Investments to Help Keep the Lights On

PERSPECTIVES: Gravis Clean Energy Income fund's Will Argent says a recent power outage highlights the new for alternative energy sources

Will Argent 28 August, 2019 | 9:38AM
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As a nation, we often take for granted the steady flow of electricity that ensures lights flick on, the television keeps running and train information boards are kept updated.

Our dependence on the National Grid maintaining a continuous supply of energy was thrown into the spotlight this month, when two large generators disconnected from the UK power system almost simultaneously. It effectively withdrew some 1.3 gigawatts (GW) of electricity generation from the grid within minutes, just as the Friday rush hour was getting underway.

Needless to say, the subsequent energy blackout caused chaos for thousands, with stories of commuters held on trains for hours and a hospital left without power. The National Grid, the UK’s electricity system operator, called on reserve and flexible electricity generation sources to respond, and the whole event was over within about 40 minutes.

Nonetheless, the episode has highlighted the need for greater investment into our energy infrastructure, in particular into storage solutions.

Energy Storage

Energy storage, often in the form of batteries, can hold back surplus energy to be deployed to maintain, smooth or boost supply when power is in heavy demand. Many operators dispatched energy that had been held in battery storage in an attempt to maintain grid frequency on the evening of August 9, proving a huge help in lessening the impact of the sudden drop in power.

However, the involvement of batteries was not limited to simply releasing power to the grid. Because the level of reserve capacity was insufficient to meet the shortfall, National Grid had no option but to begin cutting off consumers and other sources of demand to protect its grid infrastructure. As supply was cut off, the frequency bounced back very quickly, sending the system out of balance in the other direction. At this point, battery sites were called on again to balance the grid by taking power out.

It proved to be a clear example of the vital role that energy storage has within the grid system. The fact that flexible generation storage was insufficient to fully compensate for the loss of power from two large generators signals the need for greater quantities of flexible storage capacity, which would include batteries.

The increase in renewable energy generation - a high priority in the battle to limit the effects of climate change - also increases the need for battery storage over the coming years.
The intermittent nature of renewable energy sources such as solar and wind power, given that it is not always sunny nor always windy, means that storage assets will need to be effectively utilised and proper frameworks put in place in order to maintain continuity of supply.

Related infrastructure needs to be adapted to cope given the significant growth in battery storage that is expected throughout 2019 and beyond.

Capacity Issues

Currently, the UK has around 700 megawatts (MW) of large-scale battery capacity installed but that number could reach 1.2GW by the end of 2019. The scope for rapid growth to continue over the longer term is clear. Imperial College has modelled the need for 5GW of energy storage by 2020, 20GW by 2025 and 35GW by 2030.

The growing need for sufficient battery storage offers an interesting opportunity within the broader UK infrastructure sector for investors. Not only can investing in energy infrastructure offer the chance to diversify returns away from those of traditional asset classes, it also provides the chance to support vital projects which will secure future continuity of power supplies to the nation.

There are a number of options available to those interested in the space. Investors can opt to invest directly in companies that own and develop battery storage assets exclusively, of which there are two listed in the UK – Gresham House Energy Storage (GRID) and Gore Street Energy Storage (GSF). These offer direct exposure to the growing demand for battery solutions.

Many existing generators of renewable energy are also beginning to incorporate battery storage solutions into both existing and new projects, so it will likely become a more significant component of the companies’ asset bases. The Renewables Infrastructure Group (TRIG) is a good example.

The transition away from conventional forms of power supply and towards cleaner forms of generation is a structural trend that will last long into the future. However, that transition also poses challenges in terms of harnessing the power generated by intermittent sources such as wind or solar and maintaining continuity of supply, which is vital.

The role of battery storage units was recently in its infancy, but as recent events have proven, rapid development within the sector may well be the best hope we have of keeping the lights on in the years and decades to come.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Will Argent  Will Argent is fund adviser to the Gravis Clean Energy Income fund

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