Ofgem gives batteries a charge – how will you benefit?

Ofgem gives batteries a charge – how will you benefit?

Following recent decisions from Ofgem and National Grid, developers could be set to power forward with the use of batteries as part of their generation plans. The UK’s energy regulator is allowing batteries to take advantage of the financial benefits of connecting to renewable technologies. The result could not only allow further evolution in batteries, but also benefit system security.

Ultimately, with battery storage, consumers should see a benefit in lower charges due to reduced system costs, as well as the prospect of gaining access to greater energy flexibility themselves.

The design of the UK electricity market still largely reflects a legacy of a system dominated by large-scale fossil-fuel generators, particularly when providing system security. However, recent energy policy changes have been a positive step in removing the barriers to entry for other technologies. This is expected to encourage a rapid deployment of storage to be used to manage flexibility and address the issues of intermittency in renewable generation. It is hoped this will lead to significant reductions in the cost of providing balancing services, as well as overall energy costs.

Matching renewables and storage

Recently, Ofgem allowed Renewable Obligation Certificates (ROCs) or support under the Feed-in Tariff (FiT) scheme to be claimed on all the renewable electricity generated from solar, including that which is used to charge battery storage. In addition, the new rules will prevent support being claimed for electricity stored on the battery which has been produced by a stand-by generator, auxiliary power supply, other non-accredited renewable generation or electricity imported from the grid. Generators can only receive support for eligible renewable electricity generated by an accredited RO or FiT installation.

The regulator is welcoming feedback on their draft guidance until 8 February 2018.

Closure of RO and new opportunities

The Renewables Obligation (RO) has been the main financial mechanism to incentivise the building of large-scale renewable electricity generation, though it officially closed to new entrants from 31 March 2017. Nevertheless, generators can gain entry to the scheme after these closures if they are far enough in the development cycle to be eligible for a grace period. Ultimately, due to the 20-year lifespan of the RO contracts, generation can receive support until 2037.

The support offered by the FiT scheme has also been reduced and is set to close to new entrants in Q1 2019. Since 2016, the scale of capacity that is allowed to enter has also been capped.

While the prospect for new capacity under these schemes is falling, allowing them to work more with batteries will help ensure they are using the available capacity more effectively. Indeed, other parties are looking to use this potential synergy to aid the growing interest in flexibility services.

In addition, National Grid has announced it plans to allow wind, solar, and distributed generation into the frequency response market. It aims to launch an auction trial with week-ahead procurement with a potential to move to day-ahead afterwards. The current requirement to bid in one month ahead for the provision of frequency response effectively prevents renewable generation from participating, given the uncertainty around output availability over that period. However, shortening this to near real-time would allow participation from renewables alongside storage and other generators. This would increase competition into these balancing markets and lower the cost of provision of balancing services.

What does it mean for you?

Flexible battery storage must be adopted to aid the transition towards a cleaner and smarter energy system. As renewable energy deployment rises as a means of reducing carbon emissions across the industry, there will be an increased incentive to develop electricity storage to best utilise the renewable supply available.

Businesses could also invest in battery storage technologies and participate in National Grid schemes, bringing significant value to the system and the business as a whole. Recent energy policy changes open up new market opportunities for both storage and renewable providers, helping to manage the grid in a more flexible and cost-effective manner, as well as increase competition.

These efforts will lower the cost of balancing, with savings eventually passed on to consumers.

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Blog: Battery storage charged for positive role in smart energy transition

Ross Moffat

Posted by on Friday, the 26. January at 16.00

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account. Ross has a first class Honours degree in Business and Marketing from the University of Stirling.