Ofgem adds storage definition to generation license

Ofgem has finalised its decision to add a definition for energy storage to the generation license as promised more than three years ago in the smart systems and flexibility plan published alongside the Department for Business, Energy and Industrial Strategy (BEIS).

The regulator will also introduce a new license condition requiring storage operators to provide information on their facilities to their relevant supplier. The changes will take effect on 29 November 2020.

The amended license will define energy storage as “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.”

Ofgem said the technologies covered by this definition will include electro-chemical, flow and solid-state batteries; gravitational storage, including pumped hydro; compressed and liquid air energy storage; and kinetic energy storage such as flywheels.

The definition will not cover thermal storage where the stored energy is used directly as heat or the production of green hydrogen using electrolysis to export to the gas network as “it would not be the ‘same’ energy being stored and converted back into electricity.” It also excludes network equipment, whose primary function is not energy storage.

The license changes form part of a wider effort to end the double-counting of storage, which has previously been considered as both demand when importing and generation when exporting, thus incurring both sets of associated charges. The government has promised to define energy storage within primary legislation but has not yet done so.

Explaining its decision in open letter, Ofgem noted that it has already approved a series of code modifications to the end of double-counting of storage with regards to balancing and distribution charges from April 2021.

A modification to the Connection and Use of System Code, named CMP280, was also put forward by National Grid Electricity System Operator (ESO) to make the equivalent changes for transmission charges.

Ofgem subsequently asked the ESO to withdraw its proposal on the grounds it would be made redundant by further code modifications being introduced to implement the conclusions of its targeted charging review (TCR) looking at residual network charges.

In its latest update, the regulator said its decision in March to delay the reforms to residual transmission charges by one year to April 2022 means that CMP280, which was originally intended to take effect in April 2021, could now bring an earlier end to the double-counting of storage in this instance.

However, Ofgem said it has also been informed by the ESO that implementing the modification would take 12 months and cost around £1 million, adding: “While we could direct the ESO to prioritise implementation of CMP280, we currently consider this would be disproportionate given the materiality and competing priorities related to TCR implementation.

“We expect to see timely progress of the TDR [transmission demand residual] modifications as the means to provide an enduring exemption to TDR charges covering all standalone generation, including electricity storage. We will be reviewing this modification to make a final determination on CMP280 in light of the progress of the relevant TCR modifications.”

Ofgem said it remains of the view that a definition for energy storage within primary legislation would further clarify how it fits into the legal framework but is not necessary to end the problem of double-charging.

Frank Gordon, head of policy at the Association for Renewable Energy and Clean Technology (REA), said: “Whilst government has made progress over the past year on creating an enabling environment for electricity storage, the sector is underwhelmed by today’s decision to not define storage as its own asset class in primary legislation.

“Classifying storage as a subset of generation should only be seen as a stop gap measure until parliamentary time allows for a more thorough review. We maintain that electricity stored is different to electricity generated, and that energy storage comprises more than just electricity-based systems and therefore needs a broader definition.

“What is needed now, is for Ofgem and BEIS to take a more active leadership position to develop markets for grid flexibility and ensure that the value of storage is properly recognised in the grid codes that govern the system.”