Ireland approves first long-duration energy storage procurement

Richard Murphy and Matthew McMurray of Pinsent Masons were commenting on the decision, which authorises EirGrid to run a competitive procurement process for storage projects capable of importing and exporting electricity for at least four hours. The move is an important milestone in Ireland's efforts to build the flexible infrastructure needed to support a renewables-led electricity system.

Murphy said: "The decision provides an important indication of how Ireland intends to support investment in large-scale energy storage technologies, which are expected to play a critical role in maintaining grid stability, reducing renewable curtailment and supporting security of supply as the energy transition accelerates."

The procurement implements Action 6 of the Irish government's electricity storage policy framework.

Under the approved design, up to 500MW of storage capacity will be procured through a technology-neutral competitive process. Supported projects will be required to provide at least four hours of storage duration, achieve a minimum 75% round-trip efficiency and satisfy planning and grid connection requirements.

The scheme will operate through a 10-year contract structure and introduce a revenue support mechanism featuring a revenue floor and a 70:30 upside revenue-sharing arrangement. Under that model, investors retain 70% of revenues earned above the contracted floor while 30% is returned to consumers.

The approval is likely to be welcomed by developers, investors and energy users who have been seeking greater clarity on the policy framework for long-duration storage in Ireland.

Long-duration storage is widely seen as a critical component of a decarbonised electricity system because it can store surplus renewable generation and release it when demand is high or renewable output is low. For project developers and investors, the procurement provides a first route to market for an emerging asset class in Ireland. For businesses and large electricity users, greater storage capacity could help improve system resilience, reduce renewable curtailment and support the delivery of Ireland's clean energy ambitions.

However, while the CRU approved the overall design of the support scheme, it stopped short of approving all of the detailed contractual arrangements that will govern the operation of the procurement. As a result, market participants are likely to focus closely on the next phase of the process.

McMurray said: "The market will be keen to study the decision alongside the accompanying EirGrid Recommendation Paper and the AFRY Levelized Cost of Storage (LCOS) assessment.”

Those documents have now been published by EirGrid and should be read alongside the CRU decision (38 pages/844 KB PDF) as together they provide important context on the assumptions underpinning the procurement design, expected project economics and the role long-duration storage is expected to play within Ireland's future electricity system.

McMurray said: "As with any initial procurement of a new asset class, it needs to be viewed as a starting point only. The revenue floor and share model that is proposed is for a ten-year term. This is shorter than what we have seen recently with ESB Networks' Demand Flexibility Product at 15 years and the 25 years offered under cap-and-floor regimes, for example. This will affect debt finance terms and the cost of capital."

The relatively short duration is likely to be an important consideration for lenders and developers assessing the bankability of projects, particularly given the capital-intensive nature of long-duration storage technologies.

Murphy said: "As a pathfinder, we have observed similar trends with contract terms offered by system operators for new asset classes or services starting shorter in other markets, with subsequent procurements becoming longer dated. This will need to be the case in Ireland for long-duration storage, particularly with an operational trading envelope that the asset owner will need to comply with."

The effectiveness of the scheme will ultimately depend on the detailed contractual terms that are yet to be finalised.

"There is an important follow-up consultation required on the contractual arrangements, which will ultimately determine how coherent and financeable this first procurement round shall be," said Murphy.

He said: "The contract terms, including the operation of the trading envelope and interactions with wider service requirements, will need to provide effective incentives for contracted assets to operate and deliver the system value that is being procured. It will need to work together as a coherent investment package."

Looking beyond the immediate procurement, McMurray said policymakers will also need to focus on establishing a longer-term framework capable of delivering the much greater volumes of storage expected to be required in the years ahead.

He said: "Ireland will also need to quickly turn attention to progressing an enduring procurement framework needed to deliver the volumes of storage required after 2030."