18 May 2020

SSE Calls on UK Government to Support Pumped Storage

18 May 2020  by Killian Staines   
UK utility SSE expects to receive planning permission for a 1.5GW pumped storage plant in Scotland, but the project is likely to require some form of government support to make it a viable investment project.

The granting of planning consent for the 1.5GW Coire Glas project is "pretty imminent", SSE pumped storage development manager Sean Kelly said.

The project would have a storage capacity of 30GWh, giving it the flexibility to have multiple cycles without charging or recharging, Kelly said. And it could switch from charging at full capacity to full discharging within a matter of minutes.

But while there are no real major environmental or planning barriers to implementation of the project, the challenge is being able to finance it in a cost-effective way, Kelly said.

Pumped storage projects are particularly challenging because of the high capital costs and long lead times before revenues start, with construction likely to take 5-7 years. Lenders are reluctant to invest in merchant projects during the construction phase, driving up the costs of capital, Kelly said.

Kelly questioned whether it was viable to expect pumped storage to be built at high risk on a merchant basis when the investment risk associated with other low-carbon technologies has been reduced.

Renewables such as wind and solar are eligible for contracts for difference auctions, while the cap and floor system supports interconnector investments, and the government has proposed a regulatory asset base (RAB) model to support nuclear.

An RAB model could work for pumped storage, but a cap and floor system would be more suitable, Kelly said. The cap and floor regime guarantees a minimum revenue for interconnectors but requires them to pay back earnings above a certain threshold.

Coire Glas' capacity was originally limited to 600MW when it received planning permission because of "horrendous transmission charges", but SSE has applied for a larger capacity thanks to some reforms, Kelly said.

Transmission entry capacity charges are now partly based on load factor rather than installed capacity, which has helped power plants in Scotland including SSE's Peterhead combined-cycle gas turbine plant.

UK energy regulator Ofgem yesterday approved a modification that removes balancing service use of system charges on imports of electricity for storage operators. Storage operators will now only pay the charge once — when they export power back to the grid.

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