The Energy Transition | Funding boost for energy innovation and storage projects

This week we look at the results of Ofgem's latest innovative energy project funding round, the RO mutualisation threshold for 2023-2024, the businesses awarded £30 million to invest in energy capture projects, and more.

Ofgem awards over £6 million for innovative energy projects

The UK's energy regulator, Ofgem, has announced the results of its latest funding round for the Strategic Innovation Fund (SIF), awarding over £6 million to 53 innovative projects. The SIF is a five-year scheme that funds innovative projects aiming to contribute to the UK's net zero targets. The 53 projects were selected from a pool of 65 applicants that successfully met one of the four "Innovation Challenge" areas Ofgem set last year. The 21 projects that focused on the theme of improving energy system resilience and robustness received the majority of the funding (a total of £2.4 million). The rest of the funding has been split amongst projects that fit within the remaining themes: supporting a just energy transition; preparing for a net zero power system; and accelerating decarbonisation of major energy demands.

The successful companies include National Grid, which was granted almost £1 million to fund eight projects, and UK Power Networks, which was awarded funding for 15 new projects. The successful projects will have three months in order to develop their concepts, at which point those that are able to demonstrate the greatest potential will be awarded up to £500,000 of additional funding to demonstrate their feasibility.

Ofgem mutualisation threshold announced

Ofgem has set the mutualisation threshold for the Renewables Obligation (RO) scheme for the 2023-2024 period at over £72 million for England and Wales. The RO requires licenced electricity suppliers to source a proportion of the electricity they supply from renewable sources. Suppliers must present Renewable Obligation Certificates (ROCs) to Ofgem each year to demonstrate compliance, and must make up any shortfall with buy-out payments which are to be made by 1 September each year. In the event that there are any payments still owed above the relevant thresholds beyond a late payment deadline, those payments are mutualised so that they are spread across (and paid by) other electricity suppliers. The price ceilings for the mutualisation have been updated annually since the scheme started in 2018 to reflect changes in the Retail Price Index in the previous calendar year.

The mutualisation scheme was first triggered in 2018, and has applied in every calendar year since. It has received criticism from compliant suppliers, who are often left covering the amounts owed by non-compliant suppliers, many of which have exited the market owing significant sums into the scheme.

Government awards £30 million to energy capture projects

The UK government has announced the recipients of a combined £30 million investment in innovative energy storage projects. The funding had been made available to support projects that capture and store renewable energy including new battery technologies, compressed air storage and green hydrogen, in a bid to reduce the UK's dependence on fossil fuels and help reach net zero targets. In the announcement, Minister for Energy Security and Net Zero, Graham Stuart, commented that, "storing energy for longer periods is vital to build a robust and secure energy system and ensure that renewable energy is used efficiently."

The "pioneering businesses" selected for the funding include Synchrostor and Cheesecake Energy Ltd, which were both awarded £9.4 million pound, and Invinity Energy (UK) Limited, which was granted £11 million. Synchostor intends to use the funding to build a pumped thermal energy storage demonstration plant, whereas Cheesecake Energy will be testing their FlexiTanker electricity storage system which relies on thermal and compressed air. Invinity is aiming to create the UK's largest Vanadium Flow Battery with an anticipated flow of 7MW, 30MWh 4-hour.

ESO’s Stability Pathfinders grid decarbonisation project completes phase one

In 2019 the National Grid Group announced its 2025 ambition: to operate a 100% zero carbon national electricity transmission system by 2025. In order to achieve this goal, the ESO established Stability Pathfinders to deliver new technologies such as inertia (the kinetic energy stored in synchronous machines) which can contribute to delivering ESO's 2025 ambition.

In a recent press release, National Grid ESO announced that the first phase of Stability Pathfinders has been delivered and that works have been completed on the 12 synchronous compensator units which are now operational. The units are zero-carbon and are expected to deliver up to £128 million in consumer savings over their lifetime and reduce CO2 emissions by around six million tonnes. These units support the reduction of fossil fuel power stations that are currently needed to be available to deliver inertia.

The Head of Networks at ESO, Julian Leslie, said: "[t]he delivery of all twelve units involved in phase one of our stability pathfinders is an important milestone in delivering our ambition to be able to operate the network with zero carbon from 2025. Alongside our other pathfinders, today’s news marks a significant achievement in reaching this milestone, which will reduce the cost and carbon emissions of operating the national electricity network.”

New report recommends a review of CfD auctions for offshore wind

The UK’s Offshore Wind Champion, Tim Pick, has published an independent report entitled "Seizing our Opportunities", which makes various recommendations as to how to accelerate the deployment of offshore wind farms in the UK.

In Pick's foreword he states the government "should focus their care and attention in seizing our first-mover advantage in the development of the new floating offshore wind (FLOW) industry". Delivering this includes "taking a sustainable approach to CfD auction parameters and cost reduction".

The report notes the success of Contracts for Difference (CfDs) in supporting the large scale deployment of offshore wind farms in the UK, and in driving innovation and cost reductions in the sector. However, these objectives now need to be rebalanced in light of global markets to give more weight to other factors, such as accelerated roll out, collaboration and supply chain development. The fact that CfDs are awarded at a late stage in a project was also highlighted as being problematic as it can lead to a cautious approach from developers during a project's early stages.

The report suggests that the government explore alternatives to the current CfD auction process, such as awarding CfDs on a "as-of-right" basis. Two potential models are discussed: the HurdleCfD and ForwardCfD. The HurdleCfD model would award entitlement to a CfD once certain milestones are reached, and would be based on a price established in advance. The ForwardCfD model would change the eligibility criteria for entry into the CfD auction process by removing the requirement for certain planning milestones to have been reached, provided a seabed lease and grid connection offer was in place.

The report also recommends the introduction of non-price factors into the CfD auction process to help to change behaviours and support the wider government policy objectives.

The Secretary of State for Energy Security and Net Zero, Grant Shapps, has published a letter acknowledging the recommendations set out in the report. Shapps highlighted that offshore wind will be key in decarbonising the UK power system by 2035 and achieving net zero by 2050. He also referred to the recent Powering up Britain policy paper which included the launch of the Floating Offshore Wind Investment Scheme and the consultation on National Policy statements.

This article was written with the assistance of Sophie Myatt and Amy Lewis, trainee solicitors.