BEIS rebuked over capacity market rule change for batteries

Consultancy firm says department has not followed proper procedure in proposing lower de-rating factor

The Department for Business, Energy and Industrial Strategy (BEIS) has been criticised for circumventing Ofgem to propose changes to the capacity market rules for battery storage.  

BEIS did not follow the correct procedure when putting forward plans to lower the de-rating factors for some batteries, according to consultancy firm Cornwall Insight.

The proposals, which were outlined last month, seek to address concerns that the growth of battery storage within the capacity market could pose “a risk to security of supply if those batteries are unable to generate for the full duration of probable stress events”.

To prevent this happening, the department suggested changes to the methodology for determining the de-rating factor for batteries.

The de-rating factor for a technology reflects its expected availability. Participants in capacity auctions bid and receive payments on the basis of their de-rated capacity, which is calculated by applying the de-rating factor to their total capacity.  

BEIS wants to separate storage into eight different classes according to their discharge duration. The longest-range batteries would retain their current de-rating factor of 96 per cent, whilst the rest would be assigned lower de-rating factors, meaning they would receive lower capacity payments.

But Cornwall Insight senior consultant Tom Edwards told Utility Week that BEIS has not introduced the proposals through the proper channel.

Under the normal process, “at the end of the capacity market auction, the window for changing the rule book opens and then you’ve got until sometime in the spring to propose rule changes to Ofgem.” The regulator then consults on the proposals and implements any changes it deems necessary ahead of pre-qualification so “everyone should know what the rules are going in.”

Ofgem did consider changes to the de-rating factor for batteries following the last auction but decided to “put this on the backburner and wait until next time”, according to Edwards.

“So now for BEIS to say they’ve found a way around the rules that they have written, to implement something they said they weren’t going to implement, and told everyone that we weren’t going to implement - so this all comes as a nice big surprise – is just not helpful at all."

“We’ve talked to BEIS and they say that they think they can change the de-rating factors, despite what the capacity market rules say,” he added.

Edwards said “raising the spectre” of lower de-rating factors so close to the beginning of pre-qualification for the next auction has created headaches for developers, many of which have already secured grid offers and planning permission after being assured that de-rating factors would not change.

He was also critical of the reforms themselves, disputing BEIS’s assertion that some batteries may not be able to fulfil their capacity market obligations if they are also providing frequency response services.  

“Any availability in a frequency response service counts as meeting your obligation in the capacity market so really the capacity market doesn’t care if you can provide it with power over however long a stress event it is,” said Edwards.

“The capacity market cares that you are providing a useful service to the network because ultimately frequency response is actually more important than the capacity market obligation, because its frequency response that will keep the lights on.”

He said National Grid’s limited requirements for frequency response will restrict the amount of batteries that can come forward anyway: “The more people that enter into the frequency response market, the lower the price will be and that will act as a natural limit.”

If the government is concerned that batteries may not be able to meet their capacity market obligations, it should instead increase the penalties for non-fulfilment, he added.   

A spokeswoman for BEIS responded: “The government welcomes the increase in battery storage and has set out plans to support and develop the technology as part of a secure, affordable and clean energy system.

“Energy security is the priority for the capacity market and, while it is important for it to accommodate emerging technologies, we are consulting on these proposals to ensure the system can respond effectively when needed.”

Another consultancy firm, Aurora Energy has previously told Utility Week that batteries are being overcompensated in the capacity market, describing their current de-rating factor as “phenomenally high”.

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