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UK: Ofgem consults to deliver clarity around storage and its’ licensing in the UK

  • United Kingdom
  • Energy and infrastructure

13-10-2017

In July The Office of Gas and Electricity Markets (Ofgem) in the UK published an overarching review of the future of the UK energy system called ‘Upgrading our Energy System’. In that paper Ofgem acknowledged the benefits of clarity on how energy storage is defined for the purposes of its categorisation i.e. is it generation and on how storage is licensed. To date neither of those issues have been clear. Two consultations have now been issued setting out Ofgem’s proposals to address these issues with a view to facilitating the increased development of energy storage with the first being: ‘Enabling the competitive deployment of storage in a flexible energy system: changes to the electricity distribution licence’.

Click here to view Enabling the competitive deployment of storage in a flexible energy system: changes to the electricity distribution licence and here to view Clarifying the regulatory framework for electricity storage: licensing.

‘Enabling the competitive deployment of storage in a flexible energy system: changes to the electricity distribution licence’ seeks views from the market by 27 November 2017 on how storage can be unbundled from the network.

Ofgem is concerned on two fronts; first is to facilitate the deployment of storage and the second is to avoid the presence of storage on the network distorting the market. This risk arises because network operators can control access to the network to sell electricity and if they too are generating and selling on the same network by using storage a risk of undesirable behaviour arises. Ofgem notes that “storage can help to integrate intermittent renewable generation, reduce the costs of operating the system, and help avoid or defer costly reinforcements to the network. However, it needs a level playing field to compete in the relevant markets.”

Ofgem also notes that storage competes with other sources of electricity flexibility such as demand side response and short term generation.

Ofgem wants to put in place the right regulatory framework to allow network operators to benefit from the flexibility offered by storage and cites avoiding or deferring traditional reinforcement or using storage to support cheaper and faster network connections as being likely uses of storage for DNOs.

Ofgem proposes a new condition in the electricity distribution licence to ensure that DNOs cannot operate storage other than in very limited specific circumstances and with permission from Ofgem. The DNO would have to demonstrate that their use of storage is in the best interests of customers and not detrimental to competition. Examples may include uninterruptible power supplies and emergency response generation.

Ofgem also proposes to issue a guidance document to clarify how DNOs may participate in storage projects and manage potential conflicts of interest.

‘Clarifying the regulatory framework for electricity storage: licensing’ seeks views from the market by 27 November 2017 on proposed modifications to electricity generation licensing to accommodate storage.

In order to remove present uncertainty about the regulatory status of energy storage Ofgem and the Government have agreed to categorise storage as generation and consider that amending the existing electricity generation licence is the best way to achieve this.

The consultation proposes to:

• include the following definition of electricity storage in the electricity generation licence:

Electricity Storage in the electricity system 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 into electrical energy in a controllable manner.

• clarify if and how storage complies with Grid Codes and Distribution. The extent of compliance will depend upon what storage services the storage provides. The consultation also suggests that storage facilities over 50Mw will have to be party to each of the CUSC and the BSC Framework Agreements.

• consult on introducing a new licence condition for electricity storage providers. The condition requires the licensee to ensure that it does not have self-consumption as the primary function when operating its storage facility

Final Consumption Levies

Currently storage has to pay final consumption levies on Renewables Obligation, Feed-in Tariffs, Contracts for Difference and the Capacity Market on imported energy.

The consultation explains that storage ‘consumes’ electricity in order to be able to store it and upon export this can result in a ‘double counting’ of the supply of electricity to the end consumer and in a payment of levies by both the storage provider and the consumer of the same electricity. These significant additional costs should not apply if the storage is not the end consumer of the imported electricity.

There is no mention in the consultation that a storage facility which does not require a generation licence as it is exempted would benefit from the exemption from double charging or final consumption levies.

Storage can be used in many ways such as smoothing the consequences of intermittent generation and reducing the need for curtailment, as a fast frequency response, helping with demand side response, postponing or avoiding the need for grid reinforcement and as pure arbitrage play. These consultations are the first steps in delivering the level of certainty needed for more investment in storage.

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