Review of the GB Regulatory and Legal Framework. John Hayling, UK Power Networks

Transcription

1 Review of the GB Regulatory and Legal Framework John Hayling, UK Power Networks

2 UK Power Networks An Introduction End Customers Millions Service Area km² Underground Network km Overhead Network km Energy Distributed TWh Peak Demand MW New Connections Total , ,000 46, , ,768 % of Industry 28% 12% 29% 15% 28% N/A 35% One of the largest electricity distributors in the UK 2

3 Contents Smarter Network Storage update Project Aims Business Model Overview Key recommendations from our review of the regulatory and legal framework in GB: classification of storage interactions on unbundling, and treatment under climate change renewable and low carbon initiatives What might a new GB storage licence look like? 3

4 Smarter Network Storage (SNS) Project 6MW/10MWh Storage 13.2m LCNF from Ofgem, plus 4m from UKPN Commissioned Dec 2014, project will run to Dec 2016 Primarily to meet local network constraint Service trials underway to demonstrate the economics of stacked benefits to prove the business case for DNO storage 4

5 SNS - Project Aims CHALLENGES High CAPEX cost of commercial storage technologies = multiple stacked benefits needed Challenges in accessing multiple benefits & optimising Limited experience of any proven business models AIMS Demonstrate multi-purpose application of storage sharing learning on the realisable benefits Develop novel optimisation & control systems for storage Provide insight & assess viability of multiple business model variants Uncertainty in policy and regulatory landscape Assess regulatory & legal barriers, make recommendations & develop commercial arrangements for shared use Limited experience and confidence in storage as network-connected assets Deployment & operation of large-scale battery energy storage adding to body of learning for DNOs 5

6 Increasing commercial risk Business model overview Model Key points Comments DNO merchant Full merchant risk, exposed to power price and balancing services DNO builds, owns and operates the asset. Full operational control DNO monetises additional value streams directly on a short term basis (e.g. trading) Possible barriers: Costs of accessing the market, regulation DSO DNO exposed to incentive scheme DNO builds, owns and operates the asset. Full operational control DNO has DSO role; coordinating real time local balancing schemes through a centralised control mechanism DNO commercial risk is dependant on design of incentive scheme DNO contracted DNO exposed to construction and operational risks DNO builds, owns and operates the asset. DNO has full operational control Prior to construction, long term contracts (e.g. 10 years) for the commercial control of the asset outside of specified windows are agreed Possible barriers: Are long term contracts feasible (risk appetite, credit risk)? Contracted services Low commercial risk for DNO DNO offers a long term contract (e.g. 10 years) for services at a specific location with commercial control in certain periods Third party responsible for building, owning and operating the asset, and monetising additional revenue streams Charging incentives No guarantee of asset being built DNO sets DUoS to create signals for peak shaving that reflect the value of reinforcement Barriers: No operational control for DNO no guarantee on security

7 Wider Regulatory Barriers to Storage Identified Regulatory issues for distribution connected storage Default treatment of storage as generation Avoiding distortion of competition in generation and supply Unbundling requirements De minimis business restrictions Assessment of economic benefits under price control High Medium Low Further information published in SNS4.13 Interim Report on Reg & Legal Frameworks 7

8 Absence of definition of storage creates issues Issue Storage not recognised as asset class or activity Instead, default position is that energy storage is treated as a subset of generation Consequence DNOs are unable to own and operate storage assets that require a generation licence due to unbundling requirements Licence exemption route provides avenue for ownership up to limits of de-minimis revenue restriction but operation by 3 rd party necessary to avoid distorting generation or supply Storage is caught by all generator obligations and charging treatment which are applied, despite key differences Requirement Distinct classification for storage 8

9 Several classification options exist Formalise as type of generation Modify generation definition to accommodate storage May seem simpler option at high level but complex in reality Does not change potential for DNO involvement Make unlicensed Provides flexibility for DNO involvement But creates potential competition issues if unregulated Regulators may be reluctant to unwind from current status as generation licence regime allows regulatory control Formalise as separate licensed activity Provides clarity within regulatory framework for storage Could allow different treatment depending upon (main) application e.g. network use, wholesale market interaction As non-generation, DNO involvement may be possible Requires new licence to be developed and obligations or requirements to be defined Does not offer long-term solution Unlikely to provide regulatory comfort Preferred option for progression

10 Options for licensed activity Needs to work for DNO and non-dno storage Shouldn t increase barrier for 3 rd party projects Need to ensure DNO role complements unbundling Challenges Storage licence Same size class exemptions as generation for 3 rd party projects? Creates scope for licence exemption Additional section in distribution licence Specifies requirements and obligations on DNO if involved in storage e.g. settlement requirements, competitive procurement of services, contestable provision of device as first option Conditions that are turned on or off depending upon whether DNO is involved Doesn t change arrangements for 3 rd party projects

11 What might a Storage Licence look like? Modelled on the GB Generation Licence Existing storage option to remain with existing licence Exemptions for small scale plant i.e. < 10MW (or 50MW with a DNC > 100MW) Must be compliant with all necessary codes and relevant statutory obligations, e.g Grid Code, CUSC, Distribution Code, Balancing & Settlement Code, Obligations to Ofgem) Prohibition of Discrimination in Buying and Selling Electricity Prohibition of Cross-Subsidies Provision of Services to Networks Business 11

12 Treatment of import to storage as consumption creates additional costs Issue Injection into storage is treated as end user consumption Consequence Affects value realisation under Climate Change Levy Increases supplier obligation under Renewables Obligation Increases supplier cost exposure under Contract for Difference FITs and Small Scale Fits Requirement Need clarity that injection into storage does not contribute to end user consumption 12

13 Conclusions and recommendations Recommendation Define storage as a distinct activity Include storage within the licensing framework Inclusion of an exemption for smallscale installations Clarify definition of enduser consumption to exclude injections into storage Key features Allows storage specific arrangements to be developed that provide clarity in respect of ownership and operation The need for a distinct classification for storage is a widely shared view, endorsed by industry associations in Europe and GB. A new storage licence, but there are other options e.g. inclusion within DNO licence Difficult to move outside licenced framework like DSM Consistent with a greater deployment of storage future, requiring its integration into regulatory & market frameworks Must be appropriate for both DNO & 3 rd parties alike Lower threshold (but not DNOs) to enable small scale party projects to be exempt - like generation exemption Not all LC applied to all holders e.g. prohibition of discrimination and cross-subsidies may not be required for non DNOs Storage incurs additional cost if import is considered end consumption This would be resolved if import into storage was not defined as end user consumption by clarifying the rules

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