HM Treasury (“HMT”) has released its response (the “Response”) to the Smart Power report about the UK’s energy infrastructure, written by the National Infrastructure Commission (as reported in our previous Law-Now). The Response indicates that progress will be made to provide the clarity and support needed to develop a resilient energy infrastructure.

Interconnectors

HMT states that further interconnection offers a solution to the energy trilemma, and active discussions are being held with Norway and Iceland. A further 9GW of interconnection is supported, as well as a combination of short and long interconnection links. Ofgem has already awarded cap and floor decisions, in principle, to 6-7GW of interconnection capacity; this is in addition to the 1GW capacity offered by the merchant Eleclink project. The second cap and floor application window is now also open and is due to close at the end of October 2016.

Energy Storage

HMT is very optimistic about energy storage while recognising the need to review the regulatory and legal challenges it faces, including double charging and co-locating storage with existing projects. HMT recognises that energy storage may improve both the resilience and capacity of networks, and could contribute to a more cost-efficient, secure system. The Response mentions that proposals for reform will be made in 2017, and the RIIO framework should be used to encourage network operators to trial new ways of using energy storage to defer or avoid investments, and better manage network issues.

Demand Flexibility

In order enable demand flexibility to participate more fully in the market, HMT proposes a review of the regulations and commercial arrangements affecting it, as well as adjusting the Capacity Market. The Response also suggests improving public awareness, and supporting business models that utilise demand flexibility.

Active Network Management

Active management of local networks, including the efficient use of green energy by DNOs, is also strongly encouraged. Referencing the 2015 DECC report, Towards a smart energy system, HMT discusses the key role that smart networks will play moving forward, further bolstering their support for energy storage and demand-side response, as well as smart meters.

Network Strategy

HMT agrees that investments in network upgrades should be made with long-term objectives in mind, and states that the Government continues to engage with network companies, Ofgem, and other stakeholders on this issue. HMT indicates that a case-by-case approach is being taken to each scheme, to consider any potential impact on current assets and connections.

Conclusion

Overall, HMT is supportive of the Smart Power report, and the Response is encouraging for new market entrants for interconnectors, as well as energy market stakeholders engaged in demand-side response, energy storage, and other emerging smart technologies. The Response notes that the Government will allocate a minimum of £50 million for innovation in energy storage, demand-side response and other smart technologies over the next five years to help these options become more commercially viable.