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Ofgem LCNF Tier 2 Evaluations

Smarter Network Storage

UKPN

Final Report

PPA Energy 1 Frederick Sanger Road Surrey Research Park Guildford, Surrey GU2 7YD, UK www.ppaenergy.co.uk Tel: +44 (0)1483 544944 Fax: +44 (0)1483 544955

Submitted to: Ofgem

Date: 2 November 2012

Ofgem LCNF Tier 2 Evaluations 2 November 2012November 2012 / 20389

CONTENTS

EXPLANATORY NOTE ..................................................................................................................................... 3

PROJECT SUMMARY ....................................................................................................................................... 4

1 SUMMARY OF ASSESSMENT AGAINST EVALUATION CRITERIA ............................................ 7

2 CRITERION (A) LOW CARBON AND BENEFITS ............................................................................ 12

3 CRITERION (B) VALUE FOR MONEY ............................................................................................... 16

4 CRITERION (C) GENERATES KNOWLEDGE .................................................................................. 21

5 CRITERION (D) PARTNERS AND FUNDING.................................................................................... 24

6 CRITERION (F) RELEVANCE AND TIMING.................................................................................... 26

7 CRITERION (G) METHODOLOGY ..................................................................................................... 29

8 SUCCESSFUL DELIVERY REWARD CRITERIA ............................................................................. 33

9 ADDENDUM: CHANGES MADE IN RESUBMISSION ..................................................................... 34


Explanatory Note

This report, including the “traffic light” indicators that reflect issues of concern identified during the evaluation process, (other than Section 9) is based on:-

the original full submissions that were received from the DNOs in August 2012;

subsequent question responses through the formal written question process; and

discussions held at meetings between the DNOs and the Expert Panel and/or PPA Energy.

In October 2012 the DNOs were given an opportunity to submit revised proposals. The traffic light indicators and the metrics shown in Sections 1 to 8 have not been changed to reflect any changes made by the DNOs in these revised submissions.

Section 9 of this report contains an addendum, which summarises changes made between the original and revised submissions, and the impact this has on the evaluation of the project against the criteria. Any significant changes to figures/metrics are noted in this addendum.


Project Summary

Full name: Smarter Network Storage Short name: SNS

Total cost: £21.320 million

DNO group: UKPN LCNF funding request:

£15.944 million

The Problem(s): Energy storage is a potential solution to balancing intermittent generation and deferring distribution network reinforcement costs. There are a number of problems that are perceived to prevent the widespread adoption of energy storage at the distribution level, including:

limited operational experience of larger-scale storage installations on distribution systems;

the difficult of achieving financial viability for storage deployed for meeting a single system need and the complexity of establishing alternative business models; and

regulatory frameworks that make long term integration of storage challenging.

The Method(s): Procure, install and trial a 6MW/15MWh energy storage device

Procure, install and trial a smart optimisation and control system

Identification and modelling of storage services and value streams

Development of revised commercial and regulatory arrangements to support the shared use of storage

The Trial(s): A 33/11 kV primary substation (Leighton Buzzard) has been identified as a trial site. An energy storage facility of 6MW (15MWh) will be installed and the Method developed and demonstrated.

The Solution(s): The solution sets out to:

demonstrate the economic and efficient use of storage capacity to reduce network reinforcement costs;


optimise the use of the storage facility for reducing the peak demand on the Leighton Buzzard substation and delivering reserve and frequency response services to the TSO;

validate the relevant business models/commercial arrangements;

identify regulatory and market modifications required.

Key strengths and weaknesses against the criteria

Strengths:

The project has the potential to accelerate carbon reduction by reducing the reliance on high carbon generation sources at periods of high power demand on the network.

The project will enable practical issues in controlling and optimising the use of the storage facility to defer network reinforcement and contribute to transmission system balancing requirements to be demonstrated.

The project has strong partners, a well developed project plan and generally appropriate Successful Delivery Reward Criteria defined.

Appropriate procurement processes appear to have been followed for the selection of the storage equipment.

Weaknesses:

The means by which revenues from the provision of services to the TSO are passed back to customers in compliance with regulatory requirements is unclear, but will be explored during the course of the project. UKPN have given an undertaking that any revenue generated during the demonstration period will be returned to customers. The role that battery storage will play alongside other forms of balancing service provision has also yet to be fully defined, either technically or commercially, but forms part of the trial investigation.

The technical and commercial justification for the increase in size of the storage facility between the Initial and Final Submissions is unclear.

It is unclear how far the commercial arrangements for sale of reserve and frequency response services will be finalised ahead of the period immediately after commissioning of the plant.


There are risks associated with the financial standing of the main equipment supplier, though these are mitigated by the holding of a second supplier in reserve.


1 Summary of Assessment against Evaluation Criteria

Criteria Overall Assessment

(a) Low carbon and benefits

The proposed Method has the potential to accelerate carbon reduction by reducing the reliance on high carbon generation sources at periods of high power demand on the network. This is subject to achieving frequent use of the battery for the provision of services to the TSO. No carbon reduction claims are made in relation to the deferral of network reinforcement (e.g. embodied carbon in network equipment).

Achieving the claimed financial benefits is dependent on achieving significant levels of technology roll-out cost reduction for project replication, and significant income from STOR and frequency response services, in addition to the deferral of network reinforcement costs.

(b) Value for money The project benefits rely to a significant extent on the sale of STOR and frequency response services to the TSO. The means by which these revenues are passed back to customers in compliance with regulatory requirements is unclear, however UKPN have indicated their willingness to work with Ofgem to agree a mechanism to return revenues from the storage facility to customers and to explore the basis for an enduring mechanism for achieving this during the course of the project. In addition, the role that battery storage will play alongside other forms of balancing service provision has yet to be fully defined, either technically or commercially. There is insufficient information presented as to the likely competitiveness of the SNS solution with other sources of service provision to the TSO, although it is recognised that the investigation of this issue is an inherent part of the project.

The project has claimed direct benefits of £3.152 million, which relates to the allowance for traditional reinforcement of the Leighton


Buzzard substation for which allowance has been included in the DPCR5 settlement, and which it is understood will not be required, and hence are included as additional funding by UKPN for the SNS project, in the event that it goes ahead.

UKPN has sought to minimise the cost of the storage installation through a competitive tendering process that was not specific as to the battery technology to be employed in order to encourage a broad range of participation from potential bidders. The rationale for the size of the battery is not fully explained, however, since the increase in size from 4MW to 6MW has resulted from a combination of technical and commercial considerations which have yet to be fully justified. The size of the battery is subject to further revision in the proposed project resubmission.

These factors combined with the aggressive cost reduction that is claimed through the removal of “first of a kind” costs require further clarification if the ability of the project to deliver value for money to customers is to be assured.

A larger amount of resource is being directed at this project by UKPN than might be expected, although the daily charge rates for the people involved appear reasonable.

(c) Generates knowledge

The project has the potential to generate a reasonable level of incremental learning in relation to how a relatively large capacity of storage can be deployed on the distribution network, taking account of practical issues in controlling and optimising the use of the storage facility to defer network reinforcement and contribute to transmission system balancing requirements.

The commercial learning that is quoted, involving the development of model contracts for the deployment of storage and the investigation of business models, could to a


degree be developed independently of the trial itself. The specific commercial arrangements associated with the operation of the battery will require optimisation in line with its technical performance, however, which would be addressed in the proposed trial.

(d) Partners and Funding

The project partners have been selected through a combination of collaborative discussions and use of the ENA LCNF Portal. The partners selected have appropriate experience for the delivery of the project, however wider use could potentially have been made of a process of expressions of interest and commercial proposals for developing the project in the early stages. The contribution of external non-DNO parties to the costs of the project is relatively small.

(f) Relevance and timing

The barriers to reducing carbon in the electricity sector that are addressed by the project relate mainly to the displacement of high carbon electricity generation used at times of peak system demand. This will be dependent on the ability of the SNS project to compete in the market for STOR and frequency reserve services, the requirements for which are predicted to grow significantly under National Grid’s “Gone Green” scenario. In the event of limited growth in the take-up of low carbon technologies (LCTs) the requirement for transmission services would be less likely to increase significantly.

The timing of the project is relevant to UKPN’s business plans in terms of the proposed reinforcement of the overhead circuits and transformation capacity at Leighton Buzzard. This reinforcement is already required based on existing loading levels, and is therefore not significantly affected by future trends in the local take-up of LCTs.


(g) Methodology From a technical perspective, the project concept appears feasible, and the overall performance of the storage in meeting the combined requirements of the distribution and transmission networks simultaneously is a core element of the learning to be explored during the development of the method.

Given the dependency of the project on revenues from selling services to the TSO, it will be very important that commercial arrangements for doing this are agreed at an early stage. It is unclear how far the commercial arrangements for sale of reserve and frequency response services will be finalised ahead of the period immediately after commissioning of the plant.

The project programme is clearly defined, with appropriate workstreams dedicated to the delivery of key elements.

The main risks associated with the project relate to obtaining planning consent for the building to house the storage equipment and the risk of A123 Systems failing financially. The planning risk is to some degree mitigated by the identification of an alternative site for trialling the equipment, however there is no evidence presented of the business case for distribution customers associated with storage at the alternative location. The supplier risk is offset by the identification of an alternative supplier for the storage equipment.

Further evidence is required regarding the safety case for the battery installation, particularly in relation to fire safety.

Successful Delivery Reward Criteria

Eight SDRCs are defined, and these are clearly indicated in the project programme and generally relate to significant project milestones.

There is some confusion around a key date relating to the agreement of commercial terms for storage utilisation, which will be important in ensuring that revenues can be achieved from


the full range of services to be delivered by the project.

The “traffic light” system used in the table above gives an indication of PPA Energy’s assessment of the information provided by the DNO in support of the project in respect of its detail, alignment with the LCNF evaluation criteria, identification and management of project risks and other aspects for each of the criteria. This is not intended to suggest whether projects should be funded or not but to point out those areas which PPA Energy believes merit particular scrutiny or consideration. Thus:-

Seems to be generally in line with the objectives and requirements of the LCN Fund evaluation criteria,

Whilst there are some areas where additional information would be useful, that provided is generally comprehensive and provides no immediate cause for concern.

Some indication that the project is in line with the objectives and requirements of the LCN Fund evaluation criteria. However further scrutiny is required to ensure this,

There are some gaps in the information provided,

Further assurance is needed to confirm that the project is viable and that risks are appropriately managed.

Significantly more assurance is required that the project is in line with the objectives and requirements of the LCN Fund evaluation criteria,

There are some major gaps in the information provided,

Considerable scrutiny is needed to confirm that that the project is viable and that risks are appropriately managed,

Potential major risks to the viability of the project.

In the following evaluations against the criteria, if the project is addressing various problems and/or trialling several methods and solutions, separate analysis of metrics and sub-criteria will be provided, if appropriate, for relevant criteria.


2 Criterion (a) Low Carbon and Benefits

Criterion: Accelerates the development of the low carbon energy sector and has the potential to deliver net financial benefits to future and/or existing consumers

Overall assessment:

The proposed Method has the potential to accelerate carbon reduction by reducing the reliance on high carbon generation sources at periods of high power demand on the network. This is subject to achieving frequent use of the battery for the provision of services to the TSO. No carbon reduction claims are made in relation to the deferral of network reinforcement (e.g. embodied carbon in network equipment).

Achieving the claimed financial benefits is dependent on achieving significant levels of technology roll-out cost reduction for project replication, and significant income from STOR and frequency response services, in addition to the deferral of network reinforcement costs. The robustness of the predicted cost reductions and the revenues available from selling services to the TSO require further explanation.

Metrics (where available):

Net financial benefit (£)1:

£3.020 million Network capacity released (kW)2:

6000

Base case time to release capacity (months)3:

48 Method time to release capacity (months)4:

21

1 The financial benefit of each method (at the trial scale) compared to the most efficient existing method; Net financial benefit = Base case costs (the lowest cost of delivering the Solution (on the scale outlined as part of the project) which has been proven on the GB Distribution Systems) – Method costs (the costs of replicating the method at the trial scale once it has been proven successful)

2 The network capacity released by each method (the additional headroom released on the distribution system following implementation of the Method)

3 The time it would take in months to deliver the capacity shown in “Network capacity released” under the Base Case

4 The time it would take in months to deliver the capacity shown in “Network capacity released” using the replicated Method


Potential for replication5:

Yes

Sub-criteria Assessment

Carbon claims (including quantitative, if provided)

It is stated that as a result of the displacement of carbon intensive sources of peaking generation by 6MW of storage capacity it is estimated that there are annual carbon emission savings of 1.7 k.tonnes of CO2 when fully integrated. These savings derive from the displacement of high carbon peaking generation for the provision of reserves at the transmission level. This claim has been derived from analysis based on the operation of a substantial storage capacity (7.2GW) connected to the GB system in the context of a 2030 generation mix and demand forecast. The carbon savings from this generic study were scaled to produce the above estimate.

No carbon reduction claims are made in relation to the deferral of network reinforcement (e.g. embodied carbon in network equipment).

Quantitative analysis

The carbon savings referred to above have been based on Pöyry's Zephyr market modelling platform. We do not have experience of this platform, however based on an approximate analysis using standard DEFRA carbon conversion factors for electricity production, the above carbon claims are not unreasonable, assuming operation of the battery for 2.5 hours per day (e.g. over system peak) for the 60% of operating days that the device is claimed to be available to the TSO. At the carbon conversion factors used in the Pöyry study a longer period of operation would be required at full battery output to save the above level of CO2 emissions, suggesting that these may be somewhat optimistic given that the battery is sized for 15MWh energy production. It is noted, however, that the carbon benefits associated with the storage deployment have not explicitly stated areas of carbon benefit associated with deferral of network reinforcement, the potential increase in the deployment of low-carbon technologies on the distribution network or reduced network losses through the provision of

5 The estimated number of sites or % of the GB Distribution System where the method could be rolled out, up to 2040


reactive power support and voltage management services.

The estimates of CO2 reduction will require revision in the event that a 10MWh battery is adopted by UKPN as proposed for their revised submission.

Robustness of financial benefits

It is stated that on the basis of the project scale the SNS method is estimated to provide a net benefit of £3 million over the business as usual approach. However this depends on significant roll-out cost reductions, and income streams from system reserve and response services and displacement of high carbon generating capacity.

The financial benefits are based on a 10 year analysis using a 7.2% discount rate, and include the following elements:

Income from STOR: £0.520 million

Income from Frequency Response: £3.300 million

Avoided cost of network reinforcement: £8.600 million

Displacement of OCGT/CCGT generation: £1.930 million

The justification for the financial value of the latter item is based on assumptions about capital costs savings in conventional generating plant displaced from the network and the value of carbon reductions achieved, with other items are based on prevailing rates for availability and utilisation payments by National Grid for system services.

The above breakdown suggests that over the ten year period analysed, 60% of the benefit stream is directly attributable to distribution network cost savings.

A key assumption in the calculation of the net financial benefit is that the roll-out costs of the storage solution at the scale demonstrated in the project can be reduced to £11.330 million from the total project cost of £21.320 million for the trial. This includes the stripping out of one-off development costs for the trial and an assumed 20% reduction in storage unit costs as the technology matures. This represents a relatively aggressive combination of assumed cost savings in future implementations of the project.


The costs of the wide scale deployment of SNS over the whole system are estimated to be £1.32 billion which results in net benefits of approximately £0.6 billion over 25 years. These figures require a large number of assumptions and simplifications and whilst it is stated that conservative decisions have been taken there is likely to be a large range over which the final out-turn could occur.

Capacity released (and how quickly)

6MW capacity will be released by the method, i.e. the total installed capacity of the battery, over the period of 21 months that is proposed for the delivery of the battery solution.

Replication (applicability of technology, dependence on specific network characteristics)

Widespread replication may be possible. It is estimated that roll-out of the method could provide an additional 2GW of storage capacity integrated in to the electricity system by 2040. UKPN estimates that storage could be usefully deployed (to avoid network reinforcement) at 671 primary substations by 2040 (@ 3MW per substation). These figures are based on the extrapolation of substation loading patterns in UKPN’s three distribution areas as a proxy for the rest of Great Britain.

The analysis that was carried out of loading levels on UKPN’s own substations and the filtering process applied to derive the set of those for which storage would be a viable solution appears robust.


3 Criterion (b) Value for Money

Criterion: Provides value for money to distribution customers

Overall assessment:

The project benefits rely to a significant extent on the sale of STOR and frequency response services to the TSO. The means by which these revenues are passed back to customers in compliance with regulatory requirements is unclear, however UKPN have indicated their willingness to work with Ofgem to agree a mechanism to return revenues from the storage facility to customers and to explore the basis for an enduring mechanism for achieving this during the course of the project. In addition, the role that battery storage will play alongside other forms of balancing service provision has yet to be fully defined, either technically or commercially. There is insufficient information presented as to the likely competitiveness of the SNS solution with other sources of service provision to the TSO, although it is recognised that the investigation of this issue is an inherent part of the project.

The project has claimed direct benefits of £3.152 million, which relates to the allowance for traditional reinforcement of the Leighton Buzzard substation. Allowance for this has been included in the DPCR5 settlement, it is understood that this expenditure will not be required if the project goes ahead. It is therefore shown as additional funding by UKPN for the SNS project, in the event that it goes ahead.

UKPN has sought to minimise the cost of the storage installation through a competitive tendering process that was not specific as to the battery technology to be employed in order to encourage a broad range of participation from potential bidders. The rationale for the size of the battery is not fully explained, however, since the increase in size from 4MW to 6MW has resulted from a combination of technical and commercial considerations. The size of the battery is subject to further revision in the proposed project resubmission.

These factors combined with the aggressive cost reduction that is claimed through the removal of “first of a kind” costs require further clarification if the ability of the project to deliver value for money to customers is to be assured.

A larger amount of resource is being directed at this project by UKPN than might be expected, although the daily charge rates


for the staff involved appear reasonable.


Size of benefits to distribution system6

£600 million to 2040 GB wide


Proportion of benefits attributable to distribution system (as opposed to elsewhere on supply chain)

The above level of benefits refers to Great Britain as a whole, and is calculated based on assumptions about savings in network reinforcement presented on a “top-down” basis from an assessment carried out by Imperial College. These figures require further confirmation, as the relevance of the top down approach given the site-specific nature of reinforcement deferral is questionable.

The financial benefits of the project that accrue from the deferral of network reinforcement are directly attributable to distribution customers. UKPN have stated that income that is derived from the delivery of STOR and frequency response services will be routed back to distribution customers. It is not clear by what regulatory mechanism this would be achieved in practice, however UKPN have indicated their willingness to work with Ofgem to agree a mechanism to return revenues from the storage facility to customers and to explore the basis for an enduring mechanism for achieving this during the course of the project. In addition, the role that battery storage will play alongside other forms of balancing service provision has yet to be fully defined, either technically or commercially. There is insufficient information presented as to the likely competitiveness of the SNS solution with other sources of service provision to the TSO, although it is recognised that the investigation of this issue is an inherent part of the project.

The above level of GB-wide benefits relates only to savings in distribution reinforcement costs, which would benefit distribution network customers directly through reductions in

6 Size of benefits attributable or applicable to the Distribution System versus elsewhere


Distribution Connection and Use of System Charges.

The project has claimed direct benefits of £3.152 million, which relates to the allowance for traditional reinforcement of the Leighton Buzzard substation for which allowance has been included in the DPCR5 settlement, and which it is understood will not be required if the project goes ahead. This sum is therefore included as additional funding by UKPN for the SNS project.

How learning relates to the distribution system

The learning delivered by this project is clearly applicable to the distribution system, in that it seeks to demonstrate the use of a relatively large capacity battery installation for the deferral of conventional network reinforcements. The scheme also contributes to security of supply through the provision of backup capacity to cover N-1 contingency situations, albeit for a limited time duration.

The use of distribution connected storage to provide reserve services is relevant to distribution customers in the present electricity industry structure only to the extent that they are able to benefit from revenues accruing to the DNO through the delivery of services to the TSO (see above). UKPN have stated that aspects of learning relating to the operation of storage to optimise power flows and manage the loading on network assets more efficiently will also be relevant to the possible evolution towards a Distribution Network Operator (DSO) role for the company in the future, which is a reasonable assertion.

Approach to ensuring best value for money in delivering projects

Value for money in this project has been sought by UKPN running a full competitive procurement process for the large-scale storage device, the Lithium-Ion battery, that is at the heart of the system. The procurement process did not specify the battery technology to be offered, in order to ensure the maximum participation of potential tenderers.

UKPN have stated that during the course of this process it was found that a 6MW/15MWh battery could be procured for a price that was within a few hundred thousand pounds of a 5MW/20MWh solution. They opted for the 6MW solution, having originally proposed a 4MW battery in their Initial Screening Submission. A partial justification for an increase to 5MW in size has been presented in clarification responses, in which it is suggested that the loading on the Leighton Buzzard substation will rise to 40.9MVA by 2020/21, compared with a firm overhead line capacity of 35.6 MVA. However, the


increase in battery size to 6MW was also argued on the basis of it being relatively little more expensive than the 5MW installation, without a clear supporting cost-benefit analysis.

UKPN originally stated that the 6MW/15MWh solution is “an optimum configuration” to avoid reinforcement and maximise benefits to all participants. The full justification for this claim is dependent on the details of relative performance of the alternative technical offers received and the associated prices. UKPN have indicated that they have revisited the justification for a 15MWh battery and that the project could proceed with a 6MW/10MWh installation, at a cost saving of approximately £2.700 million. Further details of this option will be proposed in the resubmission to be delivered by UKPN.

Identify and review major cost items, examine justification for relevant costs, assess choice of discount rates

The cost of the battery and power conversion system – £11.618 million – represents the largest component of the overall project cost. Within this, £8.838 million is associated with the 6MW/15MWh Lithium Ion battery. This cost has been derived through a competitive tendering process that was not specific as to the battery technology to be employed, in order to encourage a broad range of tendered options. This represents a cost of £1473/kW, against a published range of prices for Lithium Ion batteries in the Centre for Low Carbon Futures “Pathways for Energy Storage in the UK” report of up to USD 1600/kW, or approximately £1000/kW. Nevertheless, given that a procurement process has been adopted and given the evolving nature of large scale storage solutions, it is reasonable to assume that the cost estimate proposed is robust.

The procurement process has resulted in A123 Systems Inc being identified as the preferred bidder, with a reserve supplier also selected. The above pricing is understood to cover either supplier being finally selected, depending on whether final agreement is reached with the preferred bidder and noting the concerns identified later in this report about A123 Systems’ financial position.

Contractor costs of £5.193 million) are substantial, but it is notable that piling will be required for the building that is to house the battery installation. UKPN note that a tender process will be carried out during the initial stages of the project for the civil works elements in order to reduce costs where possible.

The SOCS configuration cost is dominated by the cost of IT consultants required to develop and integrate the control


software for the storage system. This service will be provided by AMT Sybex, who are understood to be providing funding to the level of approximately 20% of their costs.

Total labour costs for the project amount to £2.533 million. This is a large amount of resource which appears to be difficult to justify. The daily charge rates are generally based on a reasonable set of cost assumptions.

A relatively low contingency allowance of 3.6% is allowed in the project cost build-up and a discount rate of 7.2% has been used in the financial analysis.


4 Criterion (c) Generates Knowledge

Criterion: Generates knowledge that can be shared amongst all DNOs

Overall assessment:

The project has the potential to generate a reasonable level of incremental learning in relation to how a relatively large capacity of storage can be deployed on the distribution network, taking account of practical issues in controlling and optimising the use of the storage facility to defer network reinforcement and contribute to transmission system balancing requirements.

The commercial learning that is quoted, involving the development of model contracts for the deployment of storage and the investigation of business models, could to a degree be developed independently of the trial itself. The specific commercial arrangements associated with the operation of the battery will require optimisation in line with its technical performance, however, which would be addressed in the proposed trial.


Conforming to default IPR arrangements:

Yes


Potential for new/incremental learning to be generated by the project

A number of areas in which incremental knowledge will be generated by the project are cited by UKPN, including:

The scale of the storage trial - deployment and asset management of a large-scale storage technology, and its use for transmission system support as well as distribution reinforcement deferral;

Building on learning from the smaller-scale storage project at Hemsby in Norfolk;

Insights into the technical and commercial aspects of storage, including contribution of storage towards security


of supply, challenges associated with the use of the storage capacity by different system participants, template commercial arrangements for the provision of services to the TSO;

Insights into usage profile of storage and impact on life cycle; and

New learning on optimisation platform, the IT required to maximise flexibility, and new business processes required to incorporate into DNO control room.

A key issue concerns the extent to which this project is required in order to demonstrate something significantly new, compared with the earlier Tier 1 project investigating a 200kW facility. This used the same fundamental battery technology (Lithium-Ion) as is proposed for the SNS project, although the SNS battery storage will utilise a more advanced variant of the Lithium-Ion technology. The additional learning therefore comes primarily from the ability using a 6MW device to offer services to the TSO and to significantly defer network reinforcement at 33kV, rather than in the use of Lithium-Ion battery technology per se. New learning will also result from the exposure of distribution network operators to the practical issues involved in deploying storage in an optimum way.

Applicability of learning to other DNOs

UKPN states that learning will be relevant to DNOs, as well as other electricity system participants, storage manufacturers, energy suppliers and aggregators. UKPN have stated that were possible, they will aim for the learning to be independent of the type of storage technology, to maximise applicability for the wider DNO community. Given the likely role that storage will play on the distribution networks in future as penetrations of intermittent generation increase, and the role that storage can potentially offer in deferring network reinforcement and contributing to transmission system balancing services, the project appears to offer appropriate technical learning for other DNOs.

A proportion of the commercial learning that is quoted, involving the development of model contracts for the deployment of storage and the investigation of business models, could in principle be developed independently of the trial itself. Indeed, it could be argued that developing these arrangements will be an important precursor to the actual


utilisation of the project. Nevertheless, it is recognised that the optimisation of the deployment of the battery in a complex operational situation involving interactions between the battery, the distribution network and the transmission network, would be addressed as part of the trial.

UKPN sees the potential for collaboration with Northern Powergrid through the GBFM Tier 2 project proposal that has been submitted relating to the development of a flexibility market. UKPN has confirmed that it is not dependent on the GBFM market proceeding to deliver benefits however.

Proposed IP management and any deviations from default IP principles

UKPN has confirmed that the project will conform to the standard LCNF IPR requirements. It is understood that a Memorandum of Understanding has been signed with each project partner reflecting the full acceptance of these arrangements.

Credibility of proposed methodology for capturing learning from the trial and plans for disseminating

There is a work stream dedicated to learning and knowledge dissemination in the project, with Durham University providing support for knowledge capture and dissemination. A comprehensive knowledge dissemination plan is defined in the project submission, although it is unclear precisely how each project partner will contribute to this.


5 Criterion (d) Partners and Funding

Criterion: Involvement of other partners and external funding

Overall assessment:

The project partners have been selected through a combination of collaborative discussions and use of the ENA LCNF Portal. The partners selected have appropriate experience for the delivery of the project, however wider use could potentially have been made of a process of expressions of interest and commercial proposals for developing the project in the early stages. The contribution of external non-DNO parties to the costs of the project is relatively small.


Total cost of project (£):

£21.321 million LCNF support (£): £15.944 million

Costs met by DNO (£):

£3.910 million Costs met by others (£):

£1.105 million

LCNF support (% of total cost):

74.8% Costs met by DNO (% of total cost):

18.3%

Costs met by others (% of total cost):

5.2% Number of consortium members:

9 project partners, 1 supplier, 3 project supporters and 1 reserve supplier


Appropriateness of collaborators (including experience, expertise and robustness of commitments)

This project has a large number of well regarded partners - including Imperial College London, Durham University and Pöyry among others. Specialist battery consultants Swanbarton are also included. Several of these have reduced their standard charges as a contribution to the project.

All of the proposed partners appear appropriate for undertaking the activities for which they are nominated.

UKPN has highlighted a desirable connection with the GB Flexibility Market proposal, which has been submitted as a Tier 2


project by Northern Powergrid, however the validity of the SNS project is not dependent upon such a link.

Level of external funding (presented on a comparable basis with other Projects)

Funding of £1.105 million is being provided from external sources. This is to the effect of 5% of total cost. 18% of the total cost will be contributed by DNO.

The level of external funding offered is a relatively small amount of the overall project cost.

Effectiveness of process for seeking and identifying new project partners and ideas

UKPN has stated that the IT partner was selected from an open call via ENA LCNF portal. The IT partner was selected from 9 interested companies. The other project partners appear to have been selected through a process of collaborative discussions in the early stages of the project.

The partner selection process appears to have resulted in a team with appropriate skills for delivering the project.

Storage suppliers were chosen via a competitive tender process, and UKPN states that competitive tenders will be sought in order to optimise the price of the civil works associated with the project. These two components account for over half of the project cost.


6 Criterion (f) Relevance and Timing

Criterion: Relevance and timing

Overall assessment:

The barriers to reducing carbon in the electricity sector that are addressed by the project relate mainly to the displacement of high carbon electricity generation used at times of peak system demand. This will be dependent on the ability of the SNS project to compete in the market for STOR and frequency reserve services, the requirements for which are predicted to grow significantly under National Grid’s “Gone Green” scenario. In the event of limited growth in the take-up of low carbon technologies (LCTs) the requirement for transmission services would be less likely increase significantly.

The timing of the project is relevant to UKPN’s business plans in terms of the proposed reinforcement of the overhead circuits and transformation capacity at Leighton Buzzard. This reinforcement is already required based on existing loading levels, and is therefore not significantly affected by future trends in the local take-up of LCTs.


Start date: 1 January 2013 Elapsed time of project:

4 years


Significance in the project in:

(a) overcoming current obstacles to a low carbon future

The project cites the limited operational experience that is available of larger scale storage deployment as a key requirement for the project, in order to plug the confidence gap that exists with storage as an alternative to reinforcement. It is also looking to examine the relevance of storage as an alternative for short term peaks in demand, which is where the potential for carbon savings arises.

The barriers to reducing carbon in the electricity sector that are addressed by the project relate mainly to the displacement of high carbon electricity generation used at times of peak system demand. UKPN note that distributed electricity storage can serve to store low-carbon electricity, thereby reducing the extent to which production is curtailed from low carbon


intermittent sources. At the specific location of this project, in Leighton Buzzard, however, no claims are being made for this specific benefit.

(b) trialling new technologies that could have a major low carbon impact

The ways in which storage can contribute to low carbon impact are generally well known, and the storage technology that is to be utilised in this project (Lithium-Ion batteries) is not new. The scale of the technology, sized at a level where it can be contracted to provide services to National Grid, is the area of the project which appear to offer the most significant low carbon impact.

(c) demonstrating new system approaches that could have widespread application

The use of storage for the combined purposes of deferring network reinforcement, storing low carbon generation and offering services to the TSO could have widespread application across Great Britain, especially in the context of increasing electrification of heating and transportation loads. The rapid response offered by Lithium-Ion battery technology enables storage to contribute to the technical requirements for STOR and frequency response services. The requirements for which are predicted to grow significantly under National Grid’s “Gone Green” scenario. There is also a role for storage, as identified in SNS submission, to contribute to supporting power quality.

The submission has identified the potential for 3MW storage solutions to be applied at 671 primary substations in the UK by 2040.

Applicability of the project to future business plans, regardless of uptake of Low Carbon Technologies (LCTs)

The applicability of the project to future business plans in the absence of significant low carbon technologies coming forwards on the network is unclear. If reduced uptake of LCTs leads to a reduction in the growth in demand for balancing services at the transmission level, and similarly were to result in the need for distribution reinforcements to diminish, then the long term viability of distribution connected storage would diminish. The benefits of the project arise from a combination of sources, all of which are significantly influenced by the takeup of LCTs.

The project is relevant to UKPN’s business plans in terms of the proposed reinforcement of the overhead circuits and transformation capacity at Leighton Buzzard. This reinforcement is already required based on existing loading levels, which can result in the existing firm capacity of the


substation being exceeded by up to 3.8 MVA.

In the absence of other services being sold to the TSO, however, the cost of storage would not be justified purely to defer conventional reinforcement.


7 Criterion (g) Methodology

Criterion: Demonstration of a robust methodology and that the project is ready to implement

Overall assessment:

From a technical perspective, the project concept appears feasible, and the overall performance of the storage in meeting the combined requirements of the distribution and transmission networks simultaneously is a core element of the learning to be explored during the development of the method.

Given the dependency of the project on revenues from selling services to the TSO, it will be very important that commercial arrangements for doing this are agreed at an early stage. It is unclear how far the commercial arrangements for sale of reserve and frequency response services will be finalised ahead of the period immediately after commissioning of the plant.

The project programme is clearly defined, with appropriate workstreams dedicated to the delivery of key elements.

The main risks associated with the project relate to obtaining planning consent for the building to house the storage equipment and the risk of A123 Systems failing financially. The planning risk is to some degree mitigated by the identification of an alternative site for trialling the equipment, however there is no evidence presented of the business case for distribution customers associated with storage at the alternative location. The supplier risk is offset by the identification of an alternative supplier, for the storage equipment.



Requested level of protection against cost over runs (default 5%) (%):

5% Requested level of protection against direct benefits (default 50%) (%):

50%



Feasibility of project proposal

The Method that is proposed focuses on:

the deployment of large-scale distribution;

the implementation of a Smart Optimisation & Control System to manage and optimise the storage flexibility;

the development of innovative commercial arrangements to share energy storage; and

the assessment and validation of the value of storage.

The project comprises a 6MW/15MWh Lithium-Ion battery installation, and builds on technology trials of a 200kW battery in Norfolk. The proposed battery will be housed in a purpose-built building adjacent to the existing substation at Leighton-Buzzard. Planning consent is being sought for this building, and it is intended that planning approval will be obtained by the end of December 2013. This is subject to the normal planning process, which is underway. The Smart Optimisation and Control System to be used will be developed by AMT SYBEX and will be trialled in the project. This will allow the optimised deployment of the battery during network operation.

A key issue affecting the overall technical feasibility of the project concerns the combined use of the storage device for distribution and transmission network purposes. At the distribution level, the project will provide support to the 33kV overhead lines and 33/11kV transformers at Leighton Buzzard. The firm rating of the overhead lines is currently 35.6 MVA, and this is exceeded by approximately 3.8 MVA at times of peak demand. The Method seeks to defer a total investment of £8.6M required to reinforce the overhead lines by the installation of an additional cable and the provision of an additional transformer.

The project is also intended to prove the use of a large distribution-connected battery in providing reserve and frequency response services to the TSO. There is also discussion of providing Wholesale Market Arbitrage services as well. The core technical solutions offered by the project


comprise: peak shaving, reactive power compensation (via the capabilities of the converter system), voltage support and stabilisation.

From a technical perspective, the project concept appears feasible, and the overall performance of the storage in meeting the combined requirements of the distribution and transmission networks simultaneously is a core element of the learning.

All risks, including customer impact, exceeding forecast costs and missing delivery date

There is planning risk associated with this project, in terms of gaining planning consent for the building that is required to house the storage. The site is close to a residential area, and piling will be required for the building given the risk of flooding of the site. Discussions are ongoing with the relevant planning bodies, and UKPN is working to a programme of achieving planning consent by the end of December 2012. UKPN has provided detailed information about the status of the planning application process. Pre-Planning Application advice has been sought from Central Bedfordshire Council that has given UKPN a good base of understanding of the Council’s position.

In the event that planning consent is not granted, consideration would be given to utilising another site, however this would require further investigation in terms of the overall business case for the project.

No customer interruptions are planned in the course of installing the project, and UKPN is planning an appropriate set of actions to engage with residents in relation to the planning issues.

The project programme indicates that the storage solution should be operational by October 2014, i.e. just under half way through the four year project programme. This gives an operational period of approximately 20 months for trialling the delivery of a range of services from the battery, including two winter peak periods.

The project risk register identifies a number of risks associated with the financial situation of A123 Systems, the battery provider. The key mitigating factor, over and above financial due diligence activities, is the identification of an alternative battery supplier.



Given the dependency of the project on revenues from selling services to the TSO, it will be very important that commercial arrangements for doing this are agreed at an early stage. Whilst National Grid are involved in the project, it is unclear how far the commercial arrangements for sale of reserve and frequency response services will be finalised ahead of the period immediately after commissioning of the plant.

Whether items within project budget provide value for money

See Criterion (b) and in particular Sub-Criterion “Identify and review major cost items...”

Project methodology (including depth and robustness of project management plan)

The project has been divided into 5 Workstreams: WS1 Energy storage hardware, WS2 Smart Optimisation and Control System, WS3 Storage value streams, services and modelling, WS4 Commercial and regulatory frameworks, WS5 Learning and dissemination and stakeholder engagement.

The workstreams have been further divided into sub-tasks, with each sub-task containing descriptions, key components, dependencies, roles and responsibilities, and key reports/ dissemination activities. Each workstream is clearly identified on the project programme, with key dependencies shown.

The project management structure is clearly defined, and the companies and/or departments of UKPN that are contributing to each workstream are clearly identified.

Appropriateness of Successful Delivery Award Criteria (SDRC)

See Section 8.


8 Successful Delivery Reward Criteria

Criterion: Appropriateness of the SDRC definitions and timing and adequacy of links to key project milestones.

Overall assessment:

Eight SDRCs are defined, and these are clearly indicated in the project programme and generally relate to significant project milestones.

There is some confusion around a key date relating to the agreement of commercial terms for storage utilisation, which will be important in ensuring that revenues can be achieved from the full range of services to be delivered by the project.

Review Eight SDRCs are defined, and these are clearly indicated in the project programme and generally relate to significant project milestones.

SDRC 9.1 is somewhat nominal, in that it relates to the early capture of learning associated with the planning of a large scale storage project, and could be regarded as a success whatever the learning outcomes are as to the potential for the project to proceed.

There is also some confusion about SDRC 9.3, which describes the signing off of commercial arrangements for the integrated use of storage for transmission and distribution purposes. This is shown as being complete by 31/10/14, whereas the project programme shows this activity as not being complete until 25/1/16. The early agreement of the commercial principles for trading the range of services available from the storage device is highly desirable.

SDRC 9.5 is vague, in that it refers to the “evolution” of regulatory and legal arrangements for energy storage. This relates principally to a series of meetings to discuss regulatory issues and report on possible future developments, but does not contain any measurable success factors.


9 Addendum: Changes made in resubmission

9.1 Summary of changes

9.1.1 Battery Specification

The most significant change made by UKPN in the resubmission process has been to revise the specification of the battery proposed for the SNS solution, from a 6MW/15MWh installation to 6MW/10MWh. This has a significant effect on the cost of the battery and the associated power conversion equipment and connection equipment, which reduces from £11.618 million to £9.570 million. In discussions with UKPN it was noted that reducing the energy storage capacity of the battery could affect the duration over which it can be utilised to provide network services, depending on the level of power output at which it is dispatched. However it is recognised that exploring the optimum deployment of the battery between the provision of power and energy on the distribution system and transmission services such as STOR is a key element of the project learning.

9.1.2 Funding Request

The total project cost has fallen from £21.320 million to £18.740 million. This results in part from the reduction in the storage cost referred to above, but also includes a reduction in the cost of the smart optimisation and control system. This is understood to be largely the result of continued development of the IT design by AMT SYBEX and increased confidence in the costing leading to a reduced contingency requirement. Small reductions of cost in other areas of the project result from UKPN revisiting their staffing requirements across the project as a whole.

UKPN have clarified in their resubmission that £6.789 million of the project costs are considered to be “innovation/first of a kind” costs, and have provided a list of these. The largest cost elements relate to the initial design and development work for the Smart Optimisation & Control System, and the learning capture/dissemination and project management processes required for LCNF project delivery.

The DNO additional contribution for the project has increased by £0.100 million and the contribution from AMT SYBEX has increased by £0.111 million.

The result of the overall changes in project costs is a reduction in the Second Tier Funding request from £15.944 million to £13.218 million.

9.1.3 Battery Supplier

Since the time of submitting the full application, UKPN’s first choice battery supplier, A123 Systems, is understood to have entered Chapter 11 bankruptcy.


UKPN have advised that it is continuing to work with an alternative supplier identified in its full submission, in order to mitigate the risk of being unable to proceed with A123 Systems. UKPN had previously advised that the budget for the project had been calculated on the basis of covering the costs of equipment supplied by the reserve supplier, and this has been confirmed in a further written clarification.

It is understood that the reserve supplier is providing battery technology that is similar to that to be supplied by A123 systems, and that the reserve supplier has accepted the project plan that UKPN have proposed. UKPN has also indicated that the safety measures proposed by the reserve supplier are similar to those described for the A123 solution.

On this basis, it seems reasonable to conclude that the project could proceed adequately with equipment provided either by A123 Systems, were its financial standing to be stabilised, or the reserve supplier.

9.1.4 Technical clarifications

A large number of editorial changes have been made to the Full Submission to provide additional information and more explanation regarding issues that have been raised in the clarification process. The additional information provided includes:

clarification of the potential role of storage in displacing thermal plant in the provision of balancing services, and the means by which this potentially generates revenue and reduces carbon;

confirmation that work on the development of commercial arrangements to enable the provision of these services by storage equipment will commence at an early stage in the project, and not at a later stage as originally shown in the project programme;

further explanation of the assumptions made in projecting income streams from the provision of reserve services in the future – these have been based on the continuation of the same level of prices for reserves as is currently being seen in the market, but with a reasonably conservative assumption about the growth in demand for these services from storage;

confirmation that additional income to UKPN from the SNS project will be returned to customers, and that the mechanism for achieving this will be discussed with Ofgem as part of the project itself, but could include reductions in DUoS charges;

a list of the points that have been considered in seeking to optimise the size of battery storage and it configuration – this is still some way short of a full explanation of the optimisation process however;


confirmation that algorithms developed by AMT SYBEX during the project will be freely disseminated in accordance the standard LCNF IPR requirements;

explanation of the low risk of customer interruption that is foreseen associated with the introduction of the battery onto the distribution network;

a comprehensive description of the safety aspects of the proposed storage technology.

9.2 Impact on LCN Funding Application

9.2.1 Criterion (a) Low Carbon and Benefits

The revised submission has not changed the predicted levels of carbon reduction from the project. This reflects the high level nature of the initial calculations, which are based on considerations of storage capacity but do not appear to take detailed account of the operating regime of the battery and hence its precise energy output (which is likely to change given the revised specification of the battery system)

An increase in the financial benefits of the project from £3.020 million to £4.520 million is noted in the revised submission, as a consequence of the reduced battery costs.

9.2.2 Criterion (b) Value for Money

Issues raised around value for money are to some extent lessened by the reduction in the capital cost of the battery and the assurances given by UKPN that revenues from the SNS project will be returned to customers, and that part of the project focus is on developing the commercial means by which this is possible. The additional information provided regarding the assumptions made about the position of storage in the provision of services to the TSO indicates that reasonably conservative assumptions have been made in this area.

Notwithstanding the revision in the size of the battery installation, there remains a lack of clarity as to how the capacity/energy optimisation for the battery specification is achieved. It is recognised however that defining this in an operational environment will be a key element of the project learning. The value for money associated with the project is likely therefore to be enhanced overall by the reduction in storage costs.

UKPN has indicated the average day rate for its own staff, and has provided a breakdown of contractor costs for inputs from academic institutions, National Grid and commercial consulting organisations. These are generally considered reasonable for the levels and specialisms of the inputs needed.


9.2.3 Criterion (c) Generates Knowledge

The resubmission has provided some further information to support the already reasonable case for technical and commercial knowledge being generated by the project.

9.2.4 Criterion (d) Partners and Funding

No significant change has been made in the resubmission affecting the project’s assessment against this criterion, although it is noted that external funding has increased by £0.112 million as a consequence of an increased contribution from AMT SYBEX.

9.2.5 Criterion (f) Relevance and Timing

The case for the relevance and timing of this project remains strong.

9.2.6 Criterion (g) Methodology

The resubmission gives an update on the planning consent process, which indicates that this continues to progress. UKPN has provided further information about the safety case for the battery installation, which helps to address the concern raised during the evaluation process that insufficient information had been made available on this issue.

The project programme has been clarified such that key tasks associated with the development of the commercial arrangements for the sale of reserve and frequency response services have been brought forward, thereby addressing a concern that had been expressed regarding the timing of this important area of work.

Successful Delivery Reward Criteria (SDRC)

No changes are proposed to the SDRCs, which remain clearly defined and related to the project programme.

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