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Defining storage: How Ofgem’s classification will change the industry

Image: Anesco

A formal definition for energy storage has been a long time coming. And for an industry that has been paying double and campaigning for its end, Ofgem’s consultation on the implementation of a formal definition is a much-awaited victory.

Until a definition is fully implemented, energy storage assets face double charging, paying for both the electricity they import and export. Ofgem’s plans would make amendments to the electricity generation licence, classifying storage as a subset of generation. Under that classification, providers would no longer have to pay final consumption levies.

But this has been a long time coming within energy storage’s relatively short lifespan. Since 2015, the Electricity Storage Network (ESN), run by Regen, has been in the process of writing a definition but with nowhere for it to go. In 2016, there were tentative plans for putting a definition into legislation through one of the energy Acts. Then in 2017, Ofgem launched its first consultation into the matter and later that year committed to introducing a formal definition into the electricity licence in its Smart Systems and Flexibility Plan.

Two years on and the regulator’s proposals have received a few changes and another consultation has been launched, this time with the end of goal of implementation. But a gap of two years is no small thing.

Madeleine Greenhalgh, policy lead at ESN, says that a void of this length is to be expected considering storage is a new technology and that in writing a definition a risk of it becoming quickly outdated is created, meaning time and significant thought must go into it. However, Greenhalgh also cites legal reasons for why it has taken until 2019 to get to this stage.

In the 2017 consultation, Ofgem suggested that providers would be prohibited from describing their main function as being for self-consumption.

“By prohibiting people from saying that, they were opening themselves up to quite a few legal challenges and that’s why it’s taken such a long time to get to this point,” Greenhalgh says, adding that both BEIS and Ofgem are “very keen” to avoid those legal challenges.

As such, the regulator scrapped that plan and replaced it with a requirement for certain data to be released, allowing suppliers to correctly calculate final consumption levies and correctly identify storage assets.

Open data

The issue of releasing data is often sensitive and as technologies become increasingly smart, more relevant. The information storage providers will be required to release is not dissimilar to information required when signing up for a scheme like the now-defunct feed-in tariff, including data on the capacity, whether the asset is transmission or distribution connected and how it is connected to the final consumer.

“They’re trying to avoid people gaming the system by avoiding the final consumption levies as they’re consuming the electricity, but also from the storage unit as well. Hopefully, because it’s transparent and it goes online, that would be able to avoid people gaming the system,” Greenhalgh says, adding that whilst some “might make a fuss” over the data being online, because it’s information a provider will already know it won’t be “particularly onerous”.

The release of data is in line with where the energy industry is heading. Last month the Energy Data Taskforce recommended that energy-related data in the industry should be presumed open and laid out five recommendations for how to achieve this. These came after it found that data is often poor quality, inaccurate or missing.

Storage as a generator

Under Ofgem’s current plans for the definition, storage is to be classified as a subset of generation. As such, all the rules that apply to generation now also apply to storage, with some minor tweaks.

There is, however, also a case to be made for storage to be given its own asset class. This would require new rules to be created which would be custom-made for storage. But new rules means a longer process, Greenhalgh says, predicting it would be several years before that would happen.

“If you’re creating a separate class that would need to be done through primary legislation, which could take many years. And then creating all those new rules, creating a licence condition for storage on its own, would take a lot of time and a lot of concentration.”

The most likely path forward, in light of both Ofgem and BEIS backing it, is storage being classified as a subset of generation. If the industry decides to advocate for it to have its own asset class, it will have to “make very good arguments as to why we should completely overturn that now” and go down a much more complicated, length route, Greenhalgh says.

Next steps

Ofgem’s consultation runs until 25 July 2019. After which, it will publish its definition and new licence conditions will automatically apply to assets with a generation licence 56 days after.

The definition of storage, written by the ESN, will need to be committed in primary legislation. However, due to the current political turmoil, the government has yet to find parliamentary time for this.

And when it does come to parliament, Greenhalgh says she’d like to see BEIS release reasons why BEIS and Ofgem have decided it will be a subset of generation.

“We’ve seen some of that in the Smart Systems and Flexibility plan but seeing as that was nearly two years ago now, I think if they are going to put forward the legislation it needs to come with a justification so the industry can start understanding BEIS’ decision and debating it.”

Editorial

Alice Grundy Junior reporter, Current±

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