Scottish Power proposes capacity market rule change for storage cloaked as DSR

Scottish Power has called for a change to the capacity market rules to lower the de-rating factor for demand side response (DSR) provided by storage.

The proposals submitted to Ofgem would extend the recent cuts to de-rating factors for shorter duration batteries to behind the meter storage bidding as DSR.

To do this, DSR capacity market units would be separated into different technology classes with corresponding de-rating factors based on the minimum length of time they could continuously provide capacity.

DSR aggregator Kiwi Power dismissed the proposals as “completely unworkable” and accused Scottish Power of trying to “entrench” its position as an incumbent.

In December, the Department for Business, Energy and Industrial Strategy (BEIS) lowered the de-rating factors for most batteries bidding into the capacity market on the basis they would be unable to meet their obligations during stress events lasting for longer than their minimum discharge duration.

They were divided into eight classes, with only longest-range batteries (four hours plus) retaining the 96 per cent de-rating factor which all had previously received. Those with the shortest range (30 minutes plus) were allocated a de-rating factor of just 18 per cent, thereby slashing their revenues per megawatt of nameplate capacity by around four fifths.

In its submission to Ofgem, Scottish Power noted that DSR sourced from behind the meter storage is not subject to the same duration dependent de-rating factors under the current arrangements.

“This risks over-rewarding such storage and increasing costs to consumers,” the firm argued. “It is also contrary to the capacity market policy of technology neutrality and unfair to other market participants.”

Scottish Power said in the absence of a rule change “the new de-rating approach can be circumvented by storage developers locating their projects behind the meter and participating as DSR”.

“We are aware that some other forms of DSR may also have duration limits,” it added. “In due course, duration de-rating and appropriate testing should be extended to all applicable DSR technologies.”

A spokesman for the company told Utility Week: “We believe that the same duration de-rating should apply to batteries whether they are behind or in front of the meter.

“In the longer term, if other forms of DSR can only deliver for periods less than that of a typical system stress event, then it should be de-rated accordingly so as to ensure that security of supply is maintained.”

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Jonathan Ainley, head of public affairs at Kiwi Power, described the rule change as “completely unworkable”.

“The whole point of DSR is to unlock flexibility to provide the greatest benefit to the system,” he explained. “This approach would effectively spell the end of unproven DSR, as DSR capacity market units would have to be assigned a technology type at the point of prequalification, which is the exact opposite of what DSR is there to do.

“Clearly, such an outcome would be deeply undesirable for Great Britain’s electricity system.”

He said DSR is already at a “huge disadvantage” as it is only able to secure one-year contracts in the four-year-ahead (T-4) auction, whilst other all other new-build technologies can secure contracts of up to 15 years in length.

Ainley continued: “Ofgem should focus its efforts on reforming the capacity market rules to remove these disadvantages and level the playing field for DSR, rather than wasting time on proposals from formerly nationalised incumbents seeking to further entrench the position they inherited in the market.”

Nick Heyward, head of energy storage at energy technology firm Origami Energy, was less critical of the proposals: “We develop and operate behind the meter storage projects, alongside other types, and we were expecting to be able to put some storage assets into DSR capacity market contracts at some stage.

“The Scottish Power proposal could have a detrimental impact on storage projects, but it could be argued that the changes fall in line with the original intentions of the capacity market to secure security of supply.

“When the capacity market legislation was put in place, there was no such thing as energy storage on a commercial scale, and like the ancillary services market, both were designed with generation in mind. It is natural in an evolving market that there will be changes to value opportunities”.

He said, whilst capacity market contracts are a valuable source of revenue for storage assets, the balancing mechanism and wholesale market are likely to become “increasingly important components of the investment case”.

Earlier this month, Utility Week reported that Limejump had already secured a DSR capacity agreement for the Leighton Buzzard battery storage facility which it operates on behalf of UK Power Networks in the latest T-4 auction.