Tag: energy storage

The small devices that use lots of power and the big buildings that don’t

When Texas Instruments set about attempting to create the world’s first handheld calculator in the early sixties, it estimated that such a complicated device might require a battery as big and powerful as a car’s.

With some innovative thinking, the team were eventually able to power the device with just a five-volt battery, turning the calculator into a truly handheld device and kickstarting an electronics efficiency revolution. Continuous advances in the space mean that today’s super-powered smartphones run on more efficient, powerful – and smaller – sources than ever before.

But as more of our devices become ‘smart’ and grow in usage, their electricity demand is also increasing. On the other hand, many bigger objects that traditionally have used a lot of power are becoming more efficient and consuming less electricity than before.

The small devices eating up electricity

Think of the most electricity-intensive appliance in a home. Something constantly running like a fridge-freezer might come to mind – or something intensive that operates in short blasts like a hairdryer or kettle.

However, a surprising drain of electricity in homes is TV set-top boxes and consoles, which as recently as 2016 were reported to account for as much as half of all electricity usage by domestic electronics. This is because of how often they are left in standby mode, which means they are constantly using a small amount of electricity.

In 1999 the International Energy Agency (IEA) introduced the One Watt Initiative, which led to the electricity consumption of many devices on standby falling from around five watts to below one watt. And while this has helped reduce standby or ‘vampire power’, multiplied across the country – the electricity consumption becomes significant (in the UK there are an estimated 27 million TVs).

This is not just a TV-specific problem, however, it is symptomatic of many of the modern devices increasingly found in our homes, from smart lightbulbs to Amazon’s Alexa. These are constantly using small amounts of electricity, listening and connecting to the cloud even when not being directly used.

In 2014 the IEA estimated that by 2020 these networked-devices could result in $120 billion in wasted electricity. Adding to this is the increasing demand of the cloud and data storage, which has been estimated could account for 20% of the world’s electricity consumption by 2025.

Previous alarm bells surrounding the bitcoin network’s electricity usage highlights that it’s not just physical, connected objects that will put increasing pressure on electricity supply, but also entirely digital products.

Yet even as little things become smarter and require more electricity, some big things that have previously consumed huge amounts of electricity are becoming more efficient.

The big things becoming more efficient   

Buildings are a big source of electricity demand globally. Office blocks full of lights and blasting heating and air-conditioning units are among the main offenders, but poorly insulated homes that leak heat also have a significant impact.

Efforts are constantly being undertaken to reduce this via technological means such as companies generating their own electricity onsite from installed renewables. But cutting interstitial demand to a minimum doesn’t always have to be hi-tech.

The Bullitt Centre in Seattle is a 50,000 ft2office aiming to be ‘the greenest commercial building  in the world’. This is achieved in part through a rooftop solar array that allows the building to generate more electricity than it consumes, but is complimented by more straightforward steps such as maximising natural light and ventilation, collecting rainwater, and the use of geothermal heat pumps. On average the building consumes 230,000 kilowatt-hours (KWh)/year compared to the average of 1,077,000 KWh/year for Seattle offices.

Retrofitting can also make notable reductions to energy usage and New York art-deco icon, the Empire State Building, has been updated to consume 40% less electricity. This is largely thanks to straightforward renovations such as ensuring windows open properly and temperatures can be easily controlled.

Energy efficiency is even extending beyond the confines of the planet. The International Space station only consumes about 90 kW to run, which comes from a solar array stretching more than 2,400m2. When its solar panels are operational about 60% of their generation is used to refill batteries for when the station is in the Earth’s shadow.

The Mars Desert Research Station (MDRS) in Utah

Technology like this will be essential if humans are going to put buildings on other planets where we will not have vast electricity generation and transmission systems we enjoy on earth. And if that is the ambition, continuously striving for ever more efficient devices on a smarter power grid is only going to help progress us further.

Result of General Meeting

RNS Number : 2803L
Drax Group PLC
No.Brief DescriptionVotes For%Votes Against%Votes TotalVotes Withheld
1. To approve the acquisition of the entire issued share capital of ScottishPower Generation Limited268,580,49485.7544,619,02714.25313,199,52121,841

The resolution was carried. Completion of the acquisition is expected to occur on 31 December 2018.

The number of shares in issue is 407,193,168 (of which 12,867,349 are held in treasury. Treasury shares don’t carry voting rights).

Votes withheld are not a vote in law and have not been counted in the calculation of the votes for and against the resolution, the total votes validly cast or the calculation of the proportion of issued share capital voted.

A copy of the resolution is available for inspection in the Circular, which was previously submitted to the UK Listing Authority’s Document Viewing Facility, via the National Storage Mechanism at www.morningstar.co.uk/uk/NSM.

The Circular and the voting results are also available on the Company’s website at www.drax.com/uk.

Enquiries

Drax Investor Relations

Mark Strafford
+44 (0) 1757 612 491
+44 (0) 7730 763 949

Media, Drax External Communications

Matt Willey
+44 (0) 7711 376 087

Website: www.drax.com/uk

END

Acquisition agreement amended to mitigate risk to 2019 capacity payments

RNS Number: 1455J
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

The revised contractual arrangements are designed to mitigate the risk to 2019 capacity payments arising from the recent suspension of the Capacity Market.

Commenting on today’s announcement Will Gardiner, Chief Executive Officer of Drax Group, said:

“The strategic merits of this acquisition remain unchanged and the Board believes there is a compelling logic in our move to add further flexible sources of power to our offering, which will accelerate our ability to deliver our strategic vision of a lower-carbon, lower-cost energy future for the UK.

“The capacity market is a central pillar of the UK’s energy policy and ensures security of supply while minimising costs to consumers. The Government has stated it is working closely with the European Commission to aid their investigation and to reinstate the full capacity market regime, including existing agreements, as soon as possible.

“To mitigate the risk that capacity payments take time to be restored, we have agreed revised terms which provide protection in 2019. Beyond 2019, while reinstatement of the Capacity Market is the most likely outcome, we considered other outcomes, the more plausible of which would still deliver returns in excess of Drax’s weighted average cost of capital.

“The acquisition makes financial and strategic sense, delivering material value to our shareholders through long-term earnings and attractive returns.”

Capacity Market

On 15 November 2018, the General Court of the European Union issued a ruling annulling the European Commission’s 2014 decision not to undertake a more detailed investigation of the UK Government’s scheme establishing the Capacity Market (the “Ruling”). The Ruling imposed a “standstill period” while the European Commission completes a further state aid investigation into the Capacity Market. Payments to generators scheduled under existing capacity agreements and the holding of future capacity auctions have been suspended.

Cruachan Power Station on Loch Awe, Argylle and Bute

Contracted capacity payments make up a significant proportion of the earnings of the Portfolio. For the period from 1 January 2019 to 30 September 2022, the Cruachan pumped storage hydro asset has contracted capacity payments of £29 million, the Galloway run-of-river hydro assets have contracted capacity payments of £5m million, and the Combined Cycle Gas Turbine assets have contracted capacity payments of £122 million in aggregate.

Drax notes the UK Government’s statement in response to the Ruling that it is working closely with the European Commission to aid their investigation and to seek a timely state aid re-approval decision for the Capacity Market. The UK Government also confirmed that the Ruling does not change its belief that Capacity Market auctions are the most appropriate way to deliver secure electricity supplies at the lowest cost and that the Ruling was decided on procedural grounds and did not constitute a direct challenge to the design of the Capacity Market itself.

Lanark Hydro Scheme, Lanarkshire

Based on the information available and legal advice it has received, Drax believes that the most likely outcome is that the European Commission will re-approve the existing Capacity Market in its current or a broadly similar form.

Despite the above, Drax recognises there is some uncertainty whether the contracted capacity payments for the 2018/19 Capacity Market year, which are currently suspended, will be paid by the UK Government. To mitigate the risk that these payments are not received for the 2018/19 Capacity Market year, Drax has agreed with Iberdrola certain amendments to the agreement signed on 16 October 2018.

Arrangements with Iberdrola in respect of 2018/19 capacity payments

Drax and Iberdrola have agreed a risk sharing mechanism in respect of capacity payments for the period 1 January 2019 to 30 September 2019, worth £36 million. If less than 100% of these payments are received and the gross profit of the Portfolio for the full year 2019 (the “2019 Gross Profit”) is lower than expected, Drax will receive a payment from Iberdrola of up to £26 million. The mechanism also gives Iberdrola the opportunity to earn an upside of up to £26 million if less than 100% of these payments are received but the Portfolio performs better than expected in 2019(1).

Under these arrangements, if less than 100% of these capacity payments are received:

  1. Iberdrola will make a payment to Drax if the 2019 Gross Profit is less than £155 million. The payment will be an amount equal to 72% of any shortfall in the 2019 Gross Profit below £155 million. The amount of the payment is capped at the lower of the amount in respect of capacity payments due to the Portfolio but not received and £26 million; and
  2. Drax will make a payment to Iberdrola if the 2019 Gross Profit is more than £165 million. The payment will be an amount equal to 72% of any amount by which the 2019 Gross Profit exceeds £165 million. The amount of the payment is capped at the lower of the amount in respect of capacity payments due to the Portfolio but not received by Drax and £26 million.

A pylon carries electricity transmission lines from Cruachan Power Station above Loch Awe in the mountains of the West Highlands of Scotland

If subsequently Drax receives any capacity payments in respect of the period 1 January 2019 to 30 September 2019, Drax will pay 72% of those amounts to Iberdrola capped at the amount paid by Iberdrola to Drax under the mechanism above.

Drax and Iberdrola have agreed that capacity payments due to the Portfolio in respect of the period before completion will be passed through to Iberdrola.

Any payments pursuant to the arrangements with Iberdrola will be cash adjustments to the consideration and not included in EBITDA(2).

Benefits of the acquisition

Shoreham Power Station, West Sussex

Based on Drax’s expectations of the position that is most likely to be achieved in relation to the Capacity Market following the Ruling, Drax believes the Acquisition represents an attractive opportunity to create significant value for shareholders and is expected to deliver returns significantly in excess of Drax’s weighted average cost of capital.

Drax has considered other possible outcomes for the Capacity Market which are less likely but may ensue and if they did the financial effects of the Acquisition may be adversely affected.

Drax believes that if the more plausible of these outcomes were to ensue the returns from the Acquisition would still be in excess of the Drax’s weighted average cost of capital.

Drax has not attempted to quantify the effect if the less plausible of these other outcomes were to ensue – if there were no Capacity Market or similar mechanism or if significant structural changes were made to the Capacity Market. Drax sees these as a remote possibility and notes that in those circumstances it believes the loss or reduction of capacity payments could be mitigated by increases in wholesale power prices.

The Acquisition strengthens Drax’s ability to pay a growing and sustainable dividend. Drax remains committed to its capital allocation policy and to its current £50 million share buy-back programme, with £42 million of shares purchased to date.

2019 profit forecast

Daldowie Fuel Plant, Glasgow

Based on recent power and commodity prices and assuming that all contracted capacity payments are received, the Portfolio is expected to generate EBITDA in 2019 in a range of £90 million to £110 million, from gross profits of £155 million to £175 million, of which around two thirds is expected to come from non-commodity market sources, including system support services, capacity payments, ROCs(3) and the Daldowie energy-from-waste plant.

If, in light of the Ruling, the contracted capacity payments payable in 2019 in respect of the Portfolio are not received or accrued in 2019, the expected EBITDA for the Portfolio in 2019 would be reduced by up to £47 million (from a range of £90 million to £110 million) down to a range of £43 million to £63 million before considering mitigating factors. Drax believes that the arrangements agreed with Iberdrola mitigate in economic terms the majority of the risk that those suspended capacity payments will not be paid.

Assuming performance in line with current expectations and if all capacity payments due in 2019 are received before the end of 2019, net debt to EBITDA is expected to fall to Drax’s long-term target of around 2x by the end of 2019. If capacity payments are not received in 2019, net debt to EBITDA is expected to fall to around 2x during 2020.

Drax current trading and 2018 outlook

Following the Ruling, £7 million of contracted capacity payments relating to 2018, principally in relation to Drax’s remaining two coal-fired units, will not be paid as and when expected. Taking this into account, and following Drax’s recent good trading performance and assuming continued good operational availability for the remainder of the year, Drax’s full year EBITDA outlook remains in line with previous expectations, with net debt to EBITDA expected to be around 1.5x for the full year, excluding the impact of the Acquisition.

Process

The Clatteringshaws Dam in Dumfries and Galloway, built by Sir Alexander Gibb & Partners in 1932-38, it is part of the Galloway Hydro Scheme

On 1 November 2018, the Competition and Markets Authority informed Drax that it had no further questions in connection with the proposed Acquisition at that stage, which resulted in the competition condition under the Acquisition agreement being satisfied. Completion of the Acquisition is therefore currently expected to occur on 31 December 2018 assuming that the shareholder approval condition is satisfied by that date.

A combined shareholder circular and notice of general meeting containing the unanimous recommendation of the Board to approve the Acquisition will be posted as soon as practicable.

Other matters

Drax expects to announce its full year results for the year ending 31 December 2018 on 26 February 2019.

Notes

  1. Arrangements with Iberdrola in respect of 2018/19 capacity payments – only applicable if less than 100% of these capacity payments are received. Any payments pursuant to the arrangements with Iberdrola will be cash adjustments to the consideration and not included in EBITDA.Implied EBITDA is included in the table for reference only and is not a metric included in the mechanism, which is based on gross profit.
    The amount of the payment is capped at the lower of the amount in respect of capacity payments due to the Portfolio but not received by Drax and £26 million.
    2019 Gross Profit £mImplied EBITDA based on 2019 Gross Profit £mPayment made to / (by) Drax capped at £26m £m*
    119 or lower54 or lower26
    1296419
    1397412
    149844
    155900
    1651000
    175110-7
    185120-14
    195130-22
    201 or higher136 or higher-26

    *Payment made to / (by) Drax will be classified as a cash adjustment to the consideration rather than as gross profit.
  2. EBITDA means earnings before interest, tax, depreciation, amortisation, unrealised profits and losses on derivative contracts and material or one-off items that do not reflect the underlying trading performance of the business. 2019 EBITDA is stated before any allocation of Group overheads.
  3. Renewable Obligation Certificates.

Enquiries

Drax Investor Relations:

Mark Strafford
+44 (0) 1757 612 491
+44 (0) 7730 763 949

Media

Drax External Communications:

Matt Willey
+44 (0) 7711 376 087

Ali Lewis
+44 (0) 7712 670 888

J.P. Morgan Cazenove (Financial Adviser and Joint Corporate Broker)

+44 (0) 207 742 6000
Robert Constant
Jeanette Smits van Oyen
Carsten Woehrn

Royal Bank of Canada (Joint Corporate Broker):

+44 (0) 20 7653 4000
James Agnew
Jonathan Hardy

Acquisition of flexible, low-carbon and renewable UK power generation from Iberdrola

RNS Number : 1562E
Drax Group PLC
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION

Highlights

  • A unique portfolio of pumped storage, hydro and gas-fired generation assets
  • Compelling strategic rationale
    • Growing system support opportunity for the UK energy system
    • Significant expansion of Drax’s flexible, low-carbon and renewable generation model
    • Diversified generation capacity – multi-site, multi-technology
    • Opportunities in trading and operations
  • Strong financial investment case
    • High quality earnings
    • Expected returns significantly ahead of Weighted Average Cost of Capital (WACC)
    • Expected EBITDA(1) of £90-110 million in 2019
    • Debt facility agreed, net debt/EBITDA expected to be around 2x by the end of 2019
    • Supportive of credit rating and reduced risk profile for Drax
    • Strengthens ability to pay a growing and sustainable dividend

Will Gardiner, CEO, Drax Group

Commenting on today’s announcement Will Gardiner, Chief Executive Officer of Drax Group, said:

“I am excited by the opportunity to acquire this unique and complementary portfolio of flexible, low-carbon and renewable generation assets. It’s a critical time in the UK power sector. As the system transitions towards renewable technologies, the demand for flexible, secure energy sources is set to grow. We believe there is a compelling logic in our move to add further flexible sources of power to our offering, accelerating our strategic vision to deliver a lower-carbon, lower-cost energy future for the UK.

“This acquisition makes great financial and strategic sense, delivering material value to our shareholders through long-term earnings and attractive returns.

“We are combining our existing operational expertise with the specialist technical skills of our new colleagues and I am looking forward to what we can achieve together.”

A flexible, low-carbon and renewable portfolio

The Portfolio consists of Cruachan pumped storage hydro (440MW), run-of-river hydro locations at Galloway and Lanark (126MW), four CCGT(2) stations: Damhead Creek (805MW), Rye House (715MW), Shoreham (420MW) and Blackburn Mill (60MW), and a biomass-from-waste facility (Daldowie).

Clatteringshaws Loch and dam, part of the Galloway Hydro Scheme

Attractive high quality earnings and returns

The Portfolio is expected, based on recent power and commodity prices, to generate EBITDA in a range of £90-110 million, from gross profits of £155 million to £175 million, of which around two thirds is expected to come from non-commodity market sources, including system support services, capacity payments, Daldowie and ROCs(3). Pumped storage and hydro activities represent a significant proportion of the earnings associated with the portfolio. Further information is set out in Appendix 2 of this Announcement.

Capital expenditure in 2019 is expected to be in the region of £30-35 million.

For the year ended 31 December 2017, the Portfolio generated EBITDA of £36 million(4). EBITDA in 2019 is expected to be higher due to incremental contracted capacity payments (c.£42 million), no availability restrictions (Cruachan’s access to the UK grid during 2017 was limited by network transformer works) (c.£8 million), a lower level of corporate cost charged to the portfolio (c.£9 million) and revenues from system support services and current power prices. Gross assets as at 31 December 2017 were £419 million(5).

The Acquisition represents an attractive opportunity to create significant value for shareholders and is expected to deliver returns significantly in excess of the Group’s WACC and to be highly accretive to underlying earnings in 2019.

The Acquisition strengthens the Group’s ability to pay a growing and sustainable dividend. Drax remains committed to its capital allocation policy and to its current £50 million share buy-back programme, with £32 million of shares purchased to date.

Financing the Acquisition

Drax has entered into a fully underwritten £725 million secured acquisition bridge facility agreement to finance the Acquisition. Assuming performance in line with current expectations, net debt to EBITDA is expected to fall to Drax’s long-term target of around 2x by the end of 2019.

Drax expects its credit rating agencies to view the Acquisition as contributing to a reduced risk profile for the Group and to reaffirm their ratings.

Conditions for completion

The Acquisition is expected to complete on 31 December 2018 and is conditional upon the approval of the Acquisition by Drax’s shareholders and clearance by UK Competition and Markets Authority (the “CMA”). A summary of the terms of the Acquisition agreement (the “Acquisition Agreement”) is set out in Appendix 1 to this announcement.

Drax trading and operational performance

Since publishing its half year results on 24 July 2018 Drax has commenced operation of a fourth biomass unit at Drax Power Station, which is performing in line with plan, and availability across biomass units has been good.

Biomass storage domes at Drax Power Station

Taking these factors into account, alongside a strong 2018 hedged position and assuming good operational availability for the remainder of the year, Drax’s EBITDA expectations for the full year remain unchanged, with net debt to EBITDA now expected to be around 1.5x for the full year, excluding the impact of the Acquisition.

Biomass generation is now fully contracted for 2019.

Contracted power sales at 30 September 2018

 201820192020
Power sales (TWh) comprising:18.611.55.7
TWh including expected CfD sales18.615.611.2
– Fixed price power sales (TWh) 18.611.05.1
At an average achieved price (per MWh)at £46.8at £50.4at £48.3
– Gas hedges (TWh)-0.50.6
At an achieved price per therm-43.5p47.4p

Drax intends to hedge up to 1TWh of the commodity exposures in the Portfolio ahead of completion in line with the Group’s existing hedging strategy.

Other matters

In light of the Acquisition and the expected timing of the general meeting to approve it, Drax will postpone the planned Capital Markets Day on 13 November 2018.

Drax expects to announce its full year results for the year ending 31 December 2018 on 26 February 2019.

Enquiries:
Drax Investor Relations: Mark Strafford
+44 (0) 1757 612 491
+44 (0) 7730 763949

Media:
Drax External Communications:
Matt Willey
+44 (0) 7711 376087

Ali Lewis
+44 (0) 77126 70888

J.P. Morgan Cazenove (Financial Adviser and Joint Corporate Broker):
+44 (0) 207 742 6000
Robert Constant
Jeanette Smits van Oyen
Carsten Woehrn

Royal Bank of Canada (Joint Corporate Broker):
+44 (0) 20 7653 4000
James Agnew
Jonathan Hardy


Acquisition presentation meeting and webcast arrangements

Management will host a presentation for analysts and media at 9:00am (UK Time), Tuesday 16 October 2018, at FTI Consulting, 200 Aldersgate, Aldersgate Street, London EC1A 4HD.

Would anyone wishing to attend please confirm by e-mailing Christophe[email protected] or calling Christopher Laing at FTI Consulting on +44 (0) 20 3727 1355 / 07809 234 126.

The meeting can also be accessed remotely via a live webcast, as detailed below. After the meeting, the webcast will be made available and access details of this recording are also set out below.

A copy of the presentation will be made available from 9am (UK time) on Tuesday 16 October 2018 for download at: www.drax.com/uk>>investors>>results-reports-agm>> #investor-relations-presentations or use the link below.

Event Title:Drax Group plc: Acquisition of flexible, low-carbon and renewable UK power generation from Iberdrola
Event Date:Tuesday 16 October 2018
Event Time9:00am (UK time)
Webcast Live Event Linkhttps://www.drax.com/uk/investors/16-oct-2018-webcast
020 3059 5868 (UK)
+44 20 3059 5868 (from all other locations)
Start Date:Tuesday 16 October 2018
Delete Date:Monday 14 October 2019
Archive Link:https://www.drax.com/uk/investors/16-oct-2018-webcast

For further information please contact Christopher Laing on +44 (0) 20 3727 1355 / 07809 234 126.

Website: www.drax.com/uk


Acquisition of the Portfolio from Iberdrola

Drax Smart Generation Holdco Limited (“Drax Smart Generation”), a wholly owned subsidiary of Drax, has entered into the Acquisition Agreement with Scottish Power Generation Holdings Limited (the “Seller”), a wholly-owned subsidiary of Iberdrola S.A., for the acquisition of ScottishPower Generation Limited (“SPGEN”), for £702 million in cash.

Loch Awe and Cruachan Reservoir from Ben Cruachan, Argyle and Bute

Strong asset base

The Portfolio principally consists of 2.6GW of assets which are highly complementary to Drax’s existing generation portfolio and play an important role in the UK energy system. The assets include:

Turbine hall at Cruachan Power Station

Cruachan Pumped Storage Hydro

440MW of large-scale storage and flexible low-carbon generation situated in Argyll and Bute, Scotland.

Cruachan provides a wide range of system support services to the UK energy market, in addition to providing merchant power generation. Cruachan has £35 million of contracted capacity payments for the period 2019 to 2022.

Cruachan, which provides over 35% of the UK’s pumped storage by volume, can provide long-duration storage with the ability to achieve full load in 30 seconds, which it can maintain for over 16 hours, making it a strategically important asset remunerated by a broad range of non-commodity based revenues.

 

Galloway Hydro Scheme, River Dee

Galloway and Lanark Run-of-River Hydro

126MW of stable and reliable renewable generation situated in South-west Scotland.

Both locations benefit from index-linked ROC revenues extending to 2027 and Galloway, in addition to renewable power generation, operates a reservoir and dam system providing storage capabilities and opportunities for peaking generation and system support services. It also has £4 million of contracted capacity payments for the period 2019 to 2022.

 

 

 

Combined Cycle Gas Generation (CCGT)

1,940MW of capacity at Damhead Creek (805MW), Rye House (715MW) and Shoreham (420MW) all strategically located in South-east England.

Shoreham Power Station, West Sussex

These assets provide baseload and/or peak power generation in addition to other system support services and benefit from attractive grid access income associated with their location. The three plants have contracted capacity payments of £127 million for the period 2019 to 2022.

Damhead Creek Power Station, Isle Of Grain, Kent

Damhead Creek also benefits from an attractive option for the development of a second CCGT asset, Damhead Creek II, which provides additional gas generation optionality alongside Drax’s existing coal-to-gas repowering and OCGT(6) projects. All options could be developed subject to an appropriate level of support. Damhead Creek II is eligible for the 2019 capacity market auction along with two of Drax’s existing OCGT projects.

Other smaller sites

The portfolio also includes a small CCGT in Blackburn (60MW) and a 50K tonne biomass-from-waste facility in Daldowie, which benefits from a firm offtake contract agreement with Scottish Water until 2026.

Benefits of the Acquisition

A leading provider of flexible, low-carbon and renewable generation in the UK

The UK has a target to reduce carbon emissions by 80% by 2050. The transition to a low-carbon economy requires decarbonisation of heating, transport and generation. This will in turn require additional low-carbon sources of generation to be developed in the UK. As much as 85%(7) of future generation could come from renewables – predominantly wind and solar. This will lead, at times, to high levels of power price volatility and increasing demand for system support services. Managing an energy system with these characteristics will only be possible if it is supported by the right mix of flexible assets to manage volatility, balance the system and provide crucial non-generation services which a stable energy system requires.

Pylon and electricity transmission lines from Cruachan Power Station above Loch Awe

The Acquisition is closely aligned with this structural need and the operation of Drax’s existing biomass and gas options which provide the flexibility required to enable higher levels of intermittent renewable generation.

The Acquisition is in line with these system needs and when combined with Drax’s existing flexible, biomass generation and gas options offers the Group increased exposure to the growing need for system support and power price volatility.

Increased earnings potential aligned with generation strategy and UK energy needs

The Acquisition is closely aligned with this structural need and the operation of Drax’s existing biomass and gas options which provide the flexibility required to enable higher levels of intermittent renewable generation.

The Acquisition is in line with these system needs and when combined with Drax’s existing flexible, biomass generation and gas options offers the Group increased exposure to the growing need for system support and power price volatility.

High quality earnings

Two thirds of the gross profits of the Portfolio is expected to come from non-commodity market sources, including system support services, capacity payments, Daldowie and ROCs, in addition to power generation activities. Due to the expected growing demand for these assets and the contract-based nature of many of these services Drax expects to improve long-term earnings visibility through structured non-commodity earnings streams, whilst retaining significant opportunity to benefit from power price volatility.

When combined with renewable earnings and system support from existing biomass generation, the Acquisition is expected to lead to an increase in the quality of earnings.

Diversified generation and portfolio benefits

Wood pellet storage domes at Drax Power Station, Selby, North Yorkshire

The Acquisition accelerates Drax’s development from a single-site generation business into a multi-site, multi-technology operator.

With the acquisition of this portfolio, a fall in gas prices could be mitigated by an increase in gas-fired generation reflecting the relative dispatch economics of the different technologies.

Drax expects to benefit from the management of generation across a broader asset base, leveraging the Group’s expertise in the operation, trading and optimisation of large rotating mass generation.

Drax believes that the team operating the Portfolio has a strong engineering culture which is closely aligned with the Drax model and will enhance the Group’s strong capabilities across engineering disciplines.

Around 260 operational roles will transfer to Drax as part of the Acquisition, complementing and reinforcing Drax’s existing engineering and operational capabilities.

Financing and capital structure

Drax has entered into a fully underwritten £725 million secured acquisition bridge facility to finance the Acquisition, with a term of 12 months from the first date of utilisation of the facility (with a seven-month extension option) and interest payable at a rate of LIBOR plus the applicable margin (the “Acquisition Facility Agreement”). The facility is competitively priced and below Drax’s current cost of debt.

Drax will consider its options for its long-term financing strategy in 2019.

Assuming performance in line with current expectations, net debt to EBITDA is expected to return to Drax’s long-term target of around 2x by the end of 2019.

Drax expects credit rating agencies to view the Acquisition as supportive of the rating and contributing to a reduced risk profile for the Group.

Process and integration plan

Drax is progressing a detailed integration plan to combine the Acquisition as part of the existing Power Generation business.

The transaction is subject to shareholder approval. A combined Shareholder Circular and notice of General Meeting will be posted as soon as practicable.

The transaction is expected to complete on 31 December 2018.

Notes:

(1)    EBITDA is defined as earnings before interest, tax, depreciation, amortisation and material one-off items that do not reflect the underlying trading performance of the business. 2019 EBITDA is stated before any allocation of Group overheads.
(2)    Combined Cycle Gas Turbine.
(3)    Renewable Obligation Certificates.
(4)    2017 EBITDA is unaudited and based on the audited financial statements of Scottish Power Generation Limited and SMW Limited, adjusted to exclude results of assets that do not form part of the Portfolio and restated in accordance with Drax accounting policies.
(5)    On an unaudited historic cost basis, inclusive of an historic write down and other changes arising from the application of Drax’s accounting policies, and incorporating intercompany debtors which will be replaced by Drax going forward.
(6)    Open Cycle Gas Turbines.
(7)    Intergovernmental Panel on Climate Change. In a 1.5c pathway renewables are projected to be 70-85% of global electricity in 2050.

IMPORTANT NOTICE

The contents of this announcement have been prepared by and are the sole responsibility of Drax Group plc (the “Company”).

J.P. Morgan Limited (which conducts its UK investment banking business as J.P. Morgan Cazenove) (“J.P. Morgan Cazenove”) and RBC Europe Limited (“RBC”), which are both authorised by the Prudential Regulation Authority (the “PRA”) and regulated in the United Kingdom by the FCA and the PRA, are each acting exclusively for the Company and for no one else in connection with the Acquisition, the content of this announcement and other matters described in this announcement and will not regard any other person as their respective clients in relation to the Acquisition, the content of this announcement and other matters described in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients nor for providing advice to any other person in relation to the Acquisition, the content of this announcement or any other matters referred to in this announcement.

J.P. Morgan Cazenove, RBC and their respective affiliates do not accept any responsibility or liability whatsoever and make no representations or warranties, express or implied, in relation to the contents of this announcement, including its accuracy, fairness, sufficient, completeness or verification or for any other statement made or purported to be made by it, or on its behalf, in connection with the Acquisition and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. Each of J.P. Morgan Cazenove, RBC and their respective affiliates accordingly disclaims to the fullest extent permitted by law all and any responsibility and liability whether arising in tort, contract or otherwise which it might otherwise be found to have in respect of this announcement or any such statement.

Certain statements in this announcement may be forward-looking. Any forward-looking statements reflect the Company’s current view with respect to future events and are subject to risks relating to future events and other risks, uncertainties and assumptions relating to the Company and its group’s, the Portfolio’s and/or, following completion, the enlarged group’s business, results of operations, financial position, liquidity, prospects, growth, strategies, integration of the business organisations and achievement of anticipated combination benefits in a timely manner. Forward-looking statements speak only as of the date they are made. Although the Company believes that the expectations reflected in these forward looking statements are reasonable, it can give no assurance or guarantee that these expectations will prove to have been correct. Because these statements involve risks and uncertainties, actual results may differ materially from those expressed or implied by these forward looking statements.

Each of the Company, J.P. Morgan Cazenove, RBC and their respective affiliates expressly disclaim any obligation or undertaking to supplement, amend, update, review or revise any of the forward looking statements made herein, except as required by law.

You are advised to read this announcement and any circular (if and when published) in their entirety for a further discussion of the factors that could affect the Company and its group, the Portfolio and/or, following completion, the enlarged group’s future performance. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements in this announcement may not occur.

Neither the content of the Company’s website (or any other website) nor any website accessible by hyperlinks on the Company’s website (or any other website) is incorporated in, or forms part of, this announcement.


Appendix 1

Principal Terms of the Acquisition

The following is a summary of the principal terms of the Acquisition Agreement.

  1. Acquisition Agreement

Parties and consideration

The Acquisition Agreement was entered into on 16 October 2018 between Drax Smart Generation and the Seller. Pursuant to the Acquisition Agreement, the Seller has agreed to sell, and Drax Smart Generation has agreed to acquire, the whole of the issued share capital of SPGEN for £702 million, subject to certain customary adjustments in respect of cash, debt and working capital.

Drax Group Holdings Limited has agreed to guarantee the payment obligations of Drax Smart Generation under the Acquisition Agreement. Scottish Power UK plc has agreed to guarantee the payment obligations of the Seller under the Acquisition Agreement.

Conditions to Completion

The Acquisition is conditional on:

  • the approval of the Acquisition by Drax shareholders, which is required as the Acquisition constitutes a Class 1 transaction under the Listing Rules (the “Shareholder Approval Condition”); and
  • the CMA having indicated that it has no further questions at that stage in response to pre-Completion engagement by Drax or the CMA having provided a decision that the Acquisition will not be subject to a reference under the UK merger control regime.

Completion is currently expected to occur on 31 December 2018 assuming that the conditions are satisfied by that date.

Termination for material reduction in available generation capacity

Drax Smart Generation has the right to terminate the Acquisition Agreement upon the occurrence of a material reduction in available generation capacity at any of the Cruachan, Galloway and Lanark or Damhead Creek facilities which subsists, or is reasonably likely to subsist, for a continuous period of three months. The right of Drax Smart Generation to terminate in these circumstances is subject to the Seller’s right to defer Completion if the relevant material reduction in available generation capacity can be resolved by end of the month following the anticipated date of Completion.

Break fee

A break fee of £14.6 million (equal to 1% of Drax’s market capitalisation at close of business on the day before announcement) is payable if the Shareholder Approval Condition is not met, save where this is as a result of a material reduction in available generation capacity as described above.

Pre-completion covenants

The Seller has given certain customary covenants in relation to the period between signing of the Acquisition Agreement and completion, including to carry on the SPGEN business in the ordinary and usual course.  The Seller will carry out certain reorganisation steps prior to completion.

Pension liabilities

Drax Smart Generation has agreed to assume the accrued defined benefit pension liabilities associated with the employees of the SPGEN group as at the date of signing the Acquisition Agreement. Following Completion, the SPGEN group will continue to participate in the Seller’s group defined benefit pension scheme, known as the ScottishPower Pension Scheme (“SPPS”) for an interim period of 12 months unless agreed otherwise (the “Interim Period”) while a new pension scheme is set up by the SPGEN group for the benefit of its employees (the “New Scheme”).

At the end of the Interim Period, the SPPS trustees will be requested to transfer from the SPPS to the New Scheme an amount of liabilities (and corresponding share of assets) agreed between the Seller and Drax Smart Generation (or failing agreement, an amount determined by an independent actuary) in respect of the past service liabilities relating to the SPGEN group employees.  If the amount of assets transferred to the New Scheme does not match the amount agreed (or independently determined), there will be a true-up between the Seller and Drax Smart Generation.

If the SPPS trustees do not make any transfer to the New Scheme within the period of 18 months following the Interim Period (unless this was caused by a breach of the Acquisition Agreement by the Seller), Drax Smart Generation has agreed to pay £16 million (plus base rate interest) to the Seller as compensation for the SPPS liabilities not taken on by the New Scheme.

Seller’s warranties, indemnities and tax covenant

The Seller has provided customary warranties in the Acquisition Agreement.  The Seller also has provided Drax Smart Generation with indemnities in respect of certain specific matters, including for any losses associated with the reorganisation referred to above.  A customary tax covenant is also provided in the Acquisition Agreement.

  1. Transitional Services Agreement

The Seller and SPGEN will enter into a transitional services agreement effective at Completion. The specific nature, terms and charges relating to the services to be provided will be agreed between the Seller and SPGEN prior to Completion. The Seller will also provide assistance in relation to the extraction and separation of the SPGEN group from the systems of the Seller and integration of the SPGEN group onto the systems of the Drax Group.


Appendix 2

Profit Forecast

Profit forecast for the Portfolio for the year ending 31 December 2019 including bases and assumptions.

The Portfolio is expected, based on recent power and commodity prices, to generate EBITDA in a range of £90-110 million (“Profit Forecast”), and gross profits of £155 million to £175 million, of which around two thirds is expected to come from non-commodity market sources, including system support services, capacity payments, Daldowie and ROCs. Pumped storage and hydro activities represent a significant proportion of the earnings associated with the portfolio.

For the purpose of the Profit Forecast, EBITDA is stated before any allocation of Group overheads (as these will be an allocation of the existing Drax Group cost base which is not expected to increase as a result of the acquisition of the Portfolio).

Basis of preparation

The Profit Forecast has been compiled on the basis of the assumptions stated below, and on the basis of the accounting policies of the Drax Group adopted in its financial statements for the year ended 31 December 2017. Subsequent accounting policy changes include the application of IFRS15 and IFRS9 which are not initially expected to change the EBITDA results of the Portfolio. It also does not reflect the impact of IFRS16 which would apply in respect of the 2019 Annual Report and Accounts.

The Profit Forecast has been prepared with reference to:

  • Unaudited 2017 financial statements based on the audited financial statements of Scottish Power Generation Limited and SMW Limited, adjusted to exclude results of assets that do not form part of the Portfolio and restated in accordance with Drax accounting policies
  • The audited financial statements of the entities forming the Portfolio for the year ending 31 December 2017
  • The unaudited management accounts of the Portfolio for the nine months ending 30 September 2018
  • And on the basis of the projected financial performance of the Portfolio for the year ending 31 December 2019

The Profit Forecast is a best estimate of the EBITDA that the Portfolio will generate for a future period of a year in respect of assets and operations that are not yet under the control of Drax. Accordingly the degree of uncertainty relating to the assumptions underpinning the Profit Forecast is inherently greater than would be the case for a profit forecast based on assets and operation under the control of Drax and/or which covered a shorter future period. The Profit Forecast has been prepared as at today and will be updated in the shareholder circular.

The forecast cost base reflects the expectations of the Drax Directors of the operating regime of the Portfolio under Drax’s ownership and the central support it will require.

Principal assumptions

The Profit Forecast has been prepared on the basis of the following principal assumptions:

Assumptions within management’s control

  1. There is no change in the composition of the Portfolio.
  2. There is no material change to the manner in which these assets are operated.
  3. There are no material changes to the existing running costs / operating costs of the Portfolio.
  4. There will be no material restrictions on running each of the assets in the Portfolio other than those that would be envisaged in the ordinary course.
  5. No material issues with the migration of services including trading and information technology from Scottish Power to Drax.
  6. No hedges are transferred as part of the Transaction.
  7. Transaction costs and one-off costs associated with the Integration are not included.

Assumptions outside of management’s control

  1. The acquisition of the Portfolio is completed on 31 December 2018.
  2. There is no material change to existing prevailing UK macroeconomic and political conditions prior to 31 December 2019.
  3. There are no material changes in market conditions in electricity generating market and no change to the UK energy supply mix.
  4. There are no material changes in legislation or regulatory requirements (e.g. ROCs, capacity market, grid charges) impacting the operations or accounting policies of the Portfolio.
  5. There are no changes to recent market prices for clean spark spread, power, carbon and other commodities.
  6. There is no material change from the historical 10-year average rainfall.
  7. There are no material adverse events that have a significant impact on the financial performance of any of the acquired assets, including any more unplanned outages than would be expected in the ordinary course.
  8. Prior to completion, the business will be operated in the ordinary course.
  9. There are no material issues with the transitional services provided by Scottish Power to Drax pursuant to the TSA, including the migration of such services to Drax.
  10. There is no material change in the management or control of the Drax group.

 

END

Dude, where’s my autonomous car? How self-driving vehicles will impact electricity

The self-driving car is a sci-fi stalwart. The blend of familiar vehicle combined with advanced-artificial intelligence makes it a perfect symbol of a not-too-distant future which is fast approaching. But what a sci-fi movie is unlikely to show is a self-driving car pulling over for half an hour to fill its tank or recharge its batteries.

As autonomous vehicles gradually inch into our everyday life, the question of how they will be powered arises, as does whether they will be capable of refuelling or recharging without a helping human hand.

With governments around the world setting ambitious targets for the phasing out of diesel and petrol car sales, it’s safe to assume the driverless vehicles of the future will be electric.

But will they be able to charge themselves? More than that, how would a large influx of these cars coming onto our roads affect our national electricity demand and emissions?

How will driverless cars charge themselves?

Development is already well underway to bring human-free charging to the auto world with a variety of approaches being trialled:

  • Robotic charging points

The most straightforward way to enable self-driving electric vehicles (EVs) to charge themselves is through updating existing infrastructure. Adding on robotic limbs to standard charge points would be one way of removing the need for human hands. Tesla previously demonstrated a porotype of a snake-like arm that plugs into its vehicle’s charge points that does exactly this. 

  • Under-car charging

Easier than flailing robotic arms is the idea of charging cars from underneath a parked car. Unsurprisingly, Tesla has patented a version of the technology, too.

While building the technology into the ground adds complications, it could potentially allow cars to be charged while moving – which is exactly what one road in Sweden is doing.

The two kilometre stretch outside Stockholm features a metal track that an arm under EVs can connect to – much like a Scalextric track. The route is divided into 50-metre sections which are electrified separately as vehicles travel over them. Sweden is now planning to roll the concept out nationally.

  • Wireless charging

A step up from under-car charging, wireless technology uses inductive charging rather than physically connecting with the car, and can be installed into parking spaces, or be set into the tarmac.

The problem with this is it’s not as fast as directly connecting with the car. However, implemented at scale, entire roads could constantly charge vehicles when they need a top up.

It would mean that rather than taking EVs home and plugging them in, the city and roads themselves would charge it. But even the idea of keeping a car at home might fade as cars become increasingly autonomous.

Rethinking vehicle ownership

As more of the world’s population move to cities and they grow increasingly congested, car ownership is declining – a trend being further fueled by ridesharing services, like Uber, Lyft and Didi Chuxing in China.

And as services such as these continue to grow in popularity, it could point to a future where rather than owning self-driving cars, they will be shared among urban populations. Lyft Strategist Raj Kapoor suggested the reduced cost of maintenance of shared EVs would make rides cheap enough for the average person to ride in every day.

This could result in fewer cars on the roads as intelligent systems allow them to coordinate sharing across the population, which in turn could lead to a reduction in demand for charging. However, the more intense computing power needed in self-driving vehicles means they will each use more electricity than a standard EV.

Powering these sufficiently will depend on technology and coordination, rather than producing significantly more electricity.

Smarter cars, smarter cities, smarter electricity

Changes in car ownership could mean the total reshaping of cities. If cars don’t need to park for long periods of times on central roadsides and in garages, vehicles could instead be stored on the outskirts of cities when demand for transport is low and make their way into towns as people begin commuting.

This vision of cars, seemingly independently rolling around cities to exactly where they’re needed, depends not on a single car reacting to a single command, but to a network of data points connected to almost every aspect of a city. More than this, there’s even potential these cars could provide power as well as use it.

Vehicle-to-gird (V2G) technology means they can essentially act as batteries and return electricity to the grid when needed. A fully connected network of autonomous cars, linked to buildings, cities and entire electricity networks could be used to help meet demand on a local or national scale, helping avoid fossil fuel usage at times of stress.

While increasing EV usage will likely contribute to an increase in electricity demand, self-driving, smarter vehicles will ensure power is used at efficiently as possible and reduce the number of cars drawing electricity from the grid.

It ultimately means global investment in the charging infrastructure that will create a more connected and economical transport system, which will make widespread EV and autonomous cars a reality.

The power system’s super subs

Every day we flick on lights, load dishwashers and boil kettles but few of us pause and think of the stress this can cause for the electricity system. We certainly don’t call National Grid in advance to let them know when we plan to do laundry.

But when any number of the 25.8 million households in Great Britain turn on a washing machine, the grid needs to be ready for it. Fortunately, these spikes in demand are often predictable.

“We are creatures of habit,” says Ian Foy, Drax Head of Ancillary Services.

“We all tend to come home from work at the same time and turn on similar appliances, and this keeps the shape of daily electricity demand much the same.”

National Grid, the operator of Great Britain’s high voltage power transmission system, uses this consistent demand to plan when and how much electricity will be needed for the coming days, and agrees contracts with generators to meet it.

However, there are times when the unexpected can happen – an unseasonable cold spell or a power station breakdown – causing sudden imbalances in supply and demand. To plan for this, the grid carries ‘reserve power’, which is used to fill these short-term gaps.

Delivering this doesn’t just mean keeping additional power stations running to deliver last minute electricity. Instead, it involves a range of services coming from different types of providers, technologies and timescales.

In Great Britain, there are four primary ways this is delivered.

  1. Frequency response

The fastest form of reserve is frequency response. It is an automatic change in either electricity generation or demand in response to the system frequency deviating from the target 50Hz.

Generation and demand must be kept balanced within tight limits, second by second. Failure to do so could lead to the whole system becoming unstable, leading to the risk of blackouts. This is why, every second of the day, National Grid has power generators operating in Frequency Response mode. These power stations effectively connect their steam governor or fuel valves to a frequency signal. If frequency falls, generation increases. If frequency rises, generation is reduced.

An issue which has arisen over the past few years is a reduction in system inertia. The inertial forces in a spinning generator help slow the rate of frequency change, acting like dampers on car suspension. Some small power generation technologies, along with some demand, are sensitive to the rate of change of frequency – too high a rate can cause it to disconnect from the system and this unplanned activity can lead to system instability.

Some forms of generation such as wind and solar along with high voltage, direct current (HVDC) interconnectors between Great Britain and the rest of Europe do not provide inertia. As these electricity sources grow on the system, the system operator must find ways to accommodate them. Reducing the size of the largest credible loss, e.g. reducing interconnector load, buying faster frequency response or running conventional generation out of merit are the usual approaches.

  1. Spinning reserve

The next quickest and most common reserve source, spinning reserve, can jump into action and start delivering electricity in just two minutes. This reserve, both positive and negative, is carried on multiple generating units often running at a part load position (for example, if Drax’s biomass Unit 3 is running at 350 MW of a possible 645 MW). Typical delivery rates are 10 to 20 MW per minute.

This type of reserve responds to unexpected short-term changes in power demand or changes in power generation either in size or timing. For example, during a major TV event or if a generator changes output unexpectedly.

During television ad breaks, the millions of people watching may switch on kettles or flick on lights, sending demand soaring. If a programme or sporting event does not end at the scheduled time, National Grid has to quickly change the generation schedule by sending an electronic dispatch to a generator who responds by quickly ramping up or down.

Thermal power stations such as Drax along with hydro and pumped storage, which can increase or decrease output on demand, are the most common providers of this form of reserve, but  newer technologies such as batteries will also be able to offer the speed required.

  1. Short term operating reserve (STOR)

A slightly slower cousin to spinning reserve, STOR is contracted months in advance by National Grid. It is designed to be available within 20 minutes’ notice.

Around 2 gigawatts (GW) of capacity can provide reserves against exceptionally large losses or demand spikes. STOR capacity tends to be plant which cannot make a living in the energy market because it has a high marginal cost. Traditionally STOR has been supplied by low efficiency aeroderivative turbines or diesel engines but a wider variety of technologies from batteries to demand reduction are increasingly being contracted.

  1. Demand turn up

Managing reserve power isn’t just about finding extra generation to meet demand. Sometimes it’s about quickly addressing too much generation.

High levels of generation coming onto the grid without an equally high demand can overload power lines and networks, causing instability and frequency imbalances, which can lead to blackouts. This might happen in the summer months, when the weather allows for lots of intermittent renewable generation (such as wind and solar), but low levels of demand due to factors like warmer weather and longer daylight hours.

To restore balance, the grid is beginning to ask intensive commercial or industrial electricity users to increase consumption or turn off any of their own generation in favour of grid-provided power. In the case of generating units at Drax Power Station, the response starts less than a second from the initial frequency deviation to help slow the rate of frequency change and minimises large frequency swings.

Reserve in a changing energy system

Planning for the unexpected has long been a staple of the electricity system, but as the shape of that system changes, reserve and response delivery is having to change too.

“Carrying reserve is easier on conventional plants because you know what the plant is capable of generating,” says Foy.

“Wind and solar are subject to the weather, which changes over time. The certainty you get with conventional generation you don’t necessarily get with the intermittency of weather-dependant renewables.”

Add to that the way we use electricity, everything from high efficiency lighting, electric vehicles through to smart appliances and we can see the challenges will grow.

As more variable renewables hits the system, storage technologies will become more important in providing a fast-acting source of short term reserve and response. Smart appliance technology too will play a bigger role in spreading demand across the day and reducing the size of demand peaks and troughs which require rapid changes in generation.

Industry has a role to play too. Some of the biggest users of electricity are expected to play an increasingly important role in support of the system operator. National Grid told members of Parliament in 2016, that ‘it is our ambition to have 30-50% of our balancing capacity supplied by demand side measures by 2020.’

Artist’s impression of a Drax rapid-response gas power station (OCGT) with planning permission

Until these technologies and market mechanisms are widespread and implemented at scale across the grid, however, it will fall to thermal power stations such as biomass, gas turbines such as the planned Progress Power in Suffolk and, on occasion, coal to ensure there is the required reserve power available.

This short story is adapted from a series on the lesser-known electricity markets within the areas of balancing services, system support services and ancillary services. Read more about black start, system inertia, frequency response, and reactive power. View a summary at The great balancing act: what it takes to keep the power grid stable and find out what lies ahead by reading Balancing for the renewable future and Maintaining electricity grid stability during rapid decarbonisation.

Every electricity storage technology you need to know about

The world is generating and using more renewable electricity than ever before, but in many cases it is being generated by intermittent – weather dependent – sources like solar and wind.

While these are imperative to a decarbonised future, they can’t generate power all the time, and this can cause gaps in electricity supply. One possible solution is storage. If we can store renewable electricity from intermittent sources when they are able to generate, it could then be utilised at times when they’re not.

However, the problem is the technology capable of storing electricity at a scale large enough to power a city doesn’t exist…yet.

The race to develop it is well under way, and several companies are working on building ever bigger, more efficient electricity storage methods. From pumping water up mountains to turning air into liquid, here are the emerging storage technologies (and some incumbent ones) shaping the storage landscape:

  1. Pumped hydropower

What if we could power cities with something as simple as gravity? And a mountain.

Pumped hydropower storage uses excess electricity to pump water from a lower reservoir up to a higher one (for example up a mountain or hill) where it is stored. When electricity is needed, the water is released from the higher reservoir and runs down the natural incline, passing through a typical hydro-power turbine to generate electricity.

Pumped hydro is one of the largest-capacity forms of grid power storage and currently accounts for 99% of all bulk storage globally. The Bath County Pumped Storage Station in Virginia, USA is often referred to as the ‘world’s biggest battery’, and boasts a generation capacity of more than 3 gigawatts (GW), which is almost as much as the power output of Drax Power Station or Hinkley Point C.

So what’s the catch? While pumped-hydro storage is efficient and capable of holding huge capacity, its major drawback is it requires a suitable mountain or hill to be converted into a giant battery. Unsurprisingly, not every landscape offers one. Great Britain has limited potential – but has a number of pumped storage facilities including the impressive Dinorwig in the Snowdonia region of Wales, known as the Electric Mountain which, like Drax, doubles up as a tourist attraction.

In December 2018, Drax bought Cruachan Power Station, the second biggest pumped-hydro storage power station in Great Britain. Visit Cruachan — The Hollow Mountain.

  1. Flywheels and supercapacitors

Some of the most-rapidly responding forms of energy storage, flywheel and supercapacitor storage can both discharge and recharge faster than most conventional forms of batteries.

The first works by spinning a rotor (or flywheel) to very high speeds using electrical energy. This process creates kinetic energy which is effectively stored within the spinning rotor until it’s required, at which point the kinetic energy is converted back into electricity.

Supercapacitors take a similar approach but store power electrically. With the combined properties of a battery and a capacitor, they store energy as a static charge, but unlike conventional batteries there is no chemical reaction during charging or discharging.

  1. Lithium-ion batteries

Lithium-ion batteries are already the go-to power source for most home electronics thanks to their high-energy density and low self-discharge rates. But companies are looking to extend their usage by rapidly advancing the technology to take on bigger and better uses, most notably electric vehicles (EVs) and providing security of supply to national and regional electricity networks.

In South Australia, Tesla has just finished installing the world’s biggest lithium-ion battery facility. At 100 megawatts (MW), it will be able to supply 30,000 homes for an hour, such as when the wind drops and the turbines of the wind farm it is connected to are not producing much power.

Lithium-ion batteries are now the most widely used in EVs, but manufacturers are still facing the challenge of lowering the cost of their manufacture to a point at which to make EVs widely accessible.

Tesla has made achieving this a priority, establishing its massive ‘gigafactory’ in Nevada to help ramp up production and drop the batteries’ price. A true breakthrough on this point is yet to be reached, however.

  1. Solid state batteries

The primary complaint for most domestic batteries today, be they in smartphones or EVs, is they just don’t last long enough. This is where solid-state batteries have a serious advantage.

Using solid electrodes and electrolytes rather than liquid electrolytes (used in most commercial batteries), solid-state models are smaller, cheaper and have a greater energy density than lithium-ion batteries. They can also be recharged much faster and emit less heat.

In an EV, this can lead to better efficiency, lower costs and safer operation. The only trouble is the technology isn’t quite viable at scale yet. Dyson and Toyota, are both putting serious money behind the technology and believe it will be on the market in 2020.

  1. Hydrogen fuel cells

Hydrogen is one of the most-abundant elements on earth, so it’s an attractive fuel for any power-generation technology. The latest to emerge is hydrogen fuel cells, which are quickly growing in popularity in the automotive space.

The fuel cells work similarly to batteries with two electrodes separated by an electrolyte. However, rather than running down and needing recharging, hydrogen fuel cells can continue to produce electricity so long as a constant supply of hydrogen and an oxidizer are pumped through it.

This means a regular supply of hydrogen needs to be fed in to continue to generate power – prompting the rise of fuelling stations where hydrogen-powered cars can be ‘filled up’ with hydrogen when their batteries have run dry.

Beyond powering cars, hydrogen fuel cells have also been used to power buildings and NASA satellites.

  1. Vehicle-to-grid systems

But what if beyond simply using electricity, EVs could themselves act as energy storage systems?

Between journeys, all cars spend long periods of time stationary. Vehicle-to-grid (V2G) systems can take advantage of this and give EVs the ability to discharge their stored electricity for distribution across the grid, helping meet demand during peak times. In effect, cars can become mini power plants.

Nissan and Italian energy provider Enel have already advanced plans for this sort of system and  aim to install around one hundred ‘car-to-grid’ charging points across the UK. EVs plugged into these sites will be able to both charge their batteries and feed stored energy back to the National Grid when necessary. Drax, too, is involved in this space, funding research into V2G systems at Sheffield University.

Smart charging systems will help to automate this give-and-take of electricity further and allow EVs to further help reduce overall carbon emissions.

  1. Compressed air energy

 Compressed air energy storage works similarly to pumped hydropower, but instead of pushing water uphill, excess electricity is used to compress and store energy underground. When electricity is needed, the pressurised air is heated (which causes it to expand) and released, driving a turbine.

Behind pumped hydro-energy, compressed air is the second-largest form of energy storage, and is continuously being developed to become more efficient and less dependent on fossil fuels to heat air.

And similarly to pumped hydro, it’s a site-specific means of storage. Compressed air is normally best stored in existing geological formations, such as disused hard rock or old salt mines.

  1. Lead-acid batteries

Their technology might be a century and a half old, but lead-acid batteries are still used today for the simple reason that they still work.

Many decades of development mean lead-acid batteries are cheap to produce and highly reliable compared to new innovations in the space. Today, they are most commonly used as car batteries, but they have also long served as off-grid storage for solar arrays.

Their drawbacks include the toxic nature of the chemicals involved and the short lifespan of 300 to 500 cycles. However, recycling programmes around these lead-acid batteries have been so effective that 99% of the batteries in the US were recycled between 2009 and 2013.

While more-efficient, longer lasting, faster charging and lighter batteries are in development, lead-acid models remain the cheap, tried-and-tested, standard for small-scale storage.

  1. Redox flow batteries

Specifically focusing on renewable energy storage, flow batteries are significantly cheaper than lithium-ion grid-scale storage, and offer a longer lifecycle.

Flow batteries consist of two tanks of liquids that are pumped into a reactor where they generate a charge. The capacity of the storage facility is therefore determined by the size of the tanks holding their respective liquids, which can mean they are bulky and space intensive.

Compared to other grid-scale storage systems, however, flow batteries are more economical, suffer lower vulnerabilities, and could hold potential to store large amounts of energy for long periods of time – one of the reasons why Drax is funding a PhD in the area. 

Liquid oxygen plant, tanks and heat exchange coils, the background a factory

  1. Liquefied air

What more abundant resource to use for energy storage than the air around us? By cooling air down to -196oC it is turned into a compressed liquid, which can be stored. When ambient air is exposed to this liquid it re-gasifies and expands in volume rapidly, rotating a turbine in the process.

One of the main advantages of this form of storage is its potentially high capacity – an impressive 700 litres of ambient air can be reduced to just one litre of liquid air. More than this, there is potential for it to become even more efficient by using waste heat and cold from industrial process such as thermal generation plants, steel milling, or the creation of liquefied natural gas (LNG).

UK company Highview Power Storage is currently trialling the technology at the Piliswoth landfill gas generation facility where it will provide energy storage as well as convert low-grade waste heat to power.

Want to find out more? Keep an eye on the Drax Repower project, which includes plans for up to 200 MW of storage. And Imperial College London’s Grantham Institute on Climate Change and the Environment produced this detailed infographic comparing the benefits and challenges faced by energy storage technologies.

Batteries as big as biomass domes?

Renewables are playing a bigger part of our electricity mix as the UK moves towards a low carbon economy. How we ‘plug the gaps’ left by intermittent renewables is among the greatest challenges faced by the energy sector.

Sources like wind and solar are intermittent – they can’t generate electricity all the time. When the sun doesn’t shine or the wind doesn’t blow they lack the fuel needed to generate power and can’t feed into the grid.

This leaves a gap in the UK’s electricity supply that needs to be filled. Today that’s done by sources like coal, gas and biomass which can be dialled up and down to accommodate for the dips and peaks in generation created by changes in demand and the weather.

One alternative being touted as a possible solution is storage and in particular, battery technology. However, creating batteries on a scale big enough to meet our incredible demand is a considerable challenge. It’s a challenge that will be met in a future where giant, affordable batteries are able to store solar power captured in the summer months for use in the winter. But costs would have to come down at an even faster rate than they have done in recent years.

The challenge of building bigger batteries

To demonstrate the size of this challenge, consider the biomass storage domes at Drax Power Station. These effectively operate as giant energy stores with the flexible ability to quickly feed renewable fuel to the power station, which generates electricity on demand.

Our biomass domes can hold 300,000 tonnes of sustainably-sourced compressed wood pellets, the equivalent of 600 GWh worth of electricity. Currently, batteries cost £350 per kWh, meaning at present prices it would cost £210 billion to replace the capacity of all four of our biomass domes using battery power.

Even if battery technology advances dramatically over the next few years that figure is only likely to fall to around £60 billion. Then there is the question of the ancillary services that thermal power stations provide. The batteries of the future may be able to provide these vital services (such as synthetic inertia, short-term reserve and reactive power), but for now, providing these via battery power is prohibitively expensive and in some cases best left to biomass and gas power stations.

We should not underestimate the challenges ahead. The UK’s ever-changing power system will need to balance more electricity generated via wind and solar with affordable solutions that are also reliable, flexible and lower carbon than coal. This is why Drax is developing four rapid-response gas power stations in addition to continuing its investment in biomass generation and supply.