Two trends are converging in the clean energy economy that could – if handled properly – supercharge the net-zero transition. Those trends are the acceleration in the deployment of grid energy storage, and the mooted introduction of half-hourly renewable energy guarantees of origin (REGOs).
The intersection of these two developments could go a long way to fixing renewable energy’s intermittency problem and help smooth the path to clean power grids. But regulators and system operators need to step up to ensure that battery storage systems can realise their value in clean power grids.
Clean energy’s consistency challenge
In almost every part of the world, cleaning up power grids involves shifting from on-demand sources of generation, powered by fossil fuels, to intermittent renewable energy sources such as wind and solar. As the percentage of power supplied by renewables increases, these grids increasingly face periods of oversupply, leading to generation being curtailed and thus wasted, and periods of low or even zero supply at night and when wind speeds drop.
There are a number of solutions: transmission lines to carry power from distant offshore wind farms, fleets of natural gas-fired peaking plants (ideally which capture their carbon emissions), demand response which increasingly will be driven by EVs and perhaps the most important solution, energy storage. Utility - or grid - scale batteries are likely to be the most easily scalable solution in the future for managing short term fluctuations in clean energy on the grid.
The market for grid-scale energy storage is already booming. The International Energy Agency (IEA) calculates that 40GW of battery storage was installed in 2023, twice the volume of 2022. Two-thirds of that was utility scale, with the remainder accounted for by behind-the-meter systems. Global investment in battery storage has risen fivefold since 2018, the IEA says.
On the cusp of a battery boom
This is only the beginning. To meet the IEA’s Net Zero Emissions by 2050 scenario, battery capacity needs to rise 14-fold by 2030, to 1,200GW.
Part of this growth will be enabled by falling costs: under its less-aggressive Stated Policies Scenario, the IEA sees total capital costs of battery storage falling up to 40% by 2030. But this will not be enough. It warns that “current regulations and policies in many jurisdictions pose significant risks that constrain development of battery energy storage.”
It argues that, to unlock the technology’s full potential, “policy makers and regulators need to ensure that regulatory systems recognise the full value of the services that it offers, enable market access and establish price signals that accurately reflect its various contributions.”
Critical to those price signals are regulatory systems that enable “cost-reflective variable electricity tariffs,” the IEA says.
Shifting to granular REGOs
An opportunity exists to better incentivise battery storage systems through a shift to granular REGOs. Currently, REGOs, and other types of green certificates, tend to be awarded by qualifying generators for every megawatt/hour of power produced over a particular period and are matched to supply on an annual basis.
REGOs are not time-stamped – there is no distinction between a REGO earned by a solar farm generating at noon in summer or a wind farm operating at 6pm during December.
However, those two REGOs would be worth very different amounts to some buyers. As we have discussed in a recent blog, there is a growing movement among leading corporate buyers of green certificates towards 24/7 carbon-free electricity. Led by Google and Microsoft, the Granular Certificate Trading Alliance is calling for the issuance of hourly green certificates. This would allow buyers to match their use of power around the clock with evidence of the generation, somewhere on the same grid, of an equivalent volume of clean power.
Paying up for battery storage
This brings us back to the problem of intermittency, and the value of batteries. Given the intermittency of wind and solar generation, there will be periods of low supply of REGOs as well as the underlying clean power. Currently, it is only the power markets that respond to low supply by pushing prices up. However, companies seeking 24/7 clean power could be expected to bid up the prices of hourly REGOs issued in periods of low supply.
This could create opportunities for grid-scale batteries to charge during periods of low power demand and high renewable energy availability (during windy nights or at weekends, for example), and sell both power and hourly REGOs at a substantial premium in periods of low clean energy generation on the grid.
The challenge is that, in current green certificate systems, batteries are not considered to be green sources of power – even if they have charged from green sources.
Batteries store physical electrical energy, while REGOs are electronic certificates that represent the renewable attributes of generated electricity. Batteries are designed to balance supply and demand of electricity, while REGOs track and verify the renewable origin of electricity. So while batteries play a crucial role in enabling greater integration of renewable energy into the grid, they do not directly store or interact with REGOs, which remain separate electronic certificates tracking the renewable attributes of generated electricity.
The integration of REGOs and electricity storage creates a complex plexus of regulatory compliance and technological innovation in the renewable energy market and risks overlooking a major source of demand – and revenue – for battery storage systems. As we have discussed previously, sourcing clean power to meet the last 5% of a corporate buyer’s 24/7 commitment can be prohibitively expensive. But if batteries could be incentivised to provide that power, and earn a REGO as they did so, we could reasonably expect battery roll-out to be considerably accelerated.
Regulators must act
Regulators, in the UK and elsewhere, need to act. Mechanisms need to be put in place to track how batteries are charged – specifically, whether the power they are using qualifies as clean – and for those batteries to be able to generate REGOs, when they qualify. Demand, among corporate buyers and their customers, is building for 24/7 clean electricity. An urgent need exists for energy storage to enable it. REGO eligibility promises to spur investment in the batteries that can solve the problem.