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‘More thought’ needed for storage-led DSR participation in Capacity Market, Ofgem says

Image: Ofgem.

Image: Ofgem.

Ofgem has said that “more thought” is needed on how demand-side response (DSR) units can incorporate limited duration technologies, such as storage, when bidding for Capacity Market contracts.

The note comes amidst a government consultation on the future of the Capacity Market which has raised the prospect of storage technologies being barred from listing and pre-qualifying as unproven DSR in future auctions.

Earlier this month a number of battery storage assets owned by the likes of Anesco and Eelpower successfully landed capacity agreements in the T-3 auction, taking more than 100MW of the 533MW of proven and unproven DSR capacity contracted.

This was followed by Anesco then dominating the DSR-related agreements awarded under the T-1 top-up auction a week later, securing more than 65MW worth of DSR contracts via its portfolio of battery storage projects.

At present, there is nothing expressly prohibiting storage assets listing as DSR within the Capacity Market, a procedural side-step of contentious de-rating factors applied to limited duration battery storage technologies in 2017. The prospect of such a loophole was first raised by ScottishPower in March 2018, with the company seeking the creation of a separate ‘Storage DSR’ class in the Capacity Market to capture such bids and apply de-rating factors.

Ofgem then committed in April 2018 to consulting on the potential de-rating of storage-led DSR capacity contracts, suggesting that it would do so in 2019. But the regulator’s failure to do so last year opened the window for such agreements to be awarded, leading to the first of their kind in the EMR Delivery Body’s – National Grid ESO – auctions this month.

When contacted by Current±, an Ofgem spokesperson said that as per its position in the 2018 rules change consultation, the regulator believes that “more thought needs to be given on how DSR CMUs would incorporate limited duration technologies into their portfolio”, and on how this is then taken into account relating to limited duration assets.

When quizzed on the regulator’s discussions with National Grid ESO, as the acting EMR Delivery Body and facilitator of the Capacity Market auctions, on the subject, Ofgem stressed that it speaks with its CM delivery partners “on a regular basis, and on a variety of issues”, but would not comment on the subject matter of those discussions.

Ofgem did, however, note that the government is now consulting on rule changes to the Capacity Market which could effectively shut the loophole.

In a consultation launched earlier this month, a section (2.1.6.1) labelled ‘avoiding unintended consequences’ makes specific mention of standalone storage units entering the Capacity Market as DSR. The consultation notes that the Department for Business, Energy and Industrial Strategy is aware of operators entering standalone storage units as unproven DSR in order to gain more favourable de-rating factors.

It specifies a standalone storage unit as a storage unit which “primarily imports from (whilst charging) and exports to (whilst generating) the distribution network, rather than primarily providing supply to an on-site customer".

The consultation stresses BEIS’ belief that standalone storage units entering into the CM as unproven DSR could create security of supply risks owing to the CMU’s contribution to the system being overestimated, and doubles down on the need for the loophole to be closed before such units can access multi-year agreements, causing the issue to become “more widespread”.

The consultation proposes an amendment to the description of DSR in the actual Capacity Market legislation, clarifying that the baseline of imported electricity below which metered volumes are reduced – i.e. the level of response garnered from the metered customer – cannot be primarily comprised of electricity used to charge a battery.

BEIS is therefore asking for views on the proposed amendment, questioning whether it would offer suitable clarity of the department’s policy intent and address the issue in full.

Responses to that question (question 10) and others within the Capacity Market consultation are welcomed until the consultation’s closure on 2 March.

More details on how to respond to the consultation can be found here.

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