour period. That is a level of resilience that should make the UK Government desperate to support and advance the project. In the wider context, we talk about levelling up, which is exactly what the various pumped-storage hydro schemes around Scotland achieve in rural areas. Again, that would be done without Treasury support.

Coire Glas was intended to have the final investment decision taken by SSE next year and to be built within seven years. Originally, it was hoped that it could be built by the end of the decade, but the UK Government have been slow to move, delaying the project. Pumped-storage hydro is much quicker to construct than nuclear, it provides flexibility that nuclear does not and it is much cheaper than nuclear, yet the Minister is tasked with delivering the nuclear obsession of Labour and the Tories instead of looking at a more balanced system to introduce storage.

New clause 45 would address that imbalance by compelling the Government to have a strategy to increase the provision of electricity storage facilities, to enhance the resilience and flexibility of electricity supply and, crucially, to ensure fair pricing for electricity users. While my frustration stems from the lack of support for pumped-storage hydro, I am looking for the Government to bring forward a balanced, technology-neutral assessment of how to deploy various forms of electricity storage. That is why subsection (2) includes battery storage, hydrogen, ammonia and compressed air, as well as hydroelectric.

On battery storage and hydrogen, there is good development work being undertaken by ScottishPower at Whitelee wind farm in my constituency, and new batteries are being installed at Kilmarnock South substation. There is good pioneering development work going on, but it is too ad hoc, which is why we need a wider strategy.

The reality is that the longer the UK Government dither, the higher the balancing costs for the system. A figure of £4.2 billion in one year is truly astonishing. That is money that should have been invested in grid upgrades and storage. The new clause would focus UK Government minds on the benefits of storage and set in train a strategy that provides value for money for bill payers as well as all-important resilience, by cutting down the need to import gas. It would prove once and for all the benefits of pumped-storage hydro to the wider grid. Unlike a previous Secretary of State unfortunately said, it is not just a Scottish technology; believe me, pumped-storage hydro benefits all bill payers connected to the grid.

Photo of Andrew Bowie Andrew Bowie Parliamentary Under Secretary of State (Department for Energy Security and Net Zero) 2:15, 27 June 2023

It is a pleasure to be back here this afternoon under your chairmanship, Ms Nokes, for sitting 17.

I thank the hon. Member for Kilmarnock and Loudoun for his new clause, but let me first knock one thing on the head. He talked about this Government’s nuclear “obsession”. It is not an obsession; it is investment in one of the most reliable, proven and secure sources of energy that is available right now, key to delivering our net zero goals and to delivering for a more energy-secure future.

It is not only us who say that, but the Governments of France, Sweden, Italy, Poland, Spain, the Czech Republic, Finland, Japan, Belgium and more. Indeed, only this year, Sweden changed its legislation to move from 100% renewable sources of energy to 100% clean sources so that it can invest in new nuclear, Italy has just voted to reopen its nuclear programme, and countries such as the Czech Republic and Poland are moving into new nuclear facilities as they wean themselves off coal-fired power stations. That is good for the planet and good for everybody’s energy security, given the situation in central Europe right now.

Photo of Andrew Bowie Andrew Bowie Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)

I will be delighted to give way if the hon. Gentleman is about to announce a damascene conversion of the Scottish National party to new nuclear power north of the border.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy Security and Net Zero)

Well, that is stunning optimism and naivety. If nuclear is so proven and stable a technology, why is it the only power-generation technology to have got more successful and never reduced in price, and why has there not been a successful EPR project delivered on time and on budget?

Photo of Andrew Bowie Andrew Bowie Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)

I thank the hon. Gentleman for pointing out my optimism. I am a Scottish Conservative as well as an Aberdeen and Scotland football fan, so I have to be an optimist; otherwise, I would have to throw myself off Westminster bridge.

On the cost of nuclear, all I will say is that Finland, where a new nuclear power station has come on stream in the past year, has seen its energy bills reduce by a staggering 70%, and I would like to see the same for UK bill payers. That is the sort of thing that nuclear brings to the party: cheaper, more secure and cleaner energy for the United Kingdom.

Photo of Andrew Bowie Andrew Bowie Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)

I was going to make some progress, but because my hon. Friend asked so politely, I am delighted to give way.

Photo of Mark Jenkinson Mark Jenkinson Conservative, Workington

I just need to put on the record that the current nuclear fleet generated electricity at £45 per MWh. Once we start building more nuclear, I am sure we can get back to lower energy bills, as my hon. Friend points out.

Photo of Andrew Bowie Andrew Bowie Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)

Absolutely—the current nuclear fleet. By the way, the last time we unveiled a new nuclear reactor in this country was in 1995—Sizewell B—and it is about time we got on and delivered some more nuclear reactors so that we can reduce the cost per MWh and thereby reduce British bills in due course. However, I should be speaking to the new clause

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy Security and Net Zero)

I thank the Minister for giving way once more. We know that Hinkley Point C, if it comes onstream, will be £92.50 per MWh. Let us not be caught up talking about £45 per MWh, because Hinkley has a very expensive site rate.

Photo of Andrew Bowie Andrew Bowie Parliamentary Under Secretary of State (Department for Energy Security and Net Zero)

On that gentle prodding, I will turn to the new clause. The hon. Member obviously does not share my optimism, but I am sure I can convert him in time into a glass half-full kind of guy—which I know he usually is—on nuclear.

The Government fully recognise the importance of energy storage. The hon. Member says we have done nothing, but actually, through this very Bill, we have sought to provide further regulatory clarity for the sector. Indeed, our measure to define electricity storage provides long-term clarity and certainty over its treatment in regulatory frameworks. That will facilitate storage deployment going forward.

However, I do not believe that a specific electricity storage strategy is necessary. That is because the Government’s approach is to remove barriers, facilitate change and spur innovation for all low-carbon flexibility technologies. Indeed, our 2021 smart systems and flexibility plan sets out actions to facilitate the deployment of these technologies, including storage at all scales.

As an example, we are accelerating the commercialisation of novel technologies through the net zero innovation portfolio. In April this year, we confirmed the final allocations of up to £69 million to accelerate the commercialisation of longer-duration energy storage technologies.

However, that is not the only action we have been taking. We have introduced a business rates exemption for eligible storage from 2023 to 2035, as well as a temporary zero VAT rate for battery storage when supplied as part of a qualifying material installation. In addition, we have published a call for evidence that considers the case for extending the relief to electrical battery storage when it is installed on its own.

The Government have also committed to enabling investment for large-scale, long-duration electricity storage by 2024. We outlined our next steps in the Government response to our call for evidence in August 2022. We reiterated our commitment in “Powering up Britain” earlier this year—I know that Britain is close to the heart of the hon. Member for Kilmarnock and Loudoun.

Together, these actions are facilitating the deployment of electricity storage capacity. That is evidenced by the threefold increase in planning applications for electricity storage facilities since 2020 and the securing of the highest battery capacity to date at the 2023 capacity market auctions. We also anticipate a doubling of the current grid-scale battery capacity to be operational by the end of 2023.

Although I welcome the hon. Member’s intention, as ever, I hope that he can recognise the Government’s sustained commitment to enabling the deployment of electricity storage and that he might be willing to think about withdrawing his new clause.

Photo of Alan Whitehead Alan Whitehead Shadow Minister (Department for Business, Energy and Industrial Strategy) (Energy and Climate Change), Shadow Minister (Climate Change and Net Zero)

The Minister apparently stood accused of having a policy he did not actually have, which is a shocking thing, as I am sure we would all agree. I am sure the Minister would never want to be in a position of doing that sort of thing to someone else.

As far as storage is concerned, the new clause is very much on the right track. It is true that we had a long overdue reorganisation of licensing arrangements for storage earlier in the Bill. Those who are looking to develop storage programmes will now have a much better chance of developing what it is they want to develop without fear that they will be charged twice for the same activity or that they will be in a slough of uncertainty concerning exactly the status of their storage proposals.

All that is very good. What we do not have at the moment is not exactly what is in the new clause, but a clear plan and strategy for what storage is appropriate under what circumstances. We have at last realised that storage is potentially important, but it is important for a range of different circumstances and uses. Battery storage, for example, will be important for managing the circumstances in which we require a large amount of electricity at a particular point—say, for photovoltaic charging, where a PV charging site would otherwise have to deliver a much greater jolt of electricity into a particular set of charging circumstances. The provision of batteries is already beginning to happen; indeed, it is currently being discussed in “The Archers”, curiously. A battery storage facility can help to uprate charging, which is an immediate deficiency that can be rectified. Overall, battery storage is useful and important, over and above intra-day balancing, but it actually does not have a function much beyond that.

In intra-seasonal balancing, one can try to take the product of something offshore, where that is constrained, and it can be stored for quite a long time and then used in the system at other stages, where circumstances allow that to happen. That may be today, it may be over a longer period of time and it may be quite inter-seasonal. Technologies listed in the new clause include compressed-air energy storage systems—indeed, there is a company proposing to develop about 40 or so compressed-air storage systems around the country—whereby the product of various sources of electricity coming from offshore can be fed into the system as and when it is required.

The same can be done for hydrogen, which can be made from electricity coming in that is surplus to grid requirements at certain times. It can then be reconverted to electricity when the time is right, but there is considerable loss in the conversion of hydrogen into electricity and electricity into hydrogen, so that has certain disadvantages for running the system. Chemical arrangements, such as those involving ammonia, have a similar sort of function, but a slightly more complicated chemical trail.

Of course, we have hydroelectric storage, which the hon. Member for Kilmarnock and Loudoun mentioned. It essentially requires two lakes, with one lake feeding the water downhill. A turbine is driven at certain times, and then the water is pumped back up the hill again for use at other times. Hydroelectric can be used for reasonably long-duration storage, but it is perhaps rather obvious and does not need spelling out that it requires two lakes in reasonable proximity to each other for it to work really well. Unfortunately, in most parts of the country, there are not two lakes in close proximity up and down a hill—particularly in East Anglia, where we would be lucky to find a hill at all.

All those methods of storage have different functions and uses in the system, as we move towards a more balanced demand-side and supply-side energy economy, but they also have drawbacks in terms of their particular uses. Therefore, a strategy that gets that right, in terms of what we need, where and when—we know we will need a lot of storage—will be a useful addition to our general strategy on low-carbon power. However, I have to say that that strategy is not in the new clause, and although I strongly support what the hon. Member is driving at, I will not be able to fully support it. I hope he will join me in saying that we should perhaps lay this issue on the table, having made it clear to the Minister that we need some kind of storage strategy. When the Bill is over and done with and he has a bit more time available, he might put his mind to getting one under way.

Photo of Alan Brown Alan Brown Shadow SNP Spokesperson (Energy Security and Net Zero) 2:30, 27 June 2023

The shadow Minister says that the new clause does not deliver a strategy in itself, but it would obviously require the Government to deliver one. From the Minister’s response, it seems the Government still think they are doing enough, but frankly they are not. The reclassification of electricity storage will not in itself release this additional key investment in long-duration storage, such as pumped-storage hydro.

Although the Minister listed some Government policies and plans, the Government still do not have the overarching strategy required to look at different storage mechanisms. As the shadow Minister said, there are advantages and drawbacks to the various technologies, and we have to consider where they are best utilised and deployed. In doing that, we should look at how best to balance the grid overall.

I am used to being defeated and being a lone voice. I still do not want to withdraw the motion, but it will not take long to resolve the matter.

Question put and negatived.