6 December 2016

A very quick update for those members who are involved with or looking at the market for energy storage, demand side response and distributed (embedded) generation.

Ofgem updated letter: Charging arrangements for embedded generation
 
The BEIS Energy Security Team and Ofgem have released a 2nd “Open Letter” related to "embedded benefits" - revenue benefit and cost savings gained by distributed generation and demand response. The full letter can be found here.

The letter does not add too much to the original letter which was published in August but again reiterates that Ofgem is concerned that the Demand Residual component of transmission charges (i.e. the TRIAD related element) may be distorting the energy market and overcompensating distribution connected generators. They are minded to adjust this and are warning that the changes may be quite radical.  The letter acknowledges that a wider review of network charges is needed (something that Regen and others have been lobbying for) but also states that a short term solution, which could involve one of the code modifications that have been proposed, could be adapted sooner. We will learn more in the first half of 2017.
 
It is hard to be sure what this actually means and we remain concerned that, as well as being a very odd way to conduct business, the messages coming from Ofgem and BEIS are creating a great deal of uncertainty for those involved in energy storage, demand side response and possible “behind the meter” generation projects.
 
The context of course is this week’s Capacity Market auction and the urgent measures that are being taken, to discourage diesel and gas reciprocating engine bidders from out-competing the large Gas CCGT projects – see our previous blog “A Short Term Fix” to the Capacity Market.
 
Hopefully once the capacity market auction has been completed, Ofgem and BEIS will be able to look more holistically at network charging and come up with a sustainable framework that encourages investment in more energy system flexibility. In such a framework the system value of avoiding and reducing peak network costs/investment must be recognised.   In the meantime however any business case relying on transmission network charge avoidance must be viewed with caution.
 
National Grid Responsive Power Working Group
 
Yesterday I attended the National Grid Responsive Power Energy Storage Working Group meeting in London.  An early start but well worth the trip with some excellent presentations, from AES and UKPN in particular.
 
A key take away, apart from the large numbers of people who attended, is that National Grid is doing more work to identify and quantify the future requirements of the grid for balancing and ancillary services. This covers for example frequency response, enhanced frequency support, voltage support, DSR, STOR, fast reserve etc. All of which could form part of the revenue streams for energy storage and demand side response projects.
 
Part of this thinking is included in the latest System Operability Framework document. What’s missing at the moment is a clear view on how much of each type of service will be required and when. National Grid have however promised to publish a further report in March 2017 which will give greater clarity on the development of these services and the potential market scale.
 
Interestingly yesterday’s workshop was focused on how National Grid could better align services and improve its procurement processes in order to encourage investment, enable competition and accelerate market development. All good stuff for the future of flexibility and smarter energy systems.

I look forward to working with you in 2017. Keep an eye on our events pages for what's coming up in the new year here. Save the date for next year's Smart Energy Marketplace 28 March and Renewable Futures 28 November. 

Author: Johnny Gowdy

Contact: jgowdy@regensw.co.uk