Battery Storage: A change in the commerciality of battery storage in the UK

Battery tech
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Since our last paper on the emergence of battery storage: Battery Storage: A New Frontier, published in June 2017, we have seen some interesting developments recently in the UK.

Renewables Obligation applicability to storage facilities

With battery storage being two to three years away from real competition with established technology, the recent decision to allow for application of the Renewable Obligation scheme for storage devices is a big step forward.

Previously, the government has struggled to increase uptake in energy storage, with generators not being able to access the same level and number of revenue streams available for electricity generation; the popular Feed in Tariffs (FITs) were determined back in 2015 not to be a suitable mechanism to incentivize energy storage.

The recent decision to allow generators to apply for accreditation under the Renewable Obligation scheme in relation to energy generation, including that used to charge storage devices (eg batteries), provides the incentive that did not previously exist.

The Renewables Obligation

  • Obligation placed upon every licensed UK electricity supplier to source a pre-specified proportion of their electricity supply from "eligible renewable sources"
  • This step was taken in light of the government's requirements that 15 percent of energy is to be sourced from renewable sources by 2020

Renewable Obligation Certificates (ROCs)

  • "ROCs are certificates issued to operators of accredited renewable generating stations for the eligible renewable electricity they generate" (OfGem)
  • ROCs can be used to satisfy and demonstrate fulfilment of the obligation that suppliers have to the government
  • If a supplier is unable to provide the requisite number of ROCs to satisfy their annual obligation, they will have to make a payment into a "buy-out fund" in order to do so
    • This provides an incentive to electricity generators to obtain ROCs in order to sell them to suppliers so that they can make quota
    • Suppliers can also trade in ROCs for the same reason
  • The "buy-out fund" basically covers administration costs of the scheme and the rest is distributed back to suppliers in proportion to the amount of ROCs they produced towards their obligation, further incentivizing suppliers to produce ROCs

ROCs and storage

Previously, ROCs could be obtained for electricity generators using wind and solar, however, the government closed the Renewables Obligation to small-scale solar PV in early 2016, onshore wind in mid 2016, and ultimately closed the scheme altogether to new applicants in March 2017 (subject to certain grace periods).

However, in a boost to the uptake of building and running co-located storage facilities (alongside generation capabilities ), Ofgem announced last month:

"We have determined that the arrangements in place at several commercial-scale solar installations allow for ROCs to be claimed on all the renewable electricity generated, including any that is used to charge the storage devices." (13 SEP 2017)

Green energy firm Anesco has already seized the opportunity and jumped on it, becoming "the first commercial solar farm operator in the country to retain accreditation under the Renewables Obligation (RO) scheme for solar farms that supply storage batteries directly". Their Northampton solar site is the first site with co-located battery storage to qualify for ROCs. In addition to this, in August 2017 Anesco secured funding for the UK's biggest community energy project, a 14.7MW solar farm with co-located battery storage, which has also secured accreditation for ROCs, alongside the established Feed in Tariff (FIT) revenue stream associated with generation.

ROCs could previously be claimed solely against the aggregate exported electricity, meaning that those with battery storage were unable to benefit from ROCs for all the electricity that was generated due to battery efficiency losses i.e. where the amount of electricity used to charge a battery is more than the amount that can be extracted from the same. However, the position now, in allowing ROCs to be claimed against electricity used to charge the storage devices on top of electricity exported from them, means that generators will not only limit ROCs losses through a reduction in battery efficiency losses, but will ultimately gain from being able to claim for additional ROCs they would not have been able to before.

As previously mentioned, with the ROCs scheme now closed and Ofgem not accepting any applications from operators of new generating capacity since 31 March 2017, the ability of those deploying battery storage facilities to be able to benefit from claiming ROCs for electricity used to charge storage facilities is a huge step forward for the UK storage market.

Consultation launched by Ofgem

Further to the above, Ofgem, recognizing that storage can "open up many possibilities", have recently launched a consultation regarding battery storage in an effort to create a "level playing field" across all forms of electricity storage by clarifying the laws and regulations that govern them. In particular the consultation will look to address the issue of "double counting", whereby electricity supplied to consumers via battery storage is subject to two charges with regards to consumption levies: once on storing the electricity generated, and again on exporting that electricity. Instead of creating a new licensing framework to accommodate storage facilities, a process that Ofgem were concerned would result in additional unnecessary confusion, Ofgem intend to amend the current UK licensing framework (specifically generation licenses) to include conditions relating to energy storage. In the consultation, Ofgem stress that they do not see generation and battery storage as distinct, and state that "generation and storage should be treated equally in the regulatory framework".

This will inevitably be a much quicker process leading to a position of clarity being achieved sooner rather than later, with the hope within the industry "that the improved clarity will facilitate the investment of new battery storage projects." (5)

To learn more about the Energy sector team at DLA Piper and how we can help you with questions about battery storage, renewable energy, power and the wider energy sector, contact the authors.


Sources
1. https://www.regensw.co.uk/news/ofgem-announcement-regarding-storage-and-the-renewables-obligation-14-september-2017
2. https://www.ofgem.gov.uk/sites/default/files/docs/2014/10/final_ro_guidance_on_the_transition_period_and_closure_of_the_ro_16oct14.pdf
3. https://www.ofgem.gov.uk/environmental-programmes/ro/about-ro
4. http://www.inspiratia.com/renewables/regions/eu-europe/uk/region-news/article/ofgem-makes-landmark-battery-storage-ruling
5. http://www.inspiratia.com/renewables/news/article/ofgem-launches-fresh-battery-storage-consultation?loginpopup=1
6. http://anesco.co.uk/landmark-ofgem-decision-fuels-uks-energy-storage-market/
7. https://www.ofgem.gov.uk/publications-and-updates/clarifying-regulatory-framework-electricity-storage-licensing