Never say die: the battle for network-owned storage

The government and Ofgem have set out their plan for delivering a smart and flexible energy system. It includes a veto on DNO-owned energy storage, but networks won't take the verdict lying down. Lois Vallely reports

The government and Ofgem have published their greatly-anticipated smart systems and flexibility plan. As part of the plan, Ofgem has ruled out network-owned storage, but the Energy Networks Association insists that the discussion is far from over.

The publication of the wide-ranging smart systems plan follows a call for evidence, which closed in January after attracting more than 250 responses.

The document, published jointly by Ofgem and the Department for Business, Energy and Industrial Strategy (BEIS), outlines 29 changes and actions that government and the regulator will make to ensure a “smarter, more flexible energy system” is delivered in the UK. An ambition which could deliver consumer benefits worth as much as £40 billion by 2050, according to a government commissioned study carried out by the Committee on Climate Change.

These actions range across three key areas:

• Removing barriers to smart technologies
• Enabling smart homes and businesses
• Making markets work flexibly

Energy storage is a prominent issue across all three areas and the joint report reflects a keenness on the part of Ofgem and BEIS to remove “undue policy and regulatory barriers” to its deployment. The plan was also released on the same day as government announced a £246 million investment plan to support battery technology development in the UK.

One of the key ways in which energy storage can contribute to smart and flexible energy interests is by helping energy networks to balance the system while volumes of decentralised energy resources increase and demand patterns change.

The Ofgem-BEIS report acknowledges this, saying that storage can be used by network operators “in a number of different ways”. However, the report is equally firm that network companies themselves shouldn’t be the owners and operators of storage. It states that this could “impede the development of a competitive market for storage and flexibility services”.

In addition to blocking future direct ownership of storage facilities by distribution network operators (DNOs), new reporting requirements will also therefore be introduced for networks who already run storage assets.

Ofgem associate partner for energy systems, Andy Burgess, tells Utility Week: “We send a clear message that we don’t want [network companies] to own or operate storage because we don’t think they can be impartial if they own one of the solutions.”

“As the distribution networks understand the need to look at flexibility and the need to look at more market-based solutions, we think we’ll increasingly get a number of cases where there is a need to decide where the dividing line is between the monopoly and the market,” he continues. “We very much welcome the monopolies procuring services from the market, but we don’t want them to be competitive in those markets.”

“I see this more as an invitation to discuss than an absolute blanket prohibition.”

Tony Glover, director of policy, ENA

Former Npower chief executive Paul Massara fully supports Ofgem’s view that networks should not own storage in their regulated businesses. “It is far better that they tender for storage services and thereby create a transparent and liquid market,” he tells Utility Week.

The Energy Networks Association (ENA), however, refuses to back down on the issue, insisting that further discussion is needed. The Association says its members support flexibility, including storage, being procured from the competitive market place as a commercial service. But the “key question”, the group argues, is one of accessibility.

The ENA says there are likely to be circumstances where the commercial market place “does not provide storage services in the right places that networks need it or at the lowest cost to customers”. “In that case it may be best for the network to own and operate storage,” they add.

ENA director of policy Tony Glover tells Utility Week there is a need for “a lot more discussion” and clarity on the issue of storage ownership. “I see this more as an invitation to discuss than an absolute blanket prohibition. Therefore, although it is in the document, I think for us that is about a bit more of a clarification and a discussion about what the details of that are. We don’t want to get into a debate with them, we absolutely want to discuss with them what they mean.”

ENA members will want to ask questions around use of storage in emergency incidents, or in cases where the market hasn’t responded. The Association maintains that there are cases where it would be in the best interests of customers if networks were allowed to own and operate storage. “If that can be shown to be the case then clearly there should be some provision for that, and it shouldn’t be something we’re precluding at this stage. We’ll be discussing with BEIS and Ofgem going forward.”

“Do we want an infrastructure where everything is outsourced to the lowest bidder?”

Georgina Penfold, chief executive of the Electricity Storage Network

Storage industry participants, too, argue that networks should be allowed to own and operate storage. Although Ofgem’s position on storage ownership did not come as a surprise to industry, by precluding system operator (SO), DNO or distribution system operator (DSO) from owning storage altogether, the regulator could be indirectly causing the consumer to suffer.

Georgina Penfold, chief executive of the Electricity Storage Network says that procuring flexibility as a contracted service can work well for network companies, provided that the markets respond effectively and provide good value to the end-user. However, there may be situations where the market is not providing best-value: for example, in a monopolistic environment or if geographical price variations become overly distorted, she adds. “In these situations, it would be advantageous for the networks to have the option to deploy their own storage,” she tells Utility Week. “The question really should be: do we want an infrastructure where everything is outsourced to the lowest bidder?”

“In the first instance, network operators should tender their requirements,” says Penfold. “If economic proposals are not forthcoming there is the option for the SO, DNO or DSO to own or operate storage.”

Independent consultant John Scott, formerly technical director at Ofgem, says he thinks the regulator is being “too purist” with regard to defending market arrangements, and suggests it “keep an open mind” about storage ownership.

But if networks are going to be prevented from owning storage, as Ofgem seems set on, it is important that the right balance is struck between making a transparent market for battery owners who want to connect to the network and dealing with the engineering and security of supply concerns of network companies.

This is a challenge which Baringa partner Oliver Rix says will be tough. “[The balance] remains to be addressed,” he tells Utility Week. “We don’t want a hiatus in the continued investment in a technology that is going to the system. There is a lot of work to do quickly to get to that point.”

Despite calls from industry, the government and Ofgem seem resolute in their determination to keep storage ownership out of the hands of the networks. If they refuse to waver, the onus will be on them to ensure that the flexibility networks sorely need can be reliably contracted via transparent and accessible price signals.

Scott says the “simple solution” BEIS and Ofgem have come up with “isn’t really right for a complicated situation”. Industry will be hoping that the regulator and BEIS keep the issue of storage under review, and give network companies a chance to prove they can be responsible owners of storage.