In 2016 it was uncertain how the addition of battery storage facilities to existing renewable energy generation facilities would impact those projects’ energy accreditations, under Feed-in Tariffs (FiT), the Renewables Obligation and Contracts for Difference (CfD). The loss of accreditation or eligibility under such schemes would be catastrophic for a project.
The regulator, Ofgem, has now confirmed that the addition of storage to renewable energy projects receiving support under the FiT or Renewables Obligation regimes can be accommodated under these schemes subject to certain criteria (with an emphasis on metering arrangements), paving the way for increased co-location of renewable and storage assets. With final guidance published in June 2018, this should make it easier to secure funder consent in respect of any modifications to existing renewable energy projects that are seeking to retrofit battery storage.
Under the CfD regime, to ensure that CfD generators would not be paid for stored electricity which is imported from the grid or produced from non-CfD generating units, the CfD standard conditions were amended in advance of the second allocation round. There are now two ways for a CfD generator to incorporate storage alongside the CfD eligible generating facility, without risk of the CfD being terminated; first, a balancing mechanism (BM) unit can be obtained for the storage asset that is separate to the one associated with the generating facility, or secondly, if the same BM unit is to be used for both the storage asset and the generating facility, then the CfD counterparty must be satisfied that the metering arrangement is such that the storage asset can only store electricity generated by the generating facility and not import electricity from any other source.
|Case study: Co-location
Equinor has launched Batwind, a battery storage solution for the Hywind Renewables Obligation accredited offshore wind farm. Batwind will be developed in co-operation with Scottish universities and suppliers, under a new Memorandum of Understanding between Equinor, the Scottish government, Offshore Renewable Energy, Catapult and Scottish Enterprise. The storage is intended to mitigate intermittency and optimise output. This is reported to improve efficiency and lower costs for offshore wind. Equinor will install a 1MW lithium battery based storage pilot system in late 2018. This is equivalent to the battery capacity of more than two million iPhones.
There has not been a separate electricity storage licence with energy storage activities instead treated as generation facilities and licensed where they were of sufficient size to require a licence.
Ofgem and the government have already agreed that it is important to ensure regulatory consistency between both storage and electricity generation. They believe that the existing electricity generation licence is the best vehicle for clarification of the regulatory framework for storage whereby it would be included in the Electricity Act 1989 as a subset of generation. This should also be a quick way of implementing a specific licensing framework for storage and will mean that existing licensed storage assets will not need to reapply for a new licence.
The outcomes of an Ofgem consultation, which closed on November 27, 2017, are still awaited with such consultation considering
- Including the definition of electricity storage in the electricity generation licence.
- Clarifying expectations for storage with respect to compliance with standard licence conditions.
- Introducing a new licence condition into the generation licence applicable to electricity storage providers which requires the licensee to ensure that it does not have self-consumption as the primary function when operating its storage facility.
Following the implementation of these changes, storage providers should have better clarity over which industry codes they need to sign up to and as such, what obligations apply to them.
The proposed definitions of storage for the licence have already been widely discussed in other forums. It is proposed that “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” and “Electricity Storage Facility” in the electricity system means a facility where Electricity Storage occurs.
Certain types of energy storage would therefore not fall within the proposed definition of electricity storage (e.g. thermal energy storage when the stored energy is not re-converted to electricity before use but is used directly as heat). Work is progressing separately to define electricity storage in the Grid Code. In that context, industry has suggested adding the phrase “in a controllable manner” at the end of the definition of “Electricity Storage” set out above. Ofgem is considering whether to align these definitions.
DNO ownership of energy storage
Much of the early work around energy storage in the UK involved Distribution Network Operators (DNOs). For example, the Low Carbon Networks Fund allowed up to £500 million to support projects sponsored by the DNOs to try out new technology, operating and commercial arrangements. The Leighton Buzzard project successfully trialled a 6MW/10MWh grid scale battery, with sufficient storage capability to power 6,000 homes for 1.5 hours at peak times.
However, DNOs’ ownership of storage assets has long been seen as conflicting with principles such as unbundling. Currently DNOs cannot directly own or operate large-scale storage over 100MW. Below 100MW, and linked to the generation licence exemption, there is a grey area where DNOs can own smaller scale storage.
In September 2017, Ofgem released a new consultation document proposing changes to the electricity storage licensing regime. If approved, the new regulations will seek to prevent DNOs from using consumer-funded battery storage facilities to sell services to the National Grid. Ofgem indicated that if the consultations progressed as they hope, distribution licence modifications would come into effect in Summer 2018. As at the time of writing, there have been no further updates with respect to timings.
A new condition 43 B proposed for the Electricity Distribution Licence is intended to ensure DNOs are legally separate from the operation of storage facilities, regardless of whether the asset is licence exempt. DNOs would require consent from Ofgem in order to carry out any generation activities, which includes storage activities, save for small scale applications and emergencies. Such restriction would be replicated in relation to Independent DNOs.
This may give further impetus to “storage service providers”, a model already considered as a way around earlier but less restrictive requirements for DNOs. DNOs will be able to contract with third party storage service providers, even if they are (legally separate) affiliates of the DNOs. Questions remain over the future of DNOs ownership of existing storage assets, though the consultation proposes that DNOs could continue to own storage and generation assets for now. Ofgem have made clear however that the arrangements for existing storage assets owned by DNOs will not give precedent for the treatment of future storage projects by DNOs.
We expect that DNOs will continue to be heavily involved in the development of new solutions as a means of avoiding costly network upgrades. For example, Northern Power Grid has participated in storage projects in Darlington and Barnsley, deploying batteries to social housing to enable more roof-top solar to connect.
The proposed no “self-consumption” licence condition will mean that where the relevant requirement can be complied with, licensed storage facilities should no longer have to pay the cost of final consumption levies. Storage uses electricity in order to be able to store it. When energy is converted and exported again to the end consumer, this can result in a ‘double charge’ 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. Costs of final consumption levies are passed on to consumers in order to fund the Renewables Obligation, FiT, CfD and the Capacity Market.
The proposed “no self-consumption” licence condition requires that the primary function of the storage facility is to export electricity back to the distribution system or to the national electricity transmission system. It would prevent the facility from being treated as the ‘end consumer’, thus avoiding paying the final consumption levy costs. If the storage facility’s primary function is not to export to the distribution or transmission system, then such facility will not be classified as storage for regulatory purposes and would be subject to final consumption levies.
TNUoS and BSUoS charges
Generators and storage operators are both liable to certain use of system charges; Transmission Network Use of System (TNUoS) charges and Balancing Services Use of System (BSUoS) charges on the electricity they generate and use. Storage operators are however more exposed than generators to these charges because of the amount of electricity imported (so subject to demand charges) and exported (so subject to generation charges). This contrasts with generators, for whom imports are a small proportion of exports.
In recognition of this potential competitive distortion between generators and storage providers and in order to address such distortion, two proposed modifications are now going through the CUSC modification process, with the authority determination date currently anticipated to be in January or February 2019. The modification in respect of the TNUoS tariff, if approved, would see a lower level of TNUoS tariff introduced in respect of the import of electricity by generators and storage providers. The modification in respect of the BSUoS tariff would see an amendment such that the energy imported from storage facilities does not attract BSUoS charges.