Key ECJ ruling should improve prospects for storage in Europe

Winter freeze: The UK Government's back-up energy capacity market has been suspended by the European Court of Justice (Pic source: Pexels)

Winter freeze: The UK Government’s back-up energy capacity market has been suspended by the European Court of Justice (Pic source: Pexels)

BY RICHARD HEAP:

My beloved UK spent the second half of last week convulsed in political drama after the publication of Prime Minister Theresa May’s draft Brexit deal with the European Union. Resignations, howls of dismay, and a good chance that the deal will have fallen apart by the time you read this. Another proud week in Brexit Britain!

This also hid some rather more significant news for the UK electricity market, which came out on Thursday. The European Court of Justice has suspended the capacity market for back-up power in the UK after ruling that it was unlawful. This followed a court case brought by UK-based clean energy technology firm Tempus Energy.

This capacity market is significant because it is used to provide back-up power to homes and businesses in times of high demand, particularly in the coming winter months. The UK government has also said that energy supplies won’t be at risk.

Dominated by fossil fuels

The result could be highly significant for those working in the energy storage sector across Europe. The ECJ has decided the capacity market is an unlawful use of state aid because it unfairly prioritised companies in fossil fuels over those active in renewables. The scheme is now dominated by coal, gas and diesel generators.

The argument by Tempus is that the scheme is using £5.6bn of taxpayers’ money to give financial support to fossil fuels without their consent.

Sara Bell, chief executive of Tempus Energy, said: “Off-peak power should mean off-peak prices… This ruling should ultimately force the UK government to design an energy system that reduces bills by incentivising and empowering customers to use electricity in the most cost-effective way – while maximising the use of climate-friendly renewables.”

This ruling could force the UK to look again at how to better harness the power of renewable energy sources to provide back-up power, and storage is set to be vital. But there is some disagreement about whether this ruling is good or bad for storage.

In the short term, it is set to mean disruption for some storage operators. There is the potential for battery storage companies to take part in capacity market auctions, and so the fact the system has been suspended will limit some short-term deals.

However, if this ruling prompts the UK government to redesign the capacity market so that there is a level playing field for fossil fuel and renewables operators, then the prize on offer is potentially much larger. Solar and wind farm operators should then be able to use storage to enable them to provide back-up power when it’s needed.

Renewable grid balancing

This will raise questions in the minds of many about how wind and solar can provide power in this way, given that both sources are intermittent.

But we have seen one good example in recent years, where Spanish company Acciona has used its wind farms in Spain to provide grid balancing services since 2016, and without the use of storage. Imagine how much more it could do if it had that flexibility.

Indeed, ‘flexibility’ is the watchword. Poyry Management Consultants and Imperial College have found that using new sources of flexibility in the grid, such as customer demand flexibility, could save UK consumers up to £4.7bn each year. Tempus also warned that, while some businesses were now taking advantage of renewables and energy storage, this option was not available to most consumers. Now it might be.

And our final point is what this tells us about the ECJ’s approach to the energy mix.

Its ruling has shown that countries should not favour fossil fuels over renewable rivals. This isn’t the end of this battle, though. The latest judgment came as the ECJ annulled the European Commission’s 2014 decision to grant state aid for the system.

The Commission must now undertake a full investigation of the UK’s capacity market before deciding whether to grant state aid approval, or demand changes. We don’t expect this to be a quick process but, for storage, it will be a significant one. And for the UK government, when compared to Brexit, this battle could provide light relief.

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