‘We are no longer considering reforms to transmission network access rights under reformed national pricing, other than for new storage projects,’ it said.
REMA has numerous aspects, the biggest of which is the possibility of moving from a national electricity market to a zonal one—see more coverage of the reforms on our sister site Current—but one is providing non-firm grid access for new projects. The move could help connect more storage to the grid.
Risk of two-tier system may not apply to storage
AFRY’s principal Tom Williams explained that in practice, non-firm access rights would mean getting shut off by NESO without compensation.
“Unlike assets with firm access rights, which are compensated when their planned output is reduced in the Balancing Mechanism (NESO’s main tool to balance supply and demand on the network – Ed), assets with non-firm access would get constrained off without compensation, which also means NESO would also constrain them off first, to limit the amount they have to pay,” he said.
But, this creates the risk of a two-tier system because the change would most likely only apply to new projects. So, you would have new, more efficient, less polluting resources shut off first and older, less efficient or more polluting resources kept on, increasing overall system costs and potentially meaning more carbon emissions too.
“New versus old storage assets don’t face this issue in the same way,” he said.
This is because energy storage, or rather the lithium-ion battery energy storage system (BESS) technology being used for the vast majority of projects built, is new enough that this discrepancy between new and old isn’t so significant. BESS only started being deployed at scale in the UK from 2018/19 onwards, and there is now over 7GWh of BESS online (according to Solar Media’s Market Research’s UK Battery Storage Project Database Report).
‘More reasonable risk-to-reward balance for storage’
Although not discussed by Williams, there is also the potential that the high-generation, low price periods of the day when BESS would be preventing from discharging to the grid overlap with the times when it would not want to be selling its energy anyway.
DESNZ appeared to acknowledge these factors in its update, saying: ‘We recognise that the balance of risk to reward of restricting firm access offers may be more reasonable for new storage assets, although there are other potential limitations which need to be considered. There is scope to investigate this further in the future, if a reformed national pricing design is selected as the preferred REMA option.’
The natural overlap for energy storage with such periods was also cited by an analyst at consultancy Aurora Energy Research when discussing the introduction of similar reforms in the Netherlands last year. Aurora estimated that the reduction in grid fees would improve the business case for storage, and the period since the reforms has seen the BESS market progress significantly (though not only because of the reforms). Similar non-firm grid access rules also exist in France and Spain.
Williams pointed out that, when considering these changes, it’s important to remember that REMA’s zonal price option would entail reduced access rights for all resources in some way: “Of course a zonal market would inherently introduce a large change of access rights for all asset classes existing or new, with firm access only possible to the network within the zone you are located in, compared to the firm access to the whole national network that is possible today.”
Copenhagen Infrastructure Partners: ‘low’ risk of significant revenue loss
We asked investor Copenhagen Infrastructure Partners (CIP) about the reforms in an interview last week about its three FID-completed (final investment decision) 500MW/1,000MWh BESS projects in Scotland.
UK commercial director Malcolm Paterson said that, as Aurora supposed, the economics of monetising BESS mean such changes should reduce the financial impact of such a change. But, he said, a phased approach while transmission capacity is increased may be better.
“The goal behind this is to connect more storage to the grid faster, which is obviously something we support. Logically, a BESS would already be incentivised to export/import in a way that helps rather than hinders constraints at a given time – and therefore, the risk of significant revenue loss is low. However, it’s important to evaluate on a case-by-case basis how likely [it is] a BESS is going to be constrained,” Paterson said.
“For example, investors may be amenable to non-firm connections initially to be replaced by firm arrangements on the understanding wider grid upgrades will ensue. Investors are increasingly familiar with Active Network Management schemes and the associated constraint risks on distribution connections. We envisage similar principles as potentially workable at the transmission level.”
REMA is mainly aimed at improving the operational efficiency and locational investment efficiency in the GB energy market, but the proposal of moving to zonal has received much industry pushback. The second part of our interview with AFRY, looking at how separate reforms may mitigate the need for zonal, will be published on our sister site Current this week.