Avoiding UK gas resurgence requires more energy storage

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It took 4,000 people to hollow out Scotland's Bencruchan Mountain and build a pumped-storage hydroelectric station at its core.

Since the factory opened in 1965, construction technology has been modernized. But investors should consider pumped storage hydropower and technologies that can store energy for hours, if not days, for other reasons.

The UK government has confirmed long-standing suspicions that the UK will have to build new gas-fired power stations to help meet demand over the next decade when weather-dependent renewables fail to generate electricity. However, as the UK power system becomes more reliant on renewables, there should be price arbitrage opportunities for long-term energy storage technologies (LDES).

Renewables and nuclear power stations will generate excess electricity 64% of the year by 2035, according to analysis provided for the UK government. This compares with 14% in 2023.

Conversely, sometimes renewable energy production is insufficient to meet demand. In the excess or shortage periods modeled by consultancy LCP Delta in 2035, more than 50% of events are expected to last longer than 24 hours.

Currently, the UK relies heavily on gas-fired power stations to fill these gaps. Companies such as SSE and Czech billionaire Daniel Křetínský's EPH already have plans to build new gas plants, despite suggestions that they could be decarbonized through technologies such as carbon capture and storage or hydrogen.

More LDES would at least reduce reliance on natural gas. Pumped storage hydro (also known as “water batteries”) is more established, but other LDES technologies include compressed air and flow batteries.

Drax is proposing a £500m investment in plants such as Ben Cruachan's new 600MW water battery, which would use electricity to move water from one reservoir to another at higher altitudes when there is a surplus. During shortages, when prices rise, this process is reversed.

Since privatization in 1990, high upfront costs and revenue uncertainty have hampered efforts to build large-scale new LDES schemes. SSE's proposal to build a 1.5GW water battery in the Scottish Highlands would cost around £1.5bn. The UK is currently negotiating a mechanism to guarantee income if returns fall below an agreed floor.

Developers' hopes have been dashed before. Drax's share story remains dominated by its quest to extend public subsidies for its woodchip-fired power plant in Yorkshire. Its stock price is trading at only 4.5 times expected earnings.

Trying to establish LDES assets in the UK is a lengthy process. A system increasingly reliant on renewable energy and concerns about the resurgence of natural gas have positive outcomes in sight.

nathalie.thomas@ft.com