SmartestEnergy has published its fifth annual Energy Entrepreneurs report, which claims battery capacity in the UK could grow by 100-fold by 2020.

According to the report, there are already 31 new projects with secured contracts in the Capacity Market and Electricity Market Reform (EFR) markets worth £235 million. These alone will see UK battery capacity grow to 131MW in 2017, 221MW in 2018 and 578MW by 2020 – nearly 30 times more than in 2016.

Energy storage in the UK came of age last year as a result of cost reductions, together with an emerging ambition by the UK government and regulators to design a flexible, resilient future proofed electricity systems. We have seen grid-scale storage emerge as a leader in both the Enhanced Frequency Response and Capacity Market auctions, as well as the first co-located storage projects being developed alongside existing solar PV schemes, of which Stephens Scown has acted in providing legal advice.

The UK government, in its proposals for an Industrial Strategy, wishes to become a global leader in battery technology. It announced last month that batteries for clean and flexible energy storage will receive £246 million funding to help UK businesses tap into the opportunities although with the election announced we will have to wait and see when this comes into fruition.

Smart, Flexible Energy System

The response to the UK government’s call for evidence on a Smart, Flexible Energy System is set to be published in the Spring. The efforts of government and Ofgem to drive our energy system towards a smart and flexible future are multi-faceted and are coming up against some difficult legal and regulatory challenges.

Ofgem (regulator) published guidance in March aimed at developers of battery storage projects regarding proposed changes to the rules. They are also consulting on reviewing and changing some of the charges that electricity transmission and distribution network users pay for using the networks.

Utility company warnings

Utility companies have voiced concerns that some batteries may not be able to discharge for the duration of a prolonged system stress event and a BEIS official warned that ending the double-counting of storage for the purposes of network charging “might require primary legislation”; both of which Ofgem has provided further response, we look at this in more detail below.

Overall, it is an exciting and changing time for battery storage and it is good that the UK wants to lead the way. For now, as the election looms, the battery storage industry will have to wait to see how it unveils.

Targeted Charging Review

Ofgem has initiated a Targeted Charging Review and invited stakeholders to provide feedback. The driver for Ofgem’s review is that the current residual charges, smaller EG embedded benefits and the charging treatment for storage are open to distortions, affect competition and increase costs for consumers.

The main elements of the consultation include:

 – Residual transmission and distribution charging:

  • Ofgem are proposing a full review of how the Transmission Network Use of System (TNUoS) and Distribution Use of System (DUoS) residual charges are set
  • Five high-level options for how residual charges could be constructed are proposed in the consultation: (a) a charge linked to net (kWh) consumption; (b) a fixed price charge; (c) fixed charges set by connected capacity; (d) gross kWh consumption; (e) a hybrid approach
  • Ofgem are seeking views on whether the allocation of residual charges between classes of users should change in future and, in particular, if the balance of residual charge recovery between generation and demand should be changed

– Charging arrangements for smaller embedded generation:

  • Ofgem set out the other elements of embedded benefits, in addition to TNUoS Demand Residual payments, that they propose to consider in the SCR. These are: (i) TNUoS generation residual; (ii) TNUoS locational charges; (iii) BSUoS demand charge payments; (iv) BSUoS generation charge
  • Ofgem’s view is that embedded benefits arising from the above charges are preventing a level playing field between smaller EG and other forms of generation

– Consulting on a Significant Code Review: 

Ofgem are proposing to look at residual charges and some aspects of charging for smaller EG in a Significant Code Review. Ofgem think that an SCR is appropriate because it allows them to consider a number of important and interrelated questions, affecting more than one charging code, in a co-ordinated and consistent way

– Charging arrangements for storage:

  • In order to secure a more level playing field, Ofgem consider that changes to charging arrangements for storage are required
  • Ofgem does not think it appropriate for storage to pay both demand and generation residual network charges. The consultation proposes that storage should be treated as generation for the purpose of setting all residual charges and, therefore, should not pay demand residual charges for transmission or distribution
  • Storage above 100MW pays both demand and generation BSUoS charges. Ofgem propose storage should not pay these two charges and are consulting on two ways of reducing BSUoS costs for these types of storage

Ofgem currently consider that if, following the consultation, there is a clear way forward on charges for storage, these changes should be taken forward ‘relatively quickly’ by industry.

The consultation closed on 5 May 2017. We watch closely to see the outcome.  To review the consultation please click on the following link: https://www.ofgem.gov.uk/ofgem-publications/112590

Capacity Market Review

Ofgem has published a consultation (see the following link: https://www.ofgem.gov.uk/system/files/docs/2017/03/statutory_consultation_on_amendments_to_the_capacity_market_rules_2014_final_23032017_0.pdf)  on proposed changes to the Capacity Market Rules 2014. Ofgem considered 79 proposals submitted by stakeholders and delivery partners, 20 of which Ofgem are “minded” to take forward or partially take forward.

Utility companies have voiced concerns that some batteries may not be able to discharge for the duration of a prolonged system stress event. Ofgem has provided an initial response to specific rule changes proposed by rejecting both proposals, stating that further analysis is required to determine the most appropriate change to the de-rating methodology.

National Grid and BEIS are currently in the process of developing a new de-rating methodology to deal with the issue and it is unknown when further details will be revealed.

Double Charging

A BEIS official warned that ending the double-counting of storage for the purposes of network charging “might require primary legislation” and Ofgem also confirmed that changes should be made to the network charging regime. Ofgem have proposed that storage co-located with generation and stand-alone grid connected storage should not be exposed to certain demand related charges when importing electricity from the grid. Instead, charges for such projects would be limited to generation related charges when discharging electricity back to the grid.

Where a battery project is designed to provide support to a demand customer (behind the meter), that customer will be exposed to demand related charges when importing from the grid in order to charge the battery and Ofgem considers that double charging should not apply to storage co-located with demand.