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UK government seeks to slam shut battery storage Capacity Market loophole

By Liam Stoker
Image: Ofgem.

New proposals from the UK government intend to slam shut a loophole that had allowed for battery storage projects in the country to access more favourable payments for their flexible capacity.

A consultation launched earlier this month by the UK’s Department for Business, Energy and Industrial Strategy (BEIS) seeks to update a number of rules applicable to the country’s Capacity Market, which tenders for reserve capacity should the nation’s energy supply require it during winter periods.

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Of particular interest to battery storage operators within the consultation is a clause which seeks to close a loophole in the rules which allowed battery storage projects to pre-qualify and bid for capacity contracts under the demand-side response (DSR) asset class which, courtesy of controversial de-rating factors applied to batteries in 2017, receive more favourable rates for the capacity they can provide.

BEIS and the UK’s energy regulator Ofgem introduced de-rating factors to the Capacity Market auction process in 2017, penalising storage technologies based on their nameplate duration. Capacity Market rules stipulate that applicants must be capable of responding to system stress events for four hours, and battery storage project capacities are de-rated based upon their duration.

Demand-side response applicants are not, however, de-rated in the same way, despite battery storage projects being capable of responding to stress events in much the same fashion – increasing or decreasing demand on the system by either charging or discharging.

A handful of battery storage projects successfully pre-qualified and landed capacity agreements within auctions held earlier this month, much to the ire of BEIS which considers such awards a threat to security of supply.

BEIS now intends to address the “unintended consequences” by preventing standalone storage units – defined as an energy 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 – from defining themselves as DSR.

This loophole would need to be closed, BEIS stresses, before such units can access multi-year agreements in forthcoming auctions, a matter which would cause the issue to become “more widespread”.

Ofgem had previously been consulted on with regards such a rule change, and national utility ScottishPower sought the creation of a separate ‘Storage DSR’ asset class to capture applications of that nature.

Ofgem was due to consult on the issue itself last year, but failed to do so.

When contacted by sister publication 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.

BEIS’ consultation closes on 2 March 2020, after which the department is set to consider the responses before issuing any such rule changes.

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