Global menu

Our global pages

Close

Decision on clarifying the regulatory framework for UK electricity storage - changes to the electricity generation licence

  • United Kingdom
  • Energy and infrastructure - Clean energy

06-10-2020

On 2 October 2020, Ofgem published the outcomes of its June 2019 consultation into proposed changes to the electricity generation licence (“Decision”). This was to clarify the current regulatory framework for electricity storage and confirms the view that electricity storage provides services equivalent to generation and therefore for licensing purposes, should be considered as such.

The energy system is changing rapidly and most significantly becoming more flexible. Electricity storage plays a key role in the energy systems and is without doubt a valuable source of flexibility. The use of electricity storage can support cheaper connections, and provide ancillary services to the system operator. Therefore, Ofgem highlighted that it was key to remove the current barriers that were inhibiting the competitive deployment of such storage solutions.

Eversheds Sutherland Comment: “We welcome the publication of this decision which confirms industry expectations and provides regulatory clarity which is important for investment decisions and deployment of assets at scale. Not all electricity storage providers will require a licence and the electricity generation licence exemptions will apply in the same way to storage as to traditional forms of generation. However, there may be some benefits to being licensed in order to be exempt from payment of final consumption levies when the electricity is imported and used only for storage.”

The changes outlined below will take effect from 19 November 2020.

Changes which will be made

The Decision outlines two major changes which would be made to clarify the regulatory framework in relation to electricity storage. This would be done by adding two definitions into the electricity generation licence standard conditions; ‘Electricity Storage’ and ‘Electricity Storage Facility’ and by adding an additional licence condition (E1) which will be applicable to energy storage providers.

The definitions will be as follows:

Electricity Storage: Is the conversion of electrical energy into a form of energy which can be stored, the storing of that energy and the subsequent reconversion of that energy back to electrical energy.

Electricity Storage Facility: A facility where Electricity Storage occurs.

Ofgem believes that it is important to add these definitions within the licence as one of the barriers which was affecting the deployment of batteries as an energy storage facility was the unstable regulatory framework. These additions allow for a clear regulatory framework when considering energy storage and allows for easy identification as to whether a person needs to apply for an electricity generation licence. Ofgem has also produced a list of technologies which should, and should not, be considered as energy storage, however this list is not exhaustive. Note that this list expressly excludes “power-gas-power systems”, such as those based on electrolysis to create hydrogen.

Addition of E1 licensing condition

Ofgem has also decided that it will require an additional licensing condition to be met regarding the storage of electricity. The new E1 condition will require energy generation licensees to provide information in relation to the electricity storage facilities they own to their relevant supplier. The main reason for the addition of this condition is to ensure suppliers’ compliance for reporting purposes and facilitate the correct calculation of final consumption levies.

Who does the E1 condition apply to?

The requirement to comply with the new E1 condition will fall to both future and existing generation licence holders alike who own/ operate electricity storage. The new condition will also apply to electricity storage facilities, operated by a licence holder, regardless of their capacity. As mentioned above, some electricity storage facilities may be eligible to operate under a licence exemption but it will be the responsibility of the electricity storage provider to decide if they should apply for an electricity generation licence or not.

Ensuring compliance

To ensure compliance with the new E1 condition, licensees must notify their suppliers of the relevant information, the latter of either when the condition comes into force (November 2 2020) or when the electricity storage becomes operational.

It is also important to note that where a licensee owns or operates two or more electricity storage facilities under the same licence, in order to be compliant with condition E1 they would be required to provide information to their relevant suppliers for each electricity storage facility.