Storage story: a regulatory run-down

While electricity storage has long been recognised as a crucial solution to mitigating the drawbacks of some types of renewable generation, it has taken some time for the regulatory and charging framework to catch up. It has taken years, but recent progress on the licensing and exemptions from some final demand levies have finally painted a much clearer (and rosier) picture of storage’s future.

Non-pumped hydro storage may seem commonplace today, but it is important to remember how rapidly it has advanced in the past few years, and how foreign a concept it is within the traditional structure of the industry seeing as it functions as both generation and demand. The biggest regulatory obstacle it has faced for long enough is the problem of double charging: storage sites must pay demand charges on the electricity they take off the grid, and then pay generation charges when they export it back onto the system.

Under standard arrangements, distribution connected storage pays Distribution Use of System (DUoS) charges, Transmission Network Use of System (TNUoS) charges (including the Transmission Demand Residual or TDR) if it takes demand at peak times, Balancing Services Use of System (BSUoS) demand charges, and final consumption levies for the Renewables Obligation, Feed-in Tariffs, Contracts for Difference, and Capacity Market schemes. They were also paid generation BSUoS, generation DUoS and, until April 2020, the TDR as embedded benefits (the latter now replaced by the Embedded Export Tariff).

In order to achieve a more level playing field with generation, Ofgem has taken a number of steps. The first was to propose a licensing system for storage sites by modifying the generation licence. Generation licensees are exempt from final consumption levies, so licensing would extend this to storage operators. However, despite being consulted on in autumn 2017, we have still not seen a conclusion to this.

Secondly, Ofgem has concluded under its Targeted Charging Review that only “final demand” should pay residual network charges. Final demand is assumed to be demand which will not later be exported onto the network, so would not include storage – hence storage would be exempt from residual network charges.

This is being implemented in three stages:

  • DCUSA modifications DCP341/342 Removal of Residual Charging for Storage Facilities have now been approved and will remove DUoS residual charges from April 2021
  • Modifications are also being progressed in the CUSC to remove liability for the TDR and for demand BSUoS from April 2021
  • DCP359 Ofgem Targeted Charging Review Implementation: Customers – Who should Pay? will formally define final demand from April 2022, capturing any sites missed by DCP341/342

It will be a little while yet before we see true parity between storage and generation, but the direction of travel is clear and it will not be long before the charges faced by storage become much more manageable.

We provide regular coverage of regulatory issues relating to flexibility in our Flexibility Matters service, helping you understand what changes mean for you and your assets. For more information, contact Steven Britton at s.britton@cornwall-insight.com or on 01603 542126.

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