Energy and Climate Change Committee - Draft Energy Bill: Pre-legislitive ScrutinyWritten evidence submitted by the Electricity Storage Network

Introduction

1. The Electricity Storage Network is a trade association whose members are interested in the development of electricity storage technologies and their application to the electrical power system. Members include the transmission system operator, distribution network operators, manufacturers of electricity storage technologies, power industry equipment, engineering companies and consultants, project developers, academic institutions and other researchers. Membership includes those based in the UK and overseas. Through its membership, the Network is able to call on expertise and experience of the use and application of electricity storage. We are responding to this call for evidence to make particular reference to the need for the future electricity market to include the application of electrical energy storage, at all scales. We would be pleased to submit further explanation of our evidence if required.

2. Electricity storage should be seen as a fundamental part of the electric power infrastructure with applications across the power system from large scale devices, installations at mid size on the distribution level, and small scale installations at the consumer level. We see storage as a means of meeting the requirements for a sustainable, efficient power system, and storage should be a means to lower the overall system operating cost and hence reduce the costs of electricity to all.

3. Electricity storage devices are available in a range of sizes, to suit applications at the domestic, (kW), distribution (kW—1 MW) and large scale (1 MW—1000s MW). Users can include large companies, such as independent power producers, renewable energy producers, transmission and distribution companies, as well as large and small users of power.

Main Points

4. The existing legislation which applies to the electricity sector does not address explicitly the role of electricity storage within the market. This may be due to historical reasons, in that at the time of privatisation, only pumped hydro was considered as electricity storage, and by considering this as generation, a special case for storage was not necessary.

5. Today, storage technologies are based upon electro-mechanical, hydro-electric, thermo-electric and electro-chemical processes. Pumped-storage system should not be considered to be the only mature technology today (in the context of electricity networks), as there are a range of other technologies currently in service in the UK and elsewhere which demonstrate how storage can be used to benefit. For example Lithium Ion batteries have demonstrated improved operation of the distribution network where there is a high penetration of windpower,1 and have been used to provide ancillary services for network operation.2 Other battery types have been used in applications up to 34 MW in capacity.3 As well as batteries, other technologies such as flywheels, cryogenic energy storage and pumped heat can also be used.

6. The Draft Energy Bill makes few references to the role of storage, however it is explicitly mentioned in Stage 3 of the Electricity Market Reform process (post 2020) in the explanatory notes, where demand side response, additional storage and interconnection all play an increasingly large role in managing supply and demand. The absence of storage as a named activity in the Draft Energy Bill is at variance to the trends in other countries, where storage is increasingly seen as a component of the future network.

7. There is concern, that exclusion of electricity storage will lead to its absence from the strategy and that decisions taken now will limit the opportunity for the adoption and use of electricity storage in the future. Because electricity storage is not explicitly defined in the existing legislation, there is confusion and uncertainty about its treatment. This has been a significant factor in the lack of adoption and use of this technology during the post privatisation phase.

8. It is not appropriate to include electricity storage as simply a generation activity, because it has an important role as an absorber of power. The dual roles of absorbing and discharging power put electricity storage into a unique class within the electricity industry.

Evidence

9. We note that in the United States of America, legislation has been proposed and is under legislative scrutiny which recognises the status of electricity storage as a separate class.4 The electricity market regulatory framework also recognises electricity storage by offering tariffs that do not discriminate against electricity storage.5 In the US under the production tax credit (PTC) incentive, storage, if it is installed at the renewable source, attracts the same PTC. Solar projects have been installed where by storage has attracted 30% PTC, which provides a considerable incentive not only to install solar power, but also storage.

10. Germany provides special incentives for new build electricity storage and refurbished pumped hydro storage to be exempt from network usage fees.6 In Italy, there is provision for the TSO and DSO to own and operate batteries for electricity storage.7

11. We also draw the committee’s attention to recent reports and policy statements that refer to the role of electricity storage and point out the steps that would be necessary in order to develop the technology for societal benefit in the UK and in particular on the GB electricity system.8 Attention is drawn to the need to develop a market where electricity storage can participate and also to clarify, simplify and develop the legal and regulatory framework to allow storage to participate. This requires the setting of objectives that allow investors some certainty in the market in order to achieve a satisfactory rate of return. The lack of opportunities to develop storage now, may lead to future barriers to its deployment.

12. There are currently a number of inconsistencies between the Electricity Act 1989, and subsequent Statutory Instruments and Regulations which tend to inhibit the adoption of storage. Licence conditions for generation, transmission, distribution and supply cover have not been drafted with any account of the nature of storage. It is not clear whether electricity storage is covered as a generation activity under these class exemptions or associated legislation. There is no guidance from OFGEM on this issue.

13. The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001 includes a number of exemptions which tend to distort the market and limit the opportunities for electricity storage to participate in the market, if it is defined as generation. Class exemptions allowing small electricity producers exemption from licensing place an unfair burden on a developer of say a 5 MW storage installation as opposed to operators of 10 installations of 500 kW which might operate collectively, but without the need for licensing.

Examples of Storage Projects and Uncertainty

14. Electricity storage is available in a range of sizes, encompassing parameters of power from tens or hundreds of Watts to multi megawatts, and energy content from kWh to MWh. The particular size chosen will be dependent on the location and application. However, different operating parameters lead to different treatment. As an illustration, we provide the following examples:

(a)An electricity user installs a storage device rated at 500 kW, connected to a metered installation. The device is charged and discharged to reduce the peak loading on the metered installation, thereby reducing the capacity charge paid to the supply company and the distribution company. No special licence conditions apply. However the full system value of operating the storage is not available to the user.

(b)An electricity distribution company installs a storage device rated at 500 kW, in order to reduce for need for local network reinforcement. Although the installation is within the distribution licence conditions, the act of discharging the storage device, which might be deemed to be supply of electricity falls in an uncertain area for licensing, dependent on the other activities of the distribution company.9 The distribution company benefits from improved network operation, but is generally not able to take advantage of the value of energy trades through the device.

(c)A development company installs ten separate energy storage devices, each of 500 kW, distributed within a network. Each installation can be treated individually if they are operated separately.

(d)A development company installs ten separate energy storage devices, each of 500 kW, distributed within a network. These installations are operated collectively, and supply a mixture of domestic and non domestic consumers. Exemptions from licensing may or may not apply, depending on the proportion of power supplied to domestic consumers.

(e)A company installs a single energy storage device, of 5.1 MW on a distribution network, supplying a mixture of domestic and non domestic consumers. Unlike the example of distributed storage, this installation would require licensing, unless the company can demonstrate that this is not generation. The additional costs of gaining legal opinion can be considerable, and the financial implications of licensing reduce the predicted financial rate of return.

(f)In all of these circumstances, the analysis is clouded by the need to determine whether generation is taking place or not. In the Electricity Act 1989, generation is seen as the process of generating electricity for the supply to consumers, but for storage, this is frequently not the main purpose. Furthermore, definitions of generation, envisaged by determining the output across alternator terminals leads to further lack of clarity as storage devices may or may not use an alternator.

15. We propose that the opportunity taken in the Draft Bill to clarify licence conditions, for example in clauses 27 and 32, should include provision for future recognition of the role of electricity storage and its use by all participants in the electricity value chain, that is generators, transmission operators, interconnector operators, distribution operators, suppliers and users of power.

16. Electricity storage is an essential part of the electrical infrastructure. Electricity storage has the potential to provide a range of services across the network that will support and deliver lower cost, sustainable energy. A remuneration strategy that depends solely on differentials between high and low prices is unlikely to provide sufficient long term stability for participants to invest in electricity storage and misses the opportunity to use electricity storage as a means to reinforce the distribution networks as the nation moves towards a more sustainable power industry.

June 2012