Ofgem presses ahead with new licence section for network services assets 

Ofgem is pressing ahead with plans to add a new section to the standard generation licence to define and regulate assets such as synchronous compensators dedicated to providing network services such as inertia and reactive power.  

Despite opposition from some parties, the regulator said it still believes the new definition should only apply to assets that hold long-term contracts with the Electricity System Operator to prevent abuse of the licensing regime.  

Back in 2021, Ofgem announced that assets dedicated to providing network services would be permitted to obtain a generation licence as a short-term solution for their regulatory treatment, whilst it undertook a review to explore long-term options for their treatment, including a new tailor-made licence category.  

The move was prompted by the Electricity System Operator’s 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. 

However, practical issues subsequently emerged in the implementation of several licence conditions and in February of this year Ofgem therefore proposed to add a new section to the standard generation licence – section F – to define and regulate network services assets.  

The regulator has now launched a statutory consultation on its minded-to position, which it is hoping to implement by late summer 2024.  

It said respondents to its initial consultation agreed that adding a separate definition to the generation licence for network services assets would be a beneficial as an interim measure, while it continues to review their long-term treatment, and would help to create a level playing field in the near term.  

They also agreed that it would be preferable to create a new section in the licence rather than amending the existing section B as the latter could become “tortuous and less clear”.  

The proposed text would define network services assets as those which “have the capability to provide, in a dedicated manner, network service(s) to the system operator” and “do not generate electricity for purposes other than to deliver the contracted network service(s).” These network services would comprise inertia, short circuit level and reactive power production and/or absorption contracted by the ESO.  

Ofgem said it received several suggestions of further services that could be included in this list, but has decided that they do not merit inclusion at the moment as said services “do not require the specificity that this licence modification would provide, being either linked to megawatt output or assets which already fall under the definition for different services.” 

The definition would also require assets to hold a “long-term” network services contract with the ESO of at least one day in length. Ofgem said some respondents opposed this stipulation on the grounds that it could be a barrier to competition.  

The regulator said although it is mindful of this concern, it remains of the view that including a limit on contract duration is proportionate at this stage to prevent abuse of the licensing regime.  

It said this requirement would work equivalently to the minimum megawatt contribution set elsewhere in the generation licence, but would be easier to establish than a network service minimum contribution.  

The deadline for responses to the statutory consultation is 27 May.