Energy Bill 2022: New Clarity on the Treatment of Electricity Storage 

On 29 September 2017, Ofgem opened a consultation on “Clarifying the regulatory framework for electricity storage: licensing”, which closed on 27 November 2017 (the “Consultation”). The purpose of the Consultation was to seek views on modifying the electricity generation licence for storage, following on from Smart Systems and Flexibility Plan published jointly by Ofgem and the Department for Business, Energy and Industrial Strategy (“BEIS”) in July 2017, which sought to address, amongst other things, the regulatory barriers faced by electricity storage. Our Law-Now on the Consultation is available here.

In the Consultation, Ofgem recognised that one of the prominent barriers for storage was the lack of a legislative or regulatory definition of electricity storage, subsequently resulting in a lack of clarity when storage interacts with other legislative and regulatory measures.

The landmark Energy Security Bill (the “Bill”), announced as part of the Queen’s Speech (see our commentary here), was published on 6 July 2022, and is the most ambitious package of energy measures in a decade to be put before Parliament to increase Britain’s energy independence and security, introducing 26 measures that will attract private investment, reindustrialise the economy and create jobs through new clean technologies, whilst also protecting customers.

In this article, we will be discussing the definition of “stored energy” prior to and as a result of the Bill, as well as comparing this definition with that of other jurisdictions.

Development of the definition of electricity storage

The Government proposed in the Consultation that, when Parliamentary time would allow, it intended to amend the Electricity Act 1989 to include a definition of storage, which would be based on the Electricity Storage Network (“ESN”) definition that was put forward in the Smart, Flexible Energy System call for evidence. The definition of electricity storage according to ESN was as follows:

“Electricity Storage in the electricity system 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.”

Both Ofgem and the Government agreed that the definition of storage provided by ESN struck the appropriate balance for primary legislation, and Ofgem intended to use it as the basis for defining electricity storage in industry codes, the generation licence, and eventually in legislation. A separate definition for electricity storage could help to resolve unintended barriers such as a lack of clarity of how is treated under industry codes.

Definition of “stored energy” in the Energy Bill

To that end, the Energy Bill (the “Bill”) introduces legislation to amend the Electricity Act 1989 to define electricity storage as a distinct subset of electricity generation. The proposed definition (of “stored energy”) is as set out in paragraph 162 of the Bill as follows:

“… “stored energy” means energy that –

1. was converted from electricity, and
2. is stored for the purpose of its future reconversion into electricity.”

As is apparent, the definition of “stored energy” is based on the ESN definition set out above, albeit a more simplified version which recognises the process of converting electricity and storing it for reconversion into electricity. The Government’s intention is that defining electricity storage in this way will provide long-term clarity over the regulatory treatment of storage. A separate definition, it says, will “ensure continuity with the current treatment of electricity storage and allow flexibility for treating storage differently to other forms of generation where it is appropriate to do so”.

How does the UK definition of electricity storage compare with other jurisdictions?

In June 2022, the German parliament passed amendments to the Federal Requirements Plan (“BBPlG”), Energy Industry Act (“EnWG”) and Grid Expansion Acceleration Act (“NABEG”) that gave energy storage its own legal definition, defining energy storage as an asset where “the final use of electrical energy is postponed to a later point in time than when it was generated” (according to a direct translation).

For similar reasons as the UK, Germany had passed these amendments due to the hurdles and investment insecurity that the lack of a definition had caused – it is argued that, now there is a legislative definition of energy storage, the energy storage industry in Germany can establish a suitable legal foundation.

This definition of energy storage reflects that of the definition as proposed in the EU Clean Energy Package, in which energy storage is defined as “deferring the final use of electricity to a moment later than when it was generated, or the conversion of electrical energy into a form of energy which can be stored, the storing of such energy, and the subsequent reconversion of such energy into electrical energy or use as another energy carrier”. As we can see, this definition directly links to that of Germany’s in that they both define energy storage as “deferring” or postponing the “final use of electrical energy” to a later point, as well as relating to the UK’s definition that focuses on conversion and reconversion of such energy into electricity.

Comment

The new definition of “stored energy” into GB legislation is certainly a positive, and long-overdue, development and will provide greater clarity on how electricity storage should be treated from a regulatory, policy and industry code perspective. However, despite the lack of a definite definition, we have seen continued sector momentum, particularly in the last two years.

It is interesting to note that “stored energy” is defined as a subset of electricity generation rather than a separate asset class (as is the case with electricity interconnectors). As has been noted by the industry, this approach, whilst consistent with the GB and EU approach regarding unbundling storage from transmission and distribution, does not include heat or power-to-x technologies and potentially means that some services are harder to value or applications are more difficult to deploy (e.g. TSO/DNO involvement in storage non-wire alternatives).

The Bill is currently undergoing its second reading in the House of Lords, before it will face the Committee and Report stage.