My Lords, I am grateful to my noble friend Lord Stephen and to all noble Lords who have contributed to this very helpful and useful debate on Amendment 55D. Subsections (a) and (b) of the proposed new clause support the development and piloting of storage systems for electrical energy. The Government agree that technologies that can be used to help balance the supply and demand of electricity, such as energy storage systems and demand-side response and interconnection, are increasingly likely to be required. This was the conclusion in DECC’s report, Electricity System: Assessment of Future Challenges, which was published in August 2012.
Energy storage systems can be used to store surplus electrical energy for use at times of high demand. They help to match the supply and demand of electricity efficiently and cost-effectively. Technology companies in the UK and elsewhere are actively developing energy storage systems which could help to address the problems associated with intermittency of supply. However, different energy storage technologies are currently at different stages of development and further innovation and development is needed to reduce the costs and thus make storage technologies applicable to wider deployment.
The department therefore identified energy storage systems as a priority area for funding under its Innovation Programme. We then consulted with storage technology developers and users, as well as other public sector innovation funders, before developing a plan to help support the development of storage systems. This led, in October 2012, to the department launching two innovation competitions to support research, development and demonstration of energy storage systems. As a result of these competitions, funding has already been awarded to 16 energy storage projects, and in the autumn DECC expects to announce details of up to
four energy storage demonstration pilots, which it will be supporting during the current spending review period. The aim of these pilot projects is to demonstrate the scope for cost reduction of innovative energy storage technologies and to explore the opportunities for deployment of energy storage technologies to address a wide range of future UK electricity network balancing and other storage needs. I agree with the noble Lord, Lord O’Neill, that this should be part of fulfilling the capacity of needing more energy rather than it being a means to an end.
Under Ofgem’s Low Carbon Networks Fund, three pilot projects are already under way to incorporate storage into our electricity distribution networks. These projects have the potential to assist in balancing local demand to facilitate the timely and cost-effective connection of renewable energy. My noble friend Lord Stephen referred to the Leighton Buzzard six megawatt battery project, which is one of the three pilot storage projects being supported by Ofgem’s fund.
I turn to subsection (c) of the amendment, the proposal to set targets for the provision of renewable energy storage capacity. Energy storage systems are one way to address issues arising from intermittent supply and so to support the deployment of renewable generation. However, other mechanisms such as demand-side reduction, interconnectors and smarter networks can also be used to help to balance supply and demand. Different mechanisms are likely to be needed to meet different balancing applications depending on the characteristics they offer, such as power, duration of supply and response times. The commercial markets should be best placed to select the most cost-effective solution to address each balancing requirement.
Energy storage of all sizes will have the opportunity to compete alongside generation and demand-side response in the capacity market. This will provide a secure revenue stream, ensuring sufficient investment in the reliable capacity we need. Of course we recognise the importance of developing a more responsive demand side for the longer-term efficient functioning of the market. Given that certain technologies such as storage have different characteristics from generation, we are developing transitional arrangements to provide particular support to demand-side response and alternative capacity types, including smaller scale storage which is connected to the distribution rather than the transmission network.
As I have set out previously in our debates, the early stages of the capacity market will include “go early auctions” for specific technologies in 2015 and 2016, which are designed to help certain emerging industries to grow. We envisage that these auctions will include demand-side response, embedded generation below a size threshold and storage connected to the distribution network. The auctions will allow storage to take on limited obligations and benefit from regular guaranteed payments.
Finally, subsection (d) of the amendment would require the Government to set out progress made on these energy storage system issues in the form of a report which must be laid before Parliament. DECC is already planning to carry out post-project evaluation on the outcomes of the energy storage innovation schemes once the supported projects have been completed.
In response to this request, I can commit that copies of this evaluation information and project reports will be deposited in the Libraries of both Houses.
I shall pick up on a couple of points that were raised during the debate. My noble friend asked how much funding DECC is putting into current projects. There is a list of things that we are doing and I have highlighted one or two of them. In spring 2013 we awarded £500,000 to a total of 12 organisations to carry out phase one feasibility studies into innovative and diverse energy storage ideas under the Energy Storage Technology Demonstration Competition. We will invite some of the innovators who have won funding under this competition to take part in the second demonstration phase of the competition, which is worth up to £17 million, to test designs on the ground. We also awarded £1.5 million to four organisations in the first round of the Energy Storage Component Research and Feasibility Study Scheme. We will also award grant funding of up to £1.5 million for winning projects in the second round of the scheme. There are a number of things that the department is already doing.
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I listened carefully to the noble Viscount, Lord Hanworth, and, sitting here, I wished that I had paid far more attention to my chemistry and physics lessons. Hydrocarbons and all these things that I studied many years ago suddenly came to the front again. He asked about pumped hydro schemes. One of the energy storage schemes already being supported by DECC is a study into possible novel locations for pumped hydro schemes. The noble Viscount also asked for the Government’s position on the use of hydrogen fuel cells and about electrolysis. Using fuel cells and generating hydrogen is at present very expensive and inefficient. DECC is investing in collaboration with the Technology Strategy Board in a number of hydrogen system demonstrations, so we are working on it. I promise the noble Viscount that I shall take far more interest in those projects to have a greater understanding of them.
The noble Baroness, Lady Worthington, asked about DECC’s lead for storage. I can confirm that we do not have a single policy lead for energy storage, but there is, of course, strong interest and technology leadership from DECC’s own Science and Innovation Group, which is managing the current innovation support projects for storage, so it is a key part of the department’s role. I very much take her point that it would be helpful to have a named person, which is something that we perhaps need to think a little bit more about. She also asked why we were being neutral in the capacity market when we are differentiating between technology and CFDs. It is a point raised by the noble Lord, Lord O’Neill. The capacity market is intended to deliver security of electricity supplies at least cost. That is where the differential lies.
I hope that my noble friend Lord Stephen will be reassured that the department is taking this matter very seriously and that there is considerable work in hand without a statutory requirement. On that basis, I hope that he will withdraw his amendment.