Smart and Flexible Energy System - BEIS and Ofgem Publish Response to Call for Evidence

24 July 2017


BEIS and Ofgem have today published their plan - or at least their vision - for a smarter more flexible energy future. The document sets out BEIS and Ofgem's response to the Call for Evidence they published in November last year . It is also branded as a key part of the UK Government's Industrial Strategy and the forthcoming Clean Growth Pan. But how much of the document is actually new?

A Strategic Master Plan for the Future?

The subjects covered by the document are certainly wide ranging - from a regulatory definition of electricity storage, through cyber security and smart appliances, to electric vehicles. And the savings identified are eye-catching - the potential to save consumers up to £40bn in the coming decades.

The focus on the potential role for electricity storage projects in the flexible energy systems of the future will also be welcomed by many, and most would accept that the Government has identified the key themes that need to be addressed in order to unlock the potential for electricity storage.

However, it is difficult to avoid the impression that little has moved on since the Call for Evidence in November last year, which was itself much delayed, see our earlier article on the government's publication of its call for evidence in realtion to electricity storage [1]. Indeed, in the context of electricity storage at least, we continue to address more-or-less the same points as we identified in January 2016, with little substantive progress seeming to have been made in the intervening year and a half.

There is also a sense - perhaps understandably given the document's breadth - that the real action is taking place elsewhere, with constant reference to other ongoing consultations, such as Ofgem's Targeted Charging Review [2], the Energy Network Association's Open Networks Project, and National Grid's System Needs and Product Strategy.

Electricity Storage to be defined in Primary Legislation

Perhaps the most significant decision set out in the document is that the Government intends to define electricity storage in primary legislation - albeit, of course, once parliamentary time allows.

This is certainly a welcome step, as the absence of a clear top-down definition set by statute creates regulatory uncertainty, and presents a barrier to the development of a consistent and comprehensive system of regulation through the rest of the regulatory framework; in secondary legislation, licences, industry codes and charging methodologies.

In terms of what that definition will look like, BEIS and Ofgem have stated that the definition proposed by the Electricity Storage Network "broadly strikes the right balance". That definition was:

"Electricity Storage" in the electricity system is the conversion of electrical energy into a form of energy which can be stored, the storing of that energy, and the subsequent reconversion of that energy back into electrical energy.

BEIS and Ofgem also confirmed that they plan to implement their original proposal of classifying electricity storage as a subset of electricity generation. This decision seems to be driven mostly by a desire for a quick and easy means of implementation. We can see the logic in this argument, but hope that it doesn't create as of yet unforeseen complications in subsidiary legislation or industry codes.

In any event, the consequences of recognising electricity storage as a subset of electricity generation in the Electricity Act 1989 will include:

  • there will be a prohibition on undertaking electricity storage in Great Britain, unless authorised to do so by licence or exemption;
  • breach of the prohibition will be a criminal offence;
  • subject to any changes made to the Class Exemption Order[3], sub-50MW projects will not need a licence;
  • holders of electricity storage licences will have additional obligations under the industry codes as compared to those without a licence;
  • holders of electricity storage licences will also enjoy some benefits, for example access to compulsory purchase powers and avoiding supplier charges for renewable incentive schemes (such as RO, FIT and CFD); and
  • subject to any changes being made, projects with a capacity greater than 50 MW will be treated as Nationally Significant Infrastructure Projects from a planning perspective.

Progress in other Areas

How electricity storage connects to the network

BEIS and Ofgem expect these issues to be addressed by industry in a timely manner, via the Energy Networks Association's Open Networks Project [4].

Network charges

BEIS and Ofgem recognise that there are instances where storage may currently pay more towards the residual cost of the network than other network users. This issue is to be addressed via Ofgem's Targeted Charging Review, which includes a number of proposals on the topic including removal of the demand residual charges at transmission and distribution level and reducing BSUoS charges for storage.

Ownership of electricity storage projects by DNOs

Although BEIS does not propose to implement full ownership unbundling for storage by DNOs at this stage, it states that network companies should not own storage except in exceptional circumstances. Ofgem will introduce reporting requirements for DNOs that own storage. Ofgem will monitor DNO ownership of storage and take further steps should there be an indication of a distortion in the market, which may include limiting ownership of storage assets by DNOs.

Demand-Side Response and Aggregation

  • Progress expected to be made via National Grid's System Needs and Product Strategy[5].
  • No compulsory code of conduct or licensing for aggregators.

Transition of DNOs to DSOs

BEIS and Ofgem are committed to ensuring that there is a smooth, timely transition from distributors acting as passive network operators to them acting as active distribution system operators (DSOs). In the first instance, they will monitor progress of the initiatives coming out of the Energy Networks Association's Open Networks Project. DNOs are also incentivised via the price controls in their licences.

Smart Tariffs

BEIS and Ofgem will keep a watching brief on the availability and take up of half-hourly-settled tariffs as Smart Meter roll-out continues. Mandatory half-hourly-settled tariffs for non-domestic consumers remain an option.

Renewable incentive levies

  • Electricity supplies to those operators who need (or choose) to hold an electricity storage licence (which is a type of electricity generation licence) will not attract a liability for the RO, FIT or CFD. Supplies to those without licences will.
  • Electricity supplies to storage projects will generally not attract CCL, given that they will be supplies to generating stations.

Electric vehicles

BEIS and Ofgem expect electric vehicles to benefit from Smart Meters and smart tariffs as these become available. Powers to regulate smart charging infrastructure will be taken in the Automated and Electric Vehicle Bill.

Smart appliances

BEIS intends to consult on seeking powers to set standards for smart appliances in relation to matters such as interoperability, data privacy, cyber and grid security.

How we can help

If any of the topics mentioned in this note strike a chord, we'd be delighted to hear from you.

We regularly advise energy suppliers, aggregators and consumers on participation in demand-side response opportunities. We also have a great deal of experience in assisting developers of electricity generation and storage project, helping them to understand the regulatory regime and the opportunities to 'stack' value from income under the Capacity Market, Balancing Services and the project PPA.

Footnotes

[1] However, it is difficult to avoid the impression that little has moved on since the Call for Evidence in November last year, which was itself much delayed. See our earlier note at https://gowlingwlg.com/en/insights-resources/articles/2016/uk-electricity-storage-call-for-evidence-published/

[2] Targeted Charging Review https://www.ofgem.gov.uk/publications-and-updates/targeted-charging-review-significant-code-review-launch

[3] Electricity (Class Exemptions from the Requirement for a Licence) Order 2001.

[4] Open Networks Project http://www.energynetworks.org/electricity/futures/open-networks-project/

[5] Needs and Product Strategy http://www2.nationalgrid.com/UK/Services/Balancing-services/Future-of-balancing-services/


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