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UTILITY Week 5th February 2016

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10 | 5TH - 11TH FEBRUARY 2016 | UTILITY WEEK Policy & Regulation Analysis S o far in 2016 energy storage has been the buzzword in the energy indus- try, with Western Power Distribution announcing a new storage project at grid level and the launch of Tesla batteries into homes in the UK expected this spring. The Energy and Climate Change Com- mittee last month heard evidence on how electricity storage is the key but currently missing link in the UK's transition to a low- carbon system built around distributed renewable generation. But storage is a long way from being a deployable commercial proposition, with only a few large-scale trial projects under- way. The industry would argue that the tech- nology is ready and market conditions are holding back growth. Until recently, energy storage was neglected by the Department of Energy and Climate Change, but its atten- tion has been turned and a consultation is expected this spring. The storage industry has a number of requests concerning regula- tion, which would remove barriers and stim- ulate development. And time is running out. National Grid has started tendering for an enhanced frequency response service in 2017 that will primarily involve battery storage. The Electricity Storage Network's director, Dr Jill Cainey, hopes the government clarifies the position "as soon as possible", although this is not expected until the autumn. "National Grid is wanting services on the network in 2017," says Cainey. "Coming out with the position in late 2016 is not going to give developers the regulatory comfort and certainty they need. Potentially they are going to have to connect to the grid in one uncertain regime and subsequently find themselves in another regime." The industry is asking for the following: 1. Remove balancing charges Removing the need for storage to contrib- ute twice to the £1 billion system charge payment larger loads and generators pay National Grid annually for balancing the system would remove a major barrier. Stor- age is caught twice by the payment: once for charging and again for discharging. Even if a developer has signed a contract with the local distribution network operator (DNO) never to charge during peak periods, storage developers are still hit by peak system user import charges, adding around £20,000 per megawatt per annum to the build. Removing this regulatory barrier would send a "signal that storage is seen as a solu- tion for the future", says Oxford University's Environmental Change Institute research fel- low, Dr Philipp Grünewald. 2. Make it a separate licensed activity One of the industry's main demands is the redefinition of energy storage as an activity. Its current classification as generation is an "accident of history" from how the market was split during privatisation, says Cainey, but this prevents DNOs from owning and operating storage. DNOs are arguably best placed to fully optimise storage assets, but a network company is not allowed to simulta- neously hold a generation licence. The classification of storage as generation is "plain wrong", says Grünewald, because it performs many functions, such as acting as a demand, and delivering energy from where there is plenty to where it is needed, which is more akin to a network function. Stephen Goldspink, director of strat- egy and business development at Siemens Energy Management, says DNOs will con- tinue to play a vital role in the UK, but lack any incentive to take on the mantle of devel- oping storage as an asset. A change in licens- ing would be a "really positive step". "What storage allows us to do is really optimise the utilisation of that existing infra- structure. At the moment there is no incen- tive for a DNO to install storage to use that for constraint management and other grid support functions," says Goldspink. 3. Allow it to secure a CfD Cainey says partnering with renewable energy is a good approach for energy storage, but storage is unable to secure a contract for difference (CfD), and neither is a developer able to secure one for a whole site – only for the renewable generation element. Dr Gordon Edge, director of policy for economics and regulation at RenewableUK, agrees the inability to bid as a hybrid tech- nology is a hindrance. "At the moment we can only say that an operation is a windfarm or a solar farm, and storage is completely le off, whereas we should have an interest in supplying the least cost, low-carbon elec- tricity, and if that is a single connection with a windfarm and a solar farm and some stor- age, that's great," he says. 4. Remove end user classification In another "accident", storage has been defined as an "end user". Energy storage operators are hit with a charge for the cli- mate change levy as it goes into the device, while the actual final end user also pays, meaning the charge is collected twice. HM Revenue and Customs has ruled in the case of the UK Power Networks storage project at Leighton Buzzard, removing the end user classification. However, Ofgem is yet to agree to remove the classification across the board. 5. Remove artificial licensing limits Pumped hydro, such as at Dinorwig, in Wales, is a form of energy storage already at technical maturity and the only one able to deliver high capacity storage. However, it is unlikely the UK will see any more pumped hydro built on the scale of Dinorwig because of the "very long investment time frame" and difficulty securing planning permission, on top of the obvious geographical restrictions. Market conditions also no longer favour this technology. Dinorwig was built in the 1970s in the expectation that the UK would be building a new nuclear power station every year. Grünewald says: "I understand from Scottish Power, which is looking at more pumped hydro, that it is very difficult for it to make the business case." Cainey says there is potential for more pumped storage in the UK, particularly in the conversion of hydro-electric to pumped hydro, but developers of such projects are sticking below 100MW "purely on the gen- eration licence criteria, which set an artificial limit on how things operate in our system". Ways to boost energy storage Energy storage is an important component in the UK's transition towards a low-carbon system, but the industry claims its growth is being hindered by regulatory barriers. Lucinda Dann reports.

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