A brief summary of recent regulatory and market updates on energy storage in the UK.
State of the Market
The energy storage market has demonstrated significant growth and promise in recent years with infrastructural and regulatory developments showing both private and public commitment to increasing the role of storage on the UK electricity grid.
As grids get smarter and new technology is introduced across the energy value-chain, much disruption is to be expected. Block chain facilitated trading within digitised community grids, artificial intelligence integration at energy installations and electric vehicle proliferation are all the here and now, and energy storage has an important role to play in the future of the energy market.
Key Market Developments
Battery storage and demand-side response won more than 500MW of contracts in the T-1 Capacity Market auction in February 2018 which cleared at £6/kW per year.
GE has announced that the UK will be the location for its largest grid scale battery energy storage system to date. The 41MW project will be completed in partnership with Arenko and should be operational later this year.
Flexible services provider Battery Energy Storage Solutions (BESS) has raised more than US$100 million in investment with UK project plans totalling 100MW.
In the residential market, Nissan made an announcement in January 2018 that it will be providing a system of solar panels and batteries to UK homes, stating that customers could save up to 66% on energy bills through their service.
Upgrading our Energy System- Smart Systems and Flexibility Plan
In July 2017 Ofgem and the UK Government released their initial response to the November 2016 consultation, 'A smart, flexible energy system: call for evidence'. The response includes the 'Smart Systems and Flexibility Plan' which sets out the proposed approach for integrating flexible and smart technologies into the evolving UK energy system. The response specifically addresses the role of energy storage in the UK electricity market, including Ofgem and Government's proposals to address commercial and regulatory barriers that may prevent the further deployment of energy storage such as:
- grid charges
- viability of revenue stacking
- creating a market definition of 'storage'
- planning constraints
- final consumption levies
- perceived uncertainty in relation to co-location of storage on Renewables Obligation (RO) and Feed-in Tariff (FIT) accredited installations
- grid connections
- ownership of storage by network operators
- technology innovation
- small scale storage deployment
- health and safety and environmental issues
Please click here for more detail on this response.
Ofgem draft guidance for generators on co-location of storage
Ofgem released draft guidance in December 2017 seeking to clarify existing guidance on the requirements that generators must satisfy under the RO and FIT Schemes if storage is co-located with generation accredited under these schemes. The draft proposes no change to the schemes' requirements and support under the schemes will remain solely available for eligible electricity.
The draft clarifies that a generator may claim Renewables Obligation Certificates (ROCs) for electricity supplies to a third party storage facility by private wire if the relevant requirements are met. FIT generation payments are reliant on meeting Ofgem’s requirements including that the meter reading reflects only eligible electricity under the FIT scheme.
Battery storage revenue streams may include a mixture of frequency response, capacity market payments, TRIAD revenue and power supply payments. The challenge is to construct installations that can take advantage of multiple revenue streams and can demonstrate returns against capital expenditure to secure funding.
Capacity Market T-1 auction and T-4 prequalification results
In December 2017 National Grid confirmed the projects that have prequalified to compete in the Capacity Market auctions scheduled for 2018. The T-1 auction is for limited one year contracts and of the 138 pre-qualified battery storage projects, 16 have received contracts. This includes a number of installations backed by National Grid's Enhanced Frequency Response tender in August 2016. This outcome is lower than anticipated which may be due to the government's decision to lower the de-rating factor by almost 80% for 30 minute duration batteries in Capacity Market auctions.
The T-4 auction contracts are for a 15 year period and over 1,100 assets prequalified, of which more than 227 were battery storage.
Balancing services consultation National Grid published its System Needs and Product Strategy consultation (SNaPS) on 13 June 2017 which sets out National Grid's strategy for the types of services it will need to procure in future to balance the grid and to maintain secure and affordable electricity supplies.
The proposals in SNaPS aim to:
- rationalise the existing suite of balancing services products by reducing the number currently available and removing any obsolete products;
- simplify the remaining products by standardising contract terms, the procurement process and technical requirements;
- improve the products based on feedback received from industry; and
- improve the information that National Grid shares, to make it easier for participants to access balancing servicing products.
The impact on storage operators should be positive as there is a general emphasis on flexibility and introducing products that require faster reaction times.
Power Responsive, a stakeholder-led initiative facilitated by National Grid, has set a goal of achieving 30-50% demand side balancing capability by 2020. Their 2017 Annual Report highlights that demand side flexibility participation is steadily increasing and future prospects need to give greater consideration to data management and cyber security. Key customer insights centred on the need for multiple simple and reliable revenue streams to grow investment in demand side flexibility.
In December 2017 National Grid published its 'Product Roadmap for Frequency Response and Reserve' document in response to the SNAPS consultation outlining how firm frequency response tenders will be conducted.
This second stage in the modernisation of the frequency response market aims to increase transparency in order to simplify the current process for providers to tender for capacity.
Instead of a provider tendering for a period of one to twenty four months, more standardised periods (e.g. front month/front quarter of an auction in defined seasons) will be used to allow National Grid to compare results between months.