Licence definition proposed for dedicated network services assets

Ofgem has proposed to add a new definition to the standard generation licence for assets such as synchronous condensers dedicated to providing network services.

The regulator said practical issues have emerged in the implementation of several conditions since it permitted these assets to apply for a generation licence.

In an open letter in 2021, Ofgem announced that synchronous condensers and other assets dedicated to providing network services would be allowed to obtain a generation licence as a short-term solution for their regulatory treatment. It said it would also hold a review to examine the long-term treatment of these assets, including whether they should be subject to a new tailor-made licence category.

The decision was prompted by the Electricity System Operator’s (ESO) development of a new stability service incorporating inertia, voltage control and short circuit level – capabilities that have traditionally been provided by conventional fossil fuel power stations alongside generation.

The ESO has held three tenders for the service as part of its Stability Pathfinder programme, mostly recently awarding £1.3 billion worth of contracts to six companies in November 2022. All of the contracts have gone to synchronous condensers – essentially large synchronous motors with shafts that are not connected to any mechanical load.

Ofgem issued a call for evidence on the long-term treatment of these assets in April 2022 and is currently assessing the options.

It has now published a consultation on potential modifications to the generation licence to accommodate assets providing network services in the meantime, including through the addition of a specific licence definition for this type of asset.

Ofgem said the ESO’s procurement of stability services has “raised questions on the appropriate regulatory treatment of the assets delivering network services uncoupled from energy generation”.

“Following the formulation of our interim position on the regulatory treatment of network services, and the subsequent granting of generation licences to some network service providers, practical issues have arisen in the implementation of some of the standard licence conditions,” it added.

“It is clear that these conditions were not drafted with synchronous condensers or other zero-megawatt assets in mind. Our view, therefore, is that modifications to the standard licence conditions may be necessary to ensure that the generation licence is fit for the purpose of regulating network services in the short to medium term.”

Ofgem said it plans to publish its review into the long-term treatment of dedicated network services assets “in the coming months”.

The regulator has proposed to add a new definition to the generation licence for “assets dedicated to providing network service(s)”. These assets would have “the capability to provide, in a dedicated manner, network service(s) to the system operator” and would “not generate electricity for purposes other than to deliver the contracted service(s)”.

To fulfil this definition, assets would also be required to have a contract with the ESO to deliver network services of at least one day in length. Network services would be defined as the capability to provide one or more of the following: inertia, short circuit level, and reactive power production and/or consumption.

Although the only technology to be granted generation licences for this purpose so far is synchronous condensers, Ofgem said its proposed definition would accommodate other technologies that might come forward to provide network services to the ESO.

Ofgem said it does not intend to make the operation of assets dedicated to providing network services a globally licenced activity: “We intend for it to remain a provider choice, recognising that there are likely to be pros and cons of holding a licence which are best balanced by the potential applicant.”

The regulator said it is additionally considering amending standard licence condition 14 of the generation licence, which enables licensees to apply to the secretary of state for powers for the compulsory purchase of land for the construction, extension or operation of a generating station. In its current form. the condition only applies to power stations with a generating capacity of more than 50MW, thereby excluding assets such as synchronous condensers.

Ofgem said it is keen to hear from industry stakeholders about any other licence conditions that are currently unsuitable for assets dedicated to providing network services but should be applied to them.

The deadline for responses to the consultation is 10 March 2024.