Storage challenges in GB Rory McCarthy 31/03/16

Agenda 1.RIIO innovation 2.Our work on storage and challenges in GB 3.Next steps 2

RIIO Innovation 3

4 RIIO - A new approach to Network Regulation Constraint set up front to ensure: Revenue Deliver outputs efficiently over time with: Incentives Technical and commercial innovation encouraged through: Innovation Outputs set out in clear ‘compact’, reflecting expectations of current and future consumers Outputs = + + Timely and efficient delivery Network companies are financeable Transparency and predictability Balance between costs faced by current and future consumers 8 yr control Rewards/penalties for delivery Upfront efficiency rate Core price control incentives Innovation stimulus package

5 How we have encouraged storage - Innovation Technical and commercial innovation encouraged through: Innovation Core price control incentives Innovation stimulus package Regulation has been good at protecting against monopoly prices More difficult to challenge monopoly ‘quiet life’ – why take risks? RIIO supports innovation with environmental and low carbon benefit Network Innovation Allowance (NIA) - network licensee allowance to fund small-scale innovative projects as part of their price control settlement Innovation Roll-out Mechanism (IRM) - companies can apply for additional funding within the price control period for the rollout of initiatives Network Innovation Competition (NIC) - annual competition for funding larger more complex projects The LCN Fund comprised £500m over the five year price control period 2015 CompetitionNumber of projects submitted ValueAvailable Electricity NIC7 £63.5m £81m Gas NIC4 £18.3m £18m Total11 £81.9m £99m

Electricity storage in the UK 6

Projects funded through our innovation stimulus Storage has been trialled at different scales and locations: predominantly on the network side ranging from LV-33 kV. In all but two projects lithium ion batteries were utilised, (two used lead acid). Projects must focus on different areas of innovation 7

Projects funded through our innovation stimulus 8 NameMethodKey findings UKPN Smarter Network Storage -6MW/10MWh -Commercial and technical trials -DNO owned, spare capacity leased to 3 rd party -Lithium Ion -Double charging under standard ESO -Distribution charges may not reflect value of storage to network -Generation license exemption can be used as a work around for DNO-storage. -Behind the meter equipment not considered part of network -Value stacking possible, but some not services not synergistic. UKPN Demonstrating benefits short-term discharge energy storage on 11kV DN -200 kW/200kWh -11kV connected -Lithium Ion -Reduced voltage fluctuation -Peak shaving -Reactive power most effective way to control voltage -reduced curtailed wind significantly SSE Orkney Energy Storage Park -3 rd party storage in constrained networks, solution to enable DG connection without reinforcement -Follow on project underway: Tendered for 1MW/1MWh to connect at 11KV -Hypothetical, technology neutral -Operated as part of strategy with ANM and LIFO (non- firm) connections. -Designed commercial arrangement s around technical requirements (e.g. MW/MWh) to ensure arrangements were technology neutral.

Project funded through our innovation stimulus 9 NameMethodKey findings SSE LV Network Connected Energy Storage 3 x single phase 25 kW/25 kWh Installed on feeder w/65 kW PV Lithium ion -RTE ~80-85% STCs. Unchanged after 450 real-time cycles. -Dynamic demand limiting mode 68-72% (more realistic) -automated peak shaving (max 100 A: ~23kW) -G59/2 compliant -voltage control +/- 7V -used storage to minimise RPF from PV (Chalveny)  operational mode designed to mitigate RPF. NPG Customer Led Network Revolution Storage for voltage control via Q, f, PFC 6 units Connected at: HV (x1), LV busbar (x2), LV feeder (x3) Lithium ion LV feeder: P or P+Q control most effective voltage control -RTE 83-86%, falling to 41-69% including parasitic losses. Efficiency increases with scale. -Used to deal with voltage constraints, thermal overload, reactive power provision -integrated into ANM SSE 1MW Battery, Shetland 1MW/6MWh Lead acid -Lead acid system replaced Sodium Sulphur due to safety concerns -Ability to peak shave on an isolated network -Enable further penetration of renewables paired with ANM WPD SOLA BRISTOL Prosumer-side in combination with DC microgrid (lights/USB) circuits 11 homes, 1 non-domestic 2 kW storage (8kW schools) Lead acid -Battery “shared” between customer and DNO

Our work on storage and challenges in GB 10

Flexible plant closing, rise of intermittent plant including distributed generation NG see 30-40% increase in need for frequency response by 2020 NG tender for EFR for 200MW – first real commercial opportunity Storage could play a significant role in providing flexibility System challenges National Grid – SOF launch (2015)

Our Flexibility Programme – and storage Our 5 priority areas for increasing flexibility: Clarifying the role of aggregators Encouraging the transition from DNO to DSO roles / DSO-TSO relationship Enabling increased I&C participation in DSR opportunities Examining the evolution of distribution tariffs Clarifying the legal and commercial status of Storage We committed in our Position Paper to: Work with DECC to clarify scope of the issues Work with DECC to clarify the legal and commercial status of storage – explore whether changes to the regulatory and commercial framework are needed Where changes are needed, they will be informed by considering interactions with, and implications for, all segments of the market We will use our work to contribute to European debate around the role of storage.

13 Energy storage principles We want a level playing field with other sources of flexibility services on the market There may be factors preventing this and we intend to carry out further analysis Level playing field Seek to avoid placing regulation on top of regulation Removing barriers is preferred Remove barriers We want to get the price signals right Storage should be charged fairly The right price signals  We have engaged with developers, hosted a DNO workshop and attended and presented at industry events  This has enabled us to agree the areas of focus with our work with DECC

Overview 14 Ofgem Network Charging (transmission and distribution incl. BSUoS) Connections (connection charges, treatment in queue etc.) DECC Final consumption levies (double charging of CCL, FiTs & RO) Planning Our approach will be in line with Ofgem regulatory stances: Ensuring competitive markets deliver for consumers Supporting innovation in technologies, systems and business models Managing risk to enable efficient and sustainable investment Regulatory certainty (definition, legislation & licensing ) EC Engagement Issues with flexibility products (ancillary services, capacity market)

Potential issues:  Storage is treated as generation for licensing. It can behave like generation, but also as demand and supply depending on the application (stacked)  Legislative and regulatory framework not designed for storage. Stakeholders believe issues (charging, connections etc.) stem from this lack of clarity  Network operators cannot operate storage directly as a result of unbundling requirements (involves generation and supply)  EC may provide definition and clarity regarding treatment in 2016 Winter Package Identify any short term solutions:  Clarify existing position: treatment for licensing (generation), treatment for planning, network charging (demand and generation) and connections (generation)  Storage can be provided by the market so network monopolies do not need to intervene (e.g. EFR tender and Orkney trial) – prevents distortion. RIIO incentivises most cost efficient solution Identify a longer term solution, options:  Define in primary legislation as new asset class with new licence  Define as subset of generation in amended or special generation licence  Do nothing/ wait for European definition 15 Lack of regulatory clarity

We are investigating current charging arrangements for across different voltage levels (transmission, distribution & BSUoS) Issues:  intermittent vs non-intermittent, high import capacity charge (is it cost reflective?) and locational signals (issue at transmission and distribution level) Potential policy options:  Identify short term solutions: industry to provide guidelines on intermittent/non-intermittent issue  Longer term solutions:  Improve price signals - do charging arrangements need to be amended for storage  could impact on the more generic charging issues such as price signals 16 Network charges

17 Connections Issues:  Lack of clarity on how network operators should treat storage for the connections process and network SoS, developers unsure how to connect  What constitutes a material change to a connection?  Lack of information on where to connect  High cost of connecting  Lack of capacity for fully firm connection  DNOs are required to treat all connection applicants equally -storage may need to queue for a connection even if it can relieve constraints Potential options  A lot we can learn from the rise of distributed generation  ENA working with network operators to clarify treatment (similar to DG with some additional info, material change)  Some DNOs developing heatmaps to include demand  ENA investigating how to free up capacity, add connections milestones  Industry to work together developing flexible connections, contractual arrangements and services contracts

Other challenges 1.Planning a)Battery storage not considered generation (for planning legislation) 2.Double charging of final consumption levies a)Ofgem working with DECC on RO and FiTs b)DECC working with HMRC on CCL 3.Treatment of subsidy when paired with generation 4.Innovation a)Suggestion to minister to target some of innovation fund at storage 5.Issues with flexibility market a)Issues with product alignment eg capacity market, ancillary services b)Missing market: some services are not directly remunerated e.g. reactive power, inertia, local constraint management services 18

Next steps March & April: continue analysis on Ofgem led areas, and provide advice on DECC led areas May – Joint Call for Evidence Autumn – agree and announce policy position on next steps for short and long term issues regarding treatment of storage 19

Thank you For further information on our work on flexibility see our publication from September 2015: updates/position-paper-making-electricity-system- more-flexible-and-delivering-benefits-consumers 20