Earlier this year, on 22 June, a legal challenge to Ofgem’s proposals over cuts to embedded benefits was quashed, which made news across the industry and sparked concern for investors and customers alike.What effects will Ofgem’s proposals have
The proposals from Ofgem centred around cutting the Triad payments that are made to smaller electricity generators for reducing total demand in Triad periods. Triad periods are the three half-hour settlement periods with highest system demand between November and February, separated by at least ten clear days.
The headline news from the Ofgem proposals was that the Transmission Network Use of System (TNUoS) residual or Triad payment will be cut from £45/kW to approximately £2/kW over three years to 2020, Ofgem believes that this has the potential to save consumers up to £7 billion by 2034. Many have speculated what effect this will have on the business case for BtM energy storage and its potential to provide its staple benefits such as cost savings and revenue through demand response activities.
Impact on BtM Energy Storage
Due to the complex and fast-paced nature of the energy industry and industry specific language which is used, it is easy for rulings such as this to cause confusion to providers, customers, and investors alike. After reading through the various documents that Ofgem and news outlets have produced, it has been found that in reality this ruling will have a very minor, if any, impact on the business case for BtM energy storage projects.
This is because the ruling is to cut the Triad payment for smaller electricity generation on the distribution network, with smaller electricity generation classified as anything below 100MW, that currently does not pay transmission charges but is instead treated as negative demand.
Negative demand occurs due to the transmission charging for Triad periods. At present, this is based on the net demand in a Grid Supply Point (GSP) group minus any generation output from a smaller electricity generator within a GSP group. It is this generation which is treated as negative demand and these generators are often paid by suppliers to generate energy at Triad periods to reduce the net demand on the transmission system. The costs for these payments for negative demand is recovered by consumers and is the payment which this ruling looks to cut from £45/kW to approximately £2/kW.
Despite the similarity of occurring in a Triad period, negative demand is not the same as peak shaving which occurs when utilising energy stored through energy storage technologies, such as Powerstar VIRTUE, to circumvent the high costs of energy that occur during Triad periods. Essentially, the core distinction is that peak shaving via energy storage simply avoids using energy from the grid during Triad events, whereas negative demand actively generates additional energy to cover the demand. Therefore, the energy savings that can be gained from this peak shaving is unlikely to be affected by this ruling.
This ruling has made it clear that, as the energy transition continues to gather pace, regulators such as Ofgem will update their rules and regulations to ensure that consumers and businesses alike are benefitting from the new energy landscape, and businesses need to be aware of updates to regulations which could affect their various offerings and offer new benefits or opportunities as the landscape evolves.
Contact us to find out more about peak shaving and the business case for demand response activities, or to discuss the benefits with one of our industry experts. Alternatively, visit our online energy storage resource centre to learn more about the benefits of energy storage.