Practical Law

As an energy lawyer, I’ve been used to an electricity system premised on “you can’t store electricity”.

The physical infrastructure, as well as the contractual and regulatory framework, is based around the real-time balancing of supply and demand. It consequently features degrees of complexity (and commercial opportunity) not seen in the downstream gas sector. But the system is changing.

Advances in storage technology, and in particular battery storage technology, are opening up new possibilities for providing network stability and potentially avoid expensive grid reinforcements to cope with peak load given the changing nature of our generation mix.

Battery storage, alongside other flexible technologies, is also being given the opportunity to offer services to the grid. It may replace those services that were traditionally provided by coal and gas-fired plant that has come off the system, and to deal with the increasing need to take steps to maintain the frequency of the system due to the different output characteristics of wind and solar plant, and the relative inflexibility of nuclear plant.

Given that we still have, at least in theory, a market driven energy supply industry, far from reducing the complexity of the system, the power sector is likely to become yet more interesting for developers and lawyers alike. So, here are some insights on what the future might hold for storage presented in London this week at the Westminster Energy, Environment & Transport Forum Keynote Seminar: The outlook for UK energy storage: grid integration, regulatory framework and opportunities for innovation.

A new regulatory regime?

A key issue for network companies and project developers was the need to fit within the current regulatory regime. The engineering perspective on this was simple. Storage is essentially a proven technology with big potential. The engineers should work out the best engineering solutions to integrate storage into our national and domestic networks. The regulators should then see what needs to be regulated.

Unfortunately, we are unlikely to be presented with the engineering nirvana, not least because the regulation of electricity networks is now subject to a number of binding EU network codes. Whether a network operator should even be able to own battery storage is now being driven at the EU level. It is not clear yet whether Brexit will result in any push back on this.

Measures to retrofit storage projects into the existing regulatory and charging framework are expected to follow from the joint Ofgem and Department for Business, Energy and Industrial Strategy’s call for evidence on a smart, flexible energy system, although the speed of their delivery may be painstaking for developers in this sector. It is not expected that this will tackle all of the issues on the storage hit list.

The regulatory Dragons’ Den

Despite the gloom on the regulatory front, great cheer was given to Ofgem’s new approach on energy innovation, including its innovation funding as part of the distribution network price control and the notion of a regulatory sandbox, something which has attracted the interest of Europe and the US. Pitching to the regulator for this funding was seen as tough but rewarding. Innovation is bringing together the distribution network operators, the transmission company (National Grid), electric vehicle (EV) manufacturers, the renewables sector, and even gas turbine manufacturers, as well as those with the knowledge to bid for contracts to secure revenue streams for projects that can offer services to the grid (potentially through aggregators).

A simple transition from renewable projects to storage projects?

For lawyers, I think that energy storage projects present some interesting opportunities. Integrating storage into existing projects (such as solar and wind) could allow for creativity with the terms of the power purchase agreement and may require careful adjustments to any subsidy regime (such as a contract for difference) as well as the need to future proof the arrangements as the regulatory regime for storage develops.

For new build projects, delegates heard that battery storage projects are in a class of their own, and there is not necessarily a simple cross-over of legal or technical skills from the renewables sector. There is also new ground to break in dealing with local planning authorities, and careful producer and end use responsibility issues for battery manufacturers and users.

For the construction sector, storage, in whatever form (or at least the ability to integrate with storage) may well become another must-have for commercial and domestic premises alongside other smart network and energy management features.

Why invest when you can use free mobile storage?

While project developers have been quick to seek to develop fixed storage assets (resembling large plant rooms or shipping containers) it was interesting to see that electric vehicles (EVs) are very much being viewed by network companies as a great source of “free” storage capacity. This may make commercial sense, but will require a new level of co-ordination between the energy and transport sectors if the storage assets are to be used to their full potential from a network perspective, without any detriment to the owner. This in turn may see a new regulatory or contractual framework emerge.

Other forms of storage are available…

While the buzz was very much around battery storage, mobile or otherwise, delegates heard about pioneering gravitational storage systems and were reminded that good-old fashioned pumped-storage, which has supported the national grid since the 1960s, is still very much in the game.

Unfortunately, due to the pre-election restrictions, we were not able to hear the government’s input into the debate on the outlook for storage, but the sector will definitely be watching this space post 8 June.