Published: 01 August 2017
Making our energy system smarter and more flexible
In the old days, life was simple. Electricity was generated by large, mainly coal-fired, power plants and made its way along the high voltage network and then via lower-voltage distribution networks to consumers. Consumers were supplied the electricity by state-owned regional boards. If consumers wanted a new cooker, they went to the electricity showroom owned by their local board.
These days, life is more complicated. Whilst large generating plants still exist, smaller (mainly renewable) plants generate straight onto distribution networks. Consumers can generate their own electricity and sell surplus electricity back to the grid. Distribution network operators thus no longer simply receive power from large power stations via the high voltage network but must also manage generation supplied to their network from small-scale generators and generation back from consumers through on-site generation.
Last year the Government and Ofgem issued a Call for Evidence on the energy system. On 24 July 2017 the Government and Ofgem published their response; entitled Upgrading our Energy - System Smart Systems and Flexibility Plan
. On the same day, Greg Clark, the Secretary of State for the Department of Business Energy and Industrial Strategy (BEIS) announced a £246 million investment in battery technology, which he said would “power the automotive and energy revolution where, already, the UK is leading the world.”
In the Response announced on 24 July, the government acknowledged the need for greater flexibility across the power system. The key proposals which will affect the industry are:
- Ofgem will request an update from DNOs outlining the steps and progress that they have made to improve the connection process for storage.
- Network charging arrangements for storage will be reviewed. Ofgem’s Targeted Charging Review (TCR) consultation has already set out proposals to address the concern that storage may currently pay more towards the residual cost of the network than other network users. However, Ofgem considers that the relative disadvantage for storage under the current network charging arrangements is sufficiently material that it should be addressed ahead of any wider changes that may take place as a result of the TCR and this will be done through the code governance process.
- Current EU unbundling rules, which require network operators to divest themselves of generation assets, will be extended to storage. Network operators should generally not own storage assets other than in exceptional circumstances. Instead, services required by network operators such as shaving and frequency response should be provided through competitive procurement, similar to the successful tender for enhanced frequency response organised by National Grid in 2016.
- Legislation will be introduced to provide that storage will be treated, for licensing and planning purposes, as a sub-set of generation. This is likely to mean that large-scale battery projects may need a generation licence and, if above 50 MW, would be treated as Nationally Significant Infrastructure Projects for planning purposes.
- National Grid, as system operator, will develop proposals to simplify and rationalise the ancillary services market, which is an important route to market for flexibility providers.
- Direct aggregator access to the Balancing Mechanism can be efficiently provided. This will be achieved through a modification to the Balancing and Settlement Code (BSC) to create a new BSC entity which would encompass independent aggregators.
- Recognising the key role that flexibility services can play, the government and Ofgem will monitor a consultation initiated by National Grid to outline new options for how balancing services can be procured.
The government will review co-location of renewable generation plants that are accredited for subsidies (ROCs, FiTs and CfDs) and storage.
Other areas addressed by the Response, which is very broad-ranging, are the smart meter roll out
, to which the government is committed and the development of smart tariffs. The plan also touches on issues such as smart appliances and electric vehicles.
The Response and the government’s funding commitment to battery storage show how rapidly the energy world is changing. Allied with work being carried out by National Grid to reform the ancillary services market, there should be significant opportunities in the future for energy developers looking to provide flexible energy, whether gas-fuelled projects or battery projects. At the moment, investment is being held back because of a lack of clarity over revenue streams available for such projects. There will also be opportunities for businesses to participate in demand-side response with “with “behind the meter” installations.
In short, there is much food for thought. Speaking of food, my old cooker has packed up after many years of sterling service. Maybe I will pop down to the electricity showroom at the weekend. I wonder if it’s still there.