Ofgem have today announced an amendment to the electricity generation licence which gives a formal definition to electricity storage. This follows their 2017 consultation which proposed to use the Electricity Storage Network’s suggested definition of storage:
“Electricity storage is the conversion of electrical energy into a form of energy which can be stored, the storing of that energy, and the subsequent reconversion of that energy back into electrical energy”
The ESN has worked hard over several years to push for a definition of storage, and with several false starts from government and Ofgem, we are very pleased to see that our definition has been adopted, which is a comprehensive, technology neutral and future-proof definition.
Removal of final consumption levies and publication requirements
Despite broad support from industry, the implementation of this decision has taken some time to come to fruition due to fundamental legal issues raised by the consultation which Ofgem has been working to solve. The complexity relates to the removal of final consumption levies, which will not apply to storage when “the electricity imported is used only for the activities of electricity storage”.
Ofgem initially proposed to prohibit storage providers from having self-consumption as their primary function and this seems to be what has caused the legal complexity. To get around the issue Ofgem have proposed that licence holders providing storage will be required to publish certain information to enable the accurate calculation of final consumption levies by their supplier. Licence holders will have to publish this information online and it will be relatively comprehensive, but does not seem any more onerous than the information required for other purposes, for example Feed-in Tariff registration.
Ofgem don’t foresee any issues of commercial sensitivity in supplying this information, however, behind-the-meter users will be monitoring this change carefully.
Storage as a subset of generation or as its own asset class?
There has been some debate as to whether storage should have its own asset class and therefore a separate licence. At the time of the initial consultation in 2017, most in the industry agreed that, for the sake of expediency, it would be better to define storage as a subset of generation, but given how long it has taken to come to a resolution, many are now bringing up the issue of a separate asset class once again.
BEIS and Ofgem believe that classifying storage as a subset of generation is a simpler and quicker solution. As set out in the Smart Systems and Flexibility Plan, they have identified and worked to resolve issues that are caused by the lack of definition for storage, removing the need for a separate asset class for storage:
- removal of residual charges for storage
- treatment of storage in the planning industry
- appropriate health and safety regulations
However, the ESN has identified other issues that may be resolved through an appropriate definition of storage, including:
- setting fair business rates and VAT rates, particularly following HMRC’s recent decision to increase VAT for solar+storage projects from 5% to 20%
- DNO operation/ownership of storage
The key question is whether these problems would be better solved by giving storage its own classification, or whether it is simpler and quicker to classify it as a subset of generation and resolve these problems separately.