Utility Week

UTILITY Week 18th November 2016

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UTILITY WEEK | 18TH - 24TH NOVEMBER 2016 | 17 Policy & Regulation Market view O f all the new emerging energy tech- nologies being developed, electric- ity storage stands to make the most immediate impact on the energy market. Britain has some of the best natural resources for renewable energy. So the ben- efits of storing large amounts of it when the wind is blowing or when the sun is shin- ing, and then releasing it at times of peak demand, are huge. Storage technology has improved in recent y ears, and the cost of some tech- nologies is expected to continue to fall. Ofgem has encouraged distribution network operators (DNOs) to trial the use of storage schemes. Some of these have looked at how using batteries can help networks ease sup- ply and demand spikes during peak times, and how they can use storage instead of rein- forcing the network as they did in the past. But storage isn't just something that elec- tricity companies are interested in. Custom- ers could benefit too. Some of the trials we have supported have offered households cheaper electricity at peak times if they use stored electricity. Many other trials are ongo- ing, such as Nissan's scheme in which own- ers of its Leaf electric vehicles could sell spare electricity back to the grid. Schemes like this help households get more out of new technologies and the flexible energy system. Storage, alongside other forms of flex- ibility such as demand-side response and interconnectors, will play an important role in helping networks manage supply and demand. Ofgem and the Department for Business, Energy and Industrial Strategy (Beis) have been working together on deliv- ering a smarter, more flexible energy sys- tem. In our joint call for evidence we ask a number of questions about storage and other issues. We want to see competition thriving in the provision of flexibility services. So we don't think network companies need to own or operate storage because it might stifle development of competition in the market. Instead they should buy storage output from the market when they need it. A number of other European regulators share this view. In recent months, more than 19GW worth of applications have been made to connect storage. Not all of these projects will be built, but this shows there is strong inter- est, so network companies must clarify and improve the connection process. Our call for evidence also discusses how storage fits into the current legislative and regulatory frame- work, and asks for views on the issues and how to resolve them. A key issue affecting storage is how it is designated in legislation and regulation. This influences things such as planning, licensing and the charges storage pays for using the networks. We want to assess fully how arrangements may need to change to create a level playing field for storage and other sources of flexibility. Storage isn't a defined activity in the Elec- tricity Act, so currently it is considered as 'generation' for licensing purposes. Options we are considering include amending the generation licence so that it includes storage. Alternatively, storage could be defined in legislation as an activity in its own right. Current network charging rules were not designed with storage in mind. In the call for evidence we highlight the issues that this causes. For example, storage tends to be treated as non-intermittent generation because its power output is largely controlla- ble. But this isn't written into charging rules, so some network operators could take differ- ent approaches to charging. We want to see a consistent approach to charging for storage across GB. Immediate progress on issues like this is needed so we will talk to industry par- ties to make sure this happens. We also think it is important that the contribution made by storage to network cost recovery and the impact of network charges on the competi- tiveness of storage is considered in detail, and this is something we are seeking views on. Another issue that needs to be addressed is how levies for environmental programmes such as feed-in tariffs and the Renewables Obligation are charged to storage. The costs of running these schemes are paid by end consumers when they buy energy from their supplier. When storage purchases energy from a supplier it pays these levies even though it is not an end consumer. Storage exports the energy (minus losses) and it is used a second time by a final consumer. This consumer also faces these levies. Beis esti- mated that such double charging could have added almost 20 per cent to electricity costs for storage operators in 2014 and it is explor- ing options to address this. DNOs need to ensure they connect stor- age in areas where it can relieve constraints and avoid the need to reinforce the grid. This in turn could benefit others in the connec- tion queue. DNOs have made some progress, such as producing a standardised connec- tion application form for storage develop- ers. But they must clarify the connections process, such as 'heat maps' showing where connecting storage would be of most help to the overall network. A lot of what we are proposing involves DNOs doing more to help storage developers through the connections process and consid- ering the appropriate level of network charges. But we also want to hear from industry stake- holders so we can agree the right approach to regulation for storage, and quickly make any necessary changes to achieve it. Andrew Burgess, associate partner, energy systems, Ofgem Call for smart, flexible energy Ofgem and Beis want to hear from industry stakeholders to define the right approach to the regulation of electricity storage, and help make any necessary changes to achieve it, says Andrew Burgess. Key points Ofgem and Beis have issued a joint call for evidence, discussing how storage fits into the current legislative and regulatory framework, and asking for views on the issues and how to resolve them. 'Smart, Flexible Energy System – a call for evidence' runs until 12 January 2017. Full details of the call for evidence can be found at http://bit.ly/2ewJcRo. You can share your views by emailing Ofgem at flexibility@ofgem.gov.uk or Beis at smartenergy@beis.gov.uk

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