Introduction

The (large-scale) storage of electricity from 'variable' or 'non-programmable' renewable resources, such as wind and solar, is widely considered as an important element in (the transition to) an efficient and sustainable supply of electricity.1 Through storage, peaks in the supply of electricity during high wind conditions or abundant sun can be accommodated, by providing the 'electricity system' of production, transmission / distribution and consumption with additional flexibility and capacity.2 This contributes not only to (i) an efficient use of transmission and distribution networks by preventing substantial investments 'only' to accommodate such peaks in real-time, but also (ii) to more flexibility in balancing and (iii) an (cost) efficient (later) use of such electricity in case availability of such variable resources is insufficient to meet demand, also decreasing the necessity for the availability of fossil fueled back-up capacity.

In the Netherlands, stored renewable hydropower is available for import on the NorNed interconnector, but a wide range of other technologies exist for small scale storage or are under development for large-scale implementation. Such technologies range from compressed air energy storage to power-to-gas. As both EU law and Dutch legislation require electricity TSOs and, to some extent also DSOs (together Network Operators) to assess future needs of both transmission and distribution networks, the current focus on the issue of integrating variable renewables mostly comes from (stakeholder organizations of) Network Operators or at least place a large emphasis on their role in the transition and related changes to such infrastructure.

The question arises which parties in an 'unbundled' European Union are best suited to develop these technologies in an economically viable way and integrate this in the existing electricity system? Is such development, ownership and operation of an electricity storage facility compatible with the various obligations and prohibitions imposed on Network Operators through both EU and Dutch legislation?

The below will focus on such obligations and prohibitions for Network Operators as arising from (i) the mandatory separation and independence of networks from activities of 'generation' and supply of electricity (unbundling obligations)3 and (ii) the obligations to ensure safe and efficient system operation for the various networks. After briefly describing such obligations and prohibitions and some criteria for assessment on a case-by-case basis, various recent developments on the role of Network Operators in electricity storage to finally identify some issues that need further assessment or may need regulation.

Separation of Network Operator / supply activities

Even before Directive 72/2009/EC (Directive) became effective, the Netherlands adopted the most strict form of unbundling made possible in the later Directive, i.e. full ownership unbundling of 'networks' and supply and generation activities. Under the current Dutch Electricity Act 1998 (Elektriciteitswet 1998) (E-Act), a grid manager may not (i) belong to the same group (as defined in the Dutch Civil Code) as or (ii) hold shares in a legal person or entity that either produces, delivers or trades in electricity.

In order to assess whether or not the electricity storage activities are compatible with this prohibition, it is important to define the activities that encompass the storage process. Although various definitions exist for technological and policy purposes, this is, to date, not defined from a legal perspective. In general and to the extent relevant this assessment, electricity storage activities are considered to involve, as a minimum (i) the supply or purchase and supply of electricity to be stored4 ,(ii) the actual storage5 and operation of the storage facility by the Network Operator and (iii) use / release of the electricity stored.

Prohibited activities v Electricity Storage

Due to the absence of a proper legal definition, it is difficult to assess whether electricity storage activities would actually fall under the scope of 'prohibited activities' under the E-act. It may well be argued that the activities mentioned under (i) and (ii) above do not fall under the prohibition, as Network Operators under the current E-Act also have various agreements in place for balancing and reserve power that is delivered to them at the grid. However, due to the 'characteristics of electricity' and the conversion of electricity into another form or energy for storage, before being reconverted into electricity again may qualify as 'production' and 'delivery' directly or indirectly by the Network Operator under the E-Act.

On the contrary, it may be argued that merely an amount of 'energy' is 'stored' for later recycling or release, terms currently not defined. In this respect, certain similarities with storage of gas (whether in liquid or gaseous form) exist: customers of either a LNG terminal or an underground gas storage will be (re)supplied a certain amount of energy, not the exact same gas as injected.6

It this respect, it is pivotal to assess on a case-by-case basis whether a certain amount of electricity stored will or will not be in substantially the same form as when stored. Furthermore, the Network Operator's object and purpose for developing and operating of the storage facility will be one of the crucial elements in such assessment, in order to be able to determine its activities as falling under existing tasks, such as system balancing, which may not trigger the 'prohibition' discussion.

If and to the extent it could be argued that developing and operating an electricity storage facility by the TSO is to comply with its obligations to provide for a safe and efficient operation of the network operated by it, it can be argued that such is in compliance with its statutory duty to provide system services under the E-Act. One of the explicit obligations under is to have available 'sufficient reserve production capacity' in order to:

  1. enable the safe transmission in the network as a whole; and
  2. guarantee the security of supply on both short- and long term;

This only applies to the TSO, not DSOs in the Netherlands, although the latter are under a more generally drafted obligation to provide for the safe and efficient transmission of networks managed by them as well. The Dutch TSO, TenneT TSO BV (TenneT), currently complies with the above obligation through a system of so called balancing and reserve power arrangements as laid down in the Dutch Grid Code.

Considering the substantial challenges facing the electricity system, this may not suffice to provide for a most efficient and effective balancing regime, potentially strengthening the case for TSO developed and operated electricity storage, not the least due to potentially lower costs incurred through such an additional balancing mechanism.

Although TenneT has acknowledged and recognized its potential role in electricity storage as early as 2009, it was with a certain degree of hesitance, stating that:

'[m]arket parties see a viable business case in developing large scale storage that can compete with current balancing instruments in the market. A development of large scale storage funded with public money could have an impact on such initiatives'.

Consequently, it can be argued that any disruptive effects on markets of having electricity storage developed by Network Operators should be taken into account as well.

Storage development obligations

In the Renewable Directive, the increasingly important role for 'energy storage' in the European energy infrastructure is, to a certain extent, formalized by obliging Member States to:

‘[t]ake the appropriate steps to develop transmission and distribution grid infrastructure […], storage facilities and the electricity system, to allow the secure operation of the electricity system as it accommodates the further development of electricity production from renewable energy sources’.7

Whereas in Great Britain, the TSO has the availability of pumped storage for balancing requirements,17 to date we do not have this as an ‘ancillary service’ in the Netherlands, although arguably the NorNed interconnector provides the TSO with access to storage capacity in Norway.

To the extent the above can be interpreted as an obligation to include provisions regarding the development and operation of electricity storage into national legislation, the Netherlands has not done so. Although maybe less relevant from a TSO perspective, this is highly relevant for the Dutch DSOs, as they too face flexibility and balancing issues caused by the increasing capacity of installed intermittent renewables on the regional grid (i.e. grids below 110 kV).

Especially when considering the increased decentral / local generation of electricity and vast amount of renewable capacity still to be installed to meet Dutch renewable targets, the Dutch government should ideally provide for guidance on (i) the allocation of responsibility of developing and operating electricity storage, (ii) the extent to which such is, could or should fall under the regulated activities of Network Operators in the Netherlands and (iii) the envisaged way of (financially) stimulating the development of (certain) technologies deemed most suitable and efficient for the Dutch electricity.

Interesting to note here that the Regulation 347/2013 on guidelines for trans-European energy infrastructure (TEN-E Regulation)8 states that Member States may apply, through their respective national law, the same rules as applicable to projects of common interest for energy infrastructure with a cross border element, including the incentives as provided for in respect of the latter.

Recent developments

As acknowledged in the recent draft bill merging the E-Act and Gas Act in one legislative document, storage of electricity is of major importance for the electricity system of the future.9

However, this draft bill fails to at least set some kind of legal framework, based on which parties active in the Dutch electricity sector, either in the form of market parties or (un)regulated affiliates of Network Operator, can plan future activities and investments.

On the contrary, the Dutch national regulatory authority, the Authority for Consumers & Markets (ACM), seems to be taking a certain position in the discussion on this subject. Recently, with the publication of the ACER regulatory guidance note for the new European Commission, it stated Network Operators are increasingly developing activities that may or could be more efficiently developed by market parties, explicitly mentioning the storage of electricity as an example. The ACM announced to be monitoring any unfair competition by regulated entities with market parties, although reiterated the freedom of the so-called ‘network company’ (any affiliates within the group to which the DSO belong) to develop commercial activities (save to the extent such would lead to a breach of the prohibitions under the E-Act).10

On the same occasion, ACER too has stated in respect of electricity storage that policy interventions will designed address identified market failures only and minimize distortions to the market.11/p>

In the meantime, one of the Dutch DSOs has opened a pilot plant for the production of power-to-gas, to become familiar with such technology and study effects on the networks it operates. Although no formal statements were made on the regulatory aspects of these activities, the DSO stated to be aware of the discussion and had no aim of distorting the market. With the recent launch of the Council of European Energy Regulators (CEER) and ACM’s public consultation into the role and scope of activities by Network Operators, in the transition to a renewable energy supply, it remains to be seen how this develops.

Conclusion and Recommendations

From the above, it may be concluded that development of electricity storage is mainly important from system stability and flexibility perspective, and therefore could be (i) either compatible with the prohibition of certain activities of Network Operations under the E-Act or (ii) already fall within the duties and obligations of at least the Dutch TSO. However, this is subject to the following observations and conditions:

  1. there is no Dutch legislation on electricity storage and whether activities in that respect can be developed by Network Operators, but unbundling provisions and statutory duties of the Network Operators in balancing the electricity system in the E-Act provide guidance on issues for assessment on a case-by-case basis;
  2. the assessment of compatibility with prohibited activities for Network Operators is highly dependent on the legal qualification and technology of electricity storage;
  3. as also signaled by the ACM, the object and purpose of storage for Network Operators and disruptive effects on markets should be taken into account, e.g. by only allowing Network Operators to undertake these activities to the extent not developed by market parties, but beneficial to the society as a whole; and
  4. a certain degree of (legal) guidance from and review of the existing legal framework in respect of electricity storage is necessary to clarify blanks in current legislation