Transmission credits could attract storage to areas with surplus power

Assets such as batteries and electrolysers that can soak up excess power should receive transmission credits to incentivise them to locate in areas of the country with surplus renewable output.

Cornwall Insight said this would mirror the arrangements for generators which already receive credits for locating in areas where electricity demand outstrips supply.

In a new report, the consultancy gave this as one of a number of recommended options for reforming Transmission Network Use of System (TNUoS) charges and constraint management to help drive the decarbonisation of the electricity system.

The report was commissioned by SSE, which has previously criticised TNUoS charges as volatile, unpredictable and a barrier to deployment of renewables due to higher charges in the places where they are nevertheless mostly likely to be built.

Echoing comments by others, Cornwall positioned its recommendations as “evolutionary” alternatives to the “revolutionary” reforms being considered by the government as part of its Review of Electricity Market Arrangements (REMA), in particular locational power pricing.

The report said introducing credits for demand users in areas with surplus renewable output would still constitute a “significant step change” but would improve the cost reflectivity of transmission charges and enhance the business case for technologies such as energy storage and hydrogen electrolysers.

Cornwall recommended that demand users in these areas should receive annual capacity-based (£/kW) credits scaled according to their actual consumption during periods of network congestion. The consultancy said this would align the arrangements with those for generators and ensure they do not receive payments without providing a corresponding benefit to the network.

The scaling periods would vary between different zones. In north Scotland they would cover peak wind output and in the South West they would cover peak solar output.

Cornwall said demand credits would be one way of addressing the need to better reflect the costs and benefits of energy storage to the electricity system. Under the current arrangements, energy storage is treated as generation and subject to the same wider locational tariffs as conventional fossil fuel generators.

The consultancy said this need could also be met through specific demand credits or generation tariffs for energy storage. It said these options could be implemented more easily than generic demand credits and therefore deliver a “quick win.”

Cornwall also called for reforms to wider locational tariffs so average annual generation charges fall within the €0-2.50/MWh limit imposed through retained EU law, without the need for an adjustment element. It said all generation tariffs should be shifted downwards so that total charges are fully offset by credits or net charges are on average in the middle of the allowed range to give a margin of error on either side.

The report said this could be achieved by moving the “reference node” – the hypothetical point on the system where charges flip to credit. It noted that this option was considered by Ofgem as part of its significant code review of network access arrangements.

Cornwall also recommended multiple options for improving constraint management, including introducing regional demand turn-up auctions that would offer contracts to network users to consume excess renewable generation that would otherwise need to be curtailed.

The report said these auctions could take the same form as the Capacity Market, with participants bidding and being paid on a flat capacity basis (£/kW) and tested against their consumption during periods of peak constraint. There could similarly be both long- and short-term auctions operated on a pay-as-cleared basis.

Cornwall said consideration would need to be given to how the auctions would interact with potential changes to TNUoS charges, in particular whether this market-based approach should be seen as a mutually exclusive alternative to demand credits or whether they could complement each other. It said care would also need to be taken to ensure the auctions do not create perverse incentives.

Other recommendations in the report include:

• Rolling out the Electricity System Operator’s (ESO) Constraint Management Pathfinder, which has released additional capacity across the transmission boundary between Scotland and England, to other parts of the country
• Taking further steps to encourage the participation of demand in the Balancing Mechanism
• Requiring Balancing Mechanism participants to provide a rolling 24-hour view of their expected output and bid/offer prices to help the ESO optimise its constraint management actions
• Requiring the ESO to publish as much information as reasonably practical on future network constraints
• Reforming the Network Options Assessment process to allow the ESO more autonomy to take forwards reinforcement options without require case-by-case approval from Ofgem

Cornwall said all of its recommendations could be achieved within four years and some of them in as little as one. For comparison, the consultancy said the government’s REMA decision may not come until the end of 2024 and some of the more radical options such as locational power pricing may not be able to be implemented until the early-to-mid-2030s at the earliest.

Adam Boorman, principal consultant at Cornwall Insight, said: “At a time when the government is considering revolutionary energy market reforms, there is also merit in considering the potential of more gradual approaches that can still deliver transformative results in less time and with minimal disruption.

“While it is true that no single solution can comprehensively tackle the challenges facing the decarbonisation of the electricity system, a combination of incremental changes to areas such as network charging can provide us with the means to make substantial improvements without the need for a protracted and costly overhaul of the energy system.”

SSE market development director Angus MacRae said: “The UK is rightly moving towards a strategic, coordinated approach to building the low carbon infrastructure required to deliver a clean, homegrown energy system, most notably with the accelerated deployment of the transmission network required to connect the huge wind potential across Great Britain.

“However, the current transmission network charging methodology does not align with this change in direction. It is adding cost and risk to investment in renewable energy in the areas of greatest resource, and importantly it doesn’t incentivise investment in storage and flexible demand in areas where it is needed most.”