Government proposes tweaks to capacity market rules

BEIS consults on changes to de-rating factor for battery storage

The government has proposed a series of tweaks to the capacity market rules to enable all technologies to compete on a level footing in auctions.

Topping the list are changes to the way in which the reliability of batteries is determined, prompted by worries that some assets may be unable fully comply with their obligations when called upon.

In an open letter to stakeholders, the energy security team at the department for business, energy and industrial strategy (BEIS) says concerns have been raised that the growth of battery storage within the mechanism could pose “a risk to security of supply if those batteries are unable to generate for the full duration of probable stress events”.

A consultation document published alongside the letter notes that, although few stress events are likely to exceed more than four hours in duration, National Grid expects them to last up to two hours on average.

“Certain types of storage that cannot discharge for this long without recharging will therefore be unable to deliver on capacity obligations for the full duration of many stress events,” the document states. Although the failure to deliver would likely lead to penalties “this is largely discounted when making investment decisions”.

It also draws attention to the declining performance of batteries over time as well as concerns that some may less than fully charged at the start of stress events due to competing commitments to provide services such as enhanced frequency response and triad avoidance.

The changes for batteries

To address the issue, BEIS has suggested modifications to the methodology for assessing the de-rating factor for batteries – the measure of the reliability of a given generating technology. Successful bidders in the capacity auctions receive payments according to their de-rated capacity.

Based on the historical availability of pumped hydro storage, the de-rating factor for all kinds of storage – batteries included –  is currently set at 96 per cent – the highest de-rating factor for any technology in the mechanism.

Aurora Energy Research has previously described the figure as “phenomenally high”. By comparison, combined-cycle gas turbines have a de-rating factor of 90 per cent.

In future auctions, the department wants to separate storage into eight different classes depending on their discharge duration, going from 30 minutes plus to four hours and over. Each class would have a corresponding de-rating factor, with the longest range batteries retaining the current 96 per cent de-rating factor. “De-rating storage in this way will help ensure a level playing field for other capacity providers,” the document says.

The proposals were revealed on the same day as BEIS and Ofgem published their long-awaited plan for creating a smarter, more flexible energy system, in large part by encouraging the deployment of batteries.  

Accordingly, the consultation document says the government “does not wish to introduce barriers to the participation of storage in the capacity market”. For this reason, it will not alter the testing regime for the capacity market so that all contracted units have to demonstrate they can provide capacity for multiple consecutive settlement periods, as some stakeholders requested.  

“Nor do we believe that amending the penalty regime to strengthen penalties for capacity market units that fail to deliver for the entire duration of a stress event is an appropriate response to this problem and could have wider, adverse impacts,” it adds.

“Instead our intention is to ensure that storage is rewarded appropriately for its contribution to security of supply, and to incentivise operational behaviour that ensures storage is fully charged at the onset of a stress event.”

Other tweaks

In a similar vein, the document outlines plans to alter the rules for unproven demand-side response to ensure that capacity procured in the four-year-ahead (T-4) auctions can meet its obligations, for example, by bringing forward the metering and testing deadlines so that any failing units can be replaced in the one-year-ahead (T-1) auctions.

It additionally proposes allowing capacity providers of all kinds to re-take metering assessments where necessary; strengthening the testing arrangements; shifting the planning consent deadline to January to avoid the Christmas period; and splitting up technology classes to improve transparency, support analysis and allow for the more specific application of de-rating factors in future.

BEIS is urging stakeholders to give their feedback on the proposed changes by 8 September 2017.