A new report urges policymakers to rewrite power system rules to unlock the full potential of demand-side response and energy storage and save billions of pounds.
Think tank Policy Exchange recommends amending the Electricity Act so that demand response aggregators can participate fully in the balancing and wholesale markets. It also calls for three-year contracts within the capacity market for those technologies. Meanwhile, distribution network operators need better incentives to move towards active management of a smarter power system, it suggests.
The report said creating a regulatory licencing regime for storage could stifle innovation, but called for policymakers to update the Electricity Act 1989 and associated grid codes to define new activities such as storage and demand response. It also repeated calls to tackle the issue of ‘double charging’ of storage assets, both in terms of environmental levies and network charges.
To enable aggregators to sell flexibility into the wholesale and balancing market, Ofgem should either allow unlicensed parties to access the market, or aggregators should be granted special regulatory status, the report suggests.
Policy Exchange also called for an overhaul of the rules governing distribution networks. It suggested that they were still too focused on build solutions as opposed to smart solutions and that incentives for innovation were far too small.
Meanwhile, the report backed government moves to regulate diesel out of the balancing markets via emissions performance standards. It also agreed that embedded benefits could distort market outcomes and that network charging arrangements should be reviewed. However, Ofgem should conduct a full review of the broader regime to avoid unintended consequences, warned Policy Exchange.
See the full report here.