Out-Law News 2 min. read

Regulation does not stop National Grid engaging in the energy storage market, says expert

National Grid is free to collaborate with energy storage providers so as to utilise energy storage technologies and help manage the UK's electricity needs, despite a continuing debate over the way energy storage is classed in UK regulations, a specialist in energy contracts has said.

Becca Aspinwall of Pinsent Masons, the law firm behind Out-Law.com, said that the UK government and energy regulator could look to allow National Grid to own its own energy storage facilities by changing UK regulations.

However, she said such a move could have an impact on competition in the energy storage market and that National Grid is already able to tap into innovations in energy storage by agreeing commercial contracts with operators of storage systems.

Aspinwall was commenting after it was reported by the Financial Times that the National Grid, together with UK Power Networks, has lobbied the Department for Business, Energy and Industrial Strategy (BEIS) and Ofgem to change UK regulations to allow it to own energy storage systems.

National Grid and businesses that manage electricity distribution in the UK, distribution network operators (DNOs), are currently barred from owning electricity generation facilities. Energy storage is considered to be a generation activity under the rules.

However, the UK energy regulations are currently under review, including those that apply to energy storage. BEIS and Ofgem opened a call for evidence in November last year in which it asked for stakeholders to provide their views on how to deliver a "smart, flexible energy system" in the UK. According to the document, the UK government is looking to ensure that planning rules do not serve as a barrier to energy storage projects, and "a more technology neutral flexibility licence model" for electricity storage schemes is also under consideration.

Aspinwall said: "This is not the first time that the energy market has questioned the categorisation of energy storage as 'generation'. The categorisation requires storage operators to hold and maintain a generation licence, unless an exemption applies, which brings with it the administrative burden of complying with the Grid Code. However, storage operators may prefer the burden of relying on exemptions to being in competition with National Grid and the DNOs."

"In the last 12 or so months, as storage technology has become commercially viable, storage operators have been considering how to tap in to the DNO and National Grid balancing markets. At the end of last year, we saw the first battery storage assets entering the Capacity Market. However, the distribution network has no such service offering and storage operators would have to agree bespoke capacity arrangements with a DNO, which can be time intensive and expensive, particularly if the DNO does not own land where pinch points are located on the network," she said.

Aspinwall said that the BEIS might address this point in its response to its call for evidence, which closed in January.

Last month National Grid confirmed that it had opened talks with Deep Mind, Alphabet's artificial intelligence (AI) arm, to look at how it might use AI to help balance and optimise the electricity transmission system.

That move is a signal that National Grid is looking to become a smarter energy operator, Aspinwall said. However, she said it does not require a change in regulations for the National Grid to tap into the energy storage market as part of that agenda.

"National Grid may see the right to own storage technology as fundamental to its ability to balance the system," Aspinwall said. "However, there is no real reason why National Grid cannot contract with storage operators to provide the same capacity and ensure fair competition and pricing in the process. National Grid would need to be able to demonstrate that it can source and operate storage technology more cost effectively than the market to convince BEIS and Ofgem that a change in regulation and competition is justified."

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