Canada: UK Electricity Storage - Call For Evidence Published

Last Updated: November 16 2016
Article by Gus Wood

For UK electricity storage, there have been some notable positives, particularly National Grid's successful Enhanced Frequency Response tender. However, progress in other areas has been slower than expected, and the uncertainty surrounding embedded benefits puts more pressure on developer revenue models.

We may now see some progress in respect of the regulatory regime though, as the Government has now published its long-awaited call for evidence.

Building on the success of the Energy Storage Masterclass that we hosted for the Solar Trade Association at the end of October 2016, this article analyses the call for evidence from the perspective of electricity storage.

The case for electricity storage

Globally, the case for electricity storage - particularly battery storage - continues to gather momentum, mostly driven by falling technology costs and perceived synergies with solar pv and electric vehicles.

Every market has its own particular opportunities and challenges though. In the UK, electricity storage has the opportunity to provide the flexible source of electricity and electricity balancing services that the UK needs (and is likely to increasingly need) to supplement renewable generation and to keep up with changing consumer behaviour.

However, as the Government recognises in its call for evidence, electricity storage is not the only means of addressing these needs. Electricity storage will need to compete with dispatch-able generation, demand-side response and interconnectors. Few (if any) are suggesting that electricity storage is given incentives over and above these other options, but there remain areas where electricity storage appears to be unfairly disadvantaged.

The call for evidence identifies the Government's aim of removing these unfair disadvantages, creating effective competition, and encouraging disruptive innovation.

Barriers to UK electricity storage

Many of the barriers identified in the call for evidence reflect the issues identified in our previous article. It is encouraging that the Government has identified these issues, but a shame that more progress has not yet been made in addressing them.

The issues identified by Government are:

  • how storage connects to the network;
  • how storage is charged for using the electricity network in the network charging methodologies;
  • the absence of a definition of storage in legislation can lead to a lack of clarity when storage interacts with other legislation and regulations, including planning; and
  • how final consumption levies are charged to storage.

How electricity storage connects to the network

Areas under consideration include:

  • changes to network security of supply standards;
  • proactive publication by network operators of hot spots that could benefit from storage;
  • flexible connection agreements that provide cheaper connections linked to limited operating periods/modes; and
  • the ability of storage projects to queue jump where this would help prospective connectees ahead of them in the queue.

Charging methodologies

As we identified in our previous analysis, there is currently a lack of clarity in how storage should be treated under the network charging methodologies, and an inconsistent application by different network operators. Is storage demand or generation or both? Is storage intermittent or not?

BEIS indicates in the call for evidence that it expects industry participants - with input from Ofgem - to proactively amend the charging methodologies through the relevant code modification processes.

Recognition of electricity storage in legislation

As the call for evidence acknowledges, in order allow electricity storage to be treated differently in legislation, it will be necessary to define the concept of electricity storage.

We do already have a definition for the purposes of the Capacity Market, but the call for evidence stresses the need for a definition that will work in all contexts and that will not overlap with the existing regulated activities.

In the case of planning, the working policy position appears to be that the same 50 MW threshold as applies to electricity generation should be used to determine the appropriate planning route. However, the legislation will need to be amended to clarify that this is the position.

The consumption levies

Given that the document is a call for evidence, and not a consultation document, let alone a decision document, it is no surprise that it is light on solutions.

We do at least seem to have a firm policy steer in respect of the treatment of (what are referred to in the call for evidence as) the consumption levies.

The treatment of electricity storage in the context of funding the renewables and capacity incentives - CCL, FIT, RO, CFD, CM - is pretty much universally acknowledged as unfair.

For the most part, the costs of UK renewable electricity incentives are met by electricity suppliers, and are allocated between suppliers by reference to their supply market share. If the electricity used to charge a storage device is counted as supply, then the electricity supplier will need to charge the storage operator for these costs on charging the device. Consequently, the electricity supply is counted twice - on charging the storage device and on its subsequent supply to the end-user following discharge.

It is likely that changes to primary and secondary legislation will be needed to remove this double charge, but Department for Business, Energy & Industrial Strategy (BEIS) and Ofgem have at least acknowledged the current position to be unfair.

Electricity storage as a regulated activity

Looking at the regulatory framework at its highest level, electricity storage is not recognised as a regulated activity, in the way that generation, network operation/ownership and supply are.

Some participants have called for electricity storage to become a regulated activity. However, most would prefer to avoid the costs and regulatory oversight that this would entail.

The Government seems minded to treat storage in the same way as generation, so that a licence is required at a certain capacity, but below that level an exemption is available.

The paper sets out a number of options, but they all seem to be based on a continued treatment of electricity storage as a type of electricity generation. This seems a flawed and short-sighted approach. It may be appropriate to treat electricity storage in the same way as generation in many instances. However, the storage of electricity is quite plainly not a form of generation. A distinct activity should be recognised so that it can be considered and treated on its own merits.

Recognition of electricity storage for co-location with renewables

There has already been some progress in identifying the concept of electricity storage in the context of its co-location with renewable generation. Both the Contract for Difference (CFD) and Renewables Obligation (RO) regimes now provide guidance on the topic. The call for evidence also acknowledges the need for clarity.

However, it is becoming increasingly apparent that the metering requirements inherent in co-locating with renewables might diminish the benefits.

The role of distribution network operators

One of the key issues that we identified in January was the need to clarify the role of distribution network operators.

The call for evidence identifies the need for distribution network operators to transition to becoming distribution system operators (DSOs).

BEIS and Ofgem appear to envisage greater co-operation between distribution network operators and National Grid in respect of network planning and procurement of balancing services, with the possibility of them jointly procuring balancing services and/or the balancing mechanism becoming a platform on which DSOs (as well as National Grid) can accept bids or offers for local system management.

What next?

BEIS is actively seeking responses to its call for evidence, so do get involved if you are in a position to do so.

The coming years are likely to be pivotal for the renewables and storage industries, so it's always wise to keep a weather eye on updates and innovations.

As we have seen with solar pv, the cost of energy storage is likely to reduce rapidly over the coming years, and opportunities for investment and development will continue to grow, making this emerging market a hot topic for future capital growth.

We can help you deliver a successful project

Like many other firms, we are very experienced in advising on UK renewable generation projects.

However, we also have a market-leading reputation in UK stand-by and peaking projects. This means we have the expertise you will need in those aspects of battery storage that differ from renewables - particularly National Grid's balancing service contracts and PPAs which include optimisation structures.

If investment and development in this technology is something you're interested in, then please get in touch to see if we can help.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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