Letter to Prime Minister: Accelerated delivery of an investment mechanism for Large-Scale, Long-Duration Electricity Storage

The Rt. Hon. Rishi Sunak MP
Prime Minister
10 Downing Street
London
SW1A 2AA
Delivered by email
13 July 2023

RE: Accelerated delivery of an investment mechanism for Large-Scale, Long-Duration Electricity Storage

Dear Prime Minister,

As representatives of all major developers of Pumped Storage Hydro (PSH) in the UK, we are writing on the need for the accelerated delivery of an investment mechanism to support the deployment of large-scale, long-duration electricity storage (LLES) which would reduce consumer bills, greenhouse gas emissions and our reliance on imported fossil fuels. 

As increasing amounts of variable renewable generation are added to the GB energy system, the need to bring forward electricity storage, in particular long-duration storage such as PSH, is becoming critically important.

The 2021 BEIS Smart Systems and Flexibility Plan stated that long-duration storage is “essential for achieving net zero” and a report last year by Aurora Energy Research showed that up to 24GW of long-duration storage, an eight-fold increase,
is needed to cost-effectively meet the government’s 2035 decarbonisation commitment.

Additionally, a recent Scottish Renewables report found that six PSH projects currently under development could deliver £5.8 billion GVA and almost 15,000 jobs by 2035.

However, despite these projects promising to deliver energy security, savings to consumers and huge economic benefits across GB, no new PSH capacity has been constructed in over 40 years because of a lack of sufficient policy support.

There is currently 6.85GW of planned PSH projects with over 135GWh of storage capacity. If built, these projects would quintuple the total current electricity storage volume in GB. However, while the development of these projects is rapidly 
progressing, developers await the Government’s decision and implementation of a suitable revenue stabilisation mechanism before a commitment to construct such projects can be made.

The large capital costs, long lead times and highly uncertain revenue streams require a mechanism that ensures a minimum level of return can be achieved, most likely via an adapted ‘Cap and Floor’. 

The government’s current commitment is for appropriate policy to enable investment at some point in 2024. However, the BEIS committee in their recent report, ‘Decarbonising the Power Sector’, recommended that this is brought forward 
to 2023. Scottish Renewables and the British Hydropower Association strongly support this recommendation and urge the government to deliver an investment mechanism for LLES in the shortest possible timeframe with a minded-to consultation published this summer.

Ultimately, it will be consumers who bear the cost of any delay so we would therefore highlight the following factors that an accelerated delivery would help to address:

• Reducing system costs: The failure of investment in grid infrastructure to keep pace with renewables deployment is leading to significant increases in network congestion. This has contributed to annual constraint costs reaching £1.94 billion in 2022 according to the National Audit Office. PSH can mitigate these costs by allowing for greater use of generation in constrained areas as well as reducing the need for costly grid reinforcement. If deployed, PSH could deliver system cost savings of up to £680m per year in 2050. 
• Energy Security: The recent energy price crisis demonstrated that the transition to clean, home-grown renewable energy is the only sustainable pathway to ending GB consumers’ exposure to volatile fossil fuel prices. PSH is a tried and tested technology that can deliver energy security by storing energy for when 
  it is most needed, mitigating the variability of renewable generation.
• Investor flight: Global competition for investment, in particular the USA’s Inflation Reduction Act and the EU’s ‘Green Deal Industrial Plan’, planning and consenting delays and unfavourable taxation via business rates are leading to the UK becoming less favourable as an investment destination. The cost of capital will be the primary factor determining the cost to consumers so protecting access to low-cost financing should be a key driver in bringing forward the decision to implement an investment mechanism. There is a pipeline of consented, ‘shovel ready’ PSH projects that can begin construction soon after the delivery of an appropriately designed Cap and Floor. The lack of a mechanism is therefore the only barrier to unlocking the huge benefits these projects can deliver for consumers and the wider economy. However, once delivered, with operational lifetimes of over 100 years these assets will continue to provide these benefits for many generations to come.

We would welcome the opportunity to discuss this further with you and your team at your earliest convenience. 

Yours sincerely,

Claire Mack, Chief Executive, Scottish Renewables

Kate Gilmartin, CEO, British Hydropower Association