Insights, perspectives and viewpoints from our lawyers on topical issues
Global |Publication |March 2019
Electricity storage is critical for the future of European power networks. However, for storage to realize its full potential, a robust regulatory framework is needed. In the European Union (EU), the role energy storage plays in EU power markets will be formally recognized in the Electricity Market Design Directive (recast), which is expected to be adopted in Q1/Q2 2019. Change at the EU level is also being championed by a number of EU Member States. In this briefing, we consider developments in the EU and the markets for energy storage in Germany, France, Greece and the Netherlands.
Storage capacity in the German energy market is still mainly provided through large pumped hydro storage facilities. These facilities are able to provide both baseload power and balancing services, supporting grid stability. However, due to complex planning procedures and increasing public resistance, there are few new facilities under development.
The key driver for the development of energy storage in Germany is the Energy Transition (Energiewende) and the ambitious national targets to increase the share of renewable energy sources in the generation market to 60 per cent of final consumption by 2030. As grid expansion is behind schedule, the current shift from centralized to decentralized energy generation requires measures to ensure greater grid stability and flexibility.
Following the political decision to decarbonize the transport sector by using electric vehicles (EVs), e-mobility and charging infrastructure are also increasingly driving progress in energy storage solutions. The growing EV charging network comprises both residential and commercial charging stations, and requires greater grid capacities, as well as flexible solutions for electricity demand and supply.
However, energy storage projects in Germany face several legal and commercial challenges. For example, storage facilities are treated as consumers when drawing electricity and as generators when providing electricity. Since the consumption of electricity is subject to several taxes, levies and charges, which also have to be paid by the end consumer, electricity from storage facilities face a double charge. While storage projects benefit from some exceptions and reliefs, the regulatory framework is still highly complex and requires case-by case consideration, especially when a device is supposed to be operated in multi-use scenarios.
A key challenge with regard to large-scale battery storage facilities is the uncertainty regarding price forecasts on the Central European balancing market. On the one hand, the increasing installation of variable renewable generation is a factor supporting future demand for balancing services. On the other hand, enhanced interconnection, grid expansion and the growing number of balancing service providers are factors influencing future price expectations. Further, the German TSOs and the Federal Grid Agency are currently discussing battery specific prequalification criteria for future balancing services auctions and changes to tendered products (time segments and tender periods) have also been announced for mid-2019.
In relation to the implementation of the new Electricity Market Design Directive, it remains to be seen in the national implementation process to what extent the TSOs and DSOs will be entitled to own and operate storage facilities themselves in Germany.
The Energy Transition Law1 (ETL), sets ambitious 2030 targets for renewable energy in France: 32 per cent of final energy consumption and 40 per cent of energy production (compared with the current figure of 18.4 per cent). The ETL refers to energy storage as a necessary means to achieve environmental policy objectives.
Storage facilities are defined in the Ministerial Order of 7 July 2016 as “a set of stationary electricity storage equipment allowing the storage of electric power in one form and its reconversion, while being connected to the public power grids. The technologies of these equipment are [pumped storage], hydrogen, electro-chemical batteries […]. The facility is connected to the public power grid directly or indirectly, through facilities belonging to a user of the grid”. In 2015, France had 5.82 GW of operational storage capacity, of which pumped storage comprised 5.81 GW. However electro-chemical storage is growing rapidly, in particular with lithium-ion batteries, with batteries accounting for nearly 52 per cent of the remaining storage capacity.
In France, except for pumped storage, energy storage remains limited, but a forecast recently published by the French energy regulator (CRE) reports a potential of between 1 and 4 GW by 2030. The cost of energy storage is decreasing, whilst the share of renewable energy in the energy mix is increasing, offering interesting development opportunities for energy storage. However, energy storage projects in France face several legal and commercial challenges.
In particular, the current regulatory framework allows for energy storage, but there is no legal framework designed for its development. The French energy code refers to energy storage only three times: firstly, article L142-9-I creates a “National register of electricity production and storage facilities”2; secondly, article L315-1 provides that an individual plant for self-consumption may include the storage of electricity; and finally, article L121-7 specifies that in non-interconnected areas, the costs of storage facilities managed by the grid operator are offset through the public service contribution of electricity (CSPE). This does not provide for a solid legal framework.
First steps towards an appropriate regulatory framework are emerging, for example the TURPE 5 now gives energy-intensive industries using storage a reduction up to 50 per cent, and reinforces the difference in rates between peak consumption hours and low consumption hours, with the aim of controlling peak consumption and developing decentralized renewable production and self-consumption.
These regulatory developments do not meet the needs of the energy storage market in France however. An appropriate regulatory framework will need to provide visibility for energy storage operators and to allow the emergence of an economic model (or models) that will ensure the profitability of investments. The Electricity Market Design Directive is perceived as an opportunity to define such a harmonized framework and to relaunch work aimed at creating an appropriate regulatory framework, and will act as an incentive to increase the number of storage technologies in France.
Greece is attempting to decrease its dependency on fossil fuels in part by encouraging initiatives in the Greek islands – which are not scheduled to be connected to the mainland power grid within the coming years (known as the Non-Interconnected Islands, or NIIs) – to become energy self-sufficient, through a mixture of renewable energy generation and storage infrastructure3.
Greece has approximately 6,000 islands and islets, of which roughly 200 are inhabited but only 20 are connected to the mainland power grid, including Evia (the second largest Greek island), 4 Ionianislands and (as of May 2018) 13 Cycladic islands. At the end of November 2018, the first stage of the interconnection with Crete (the largest Greek island) officially commenced, with the execution of the requisite contracts with the Independent Power Transmission Operator.
In the January 2019 meetings, Tesla also expressed its intention to participate in the international tenders which are expected to be announced by the Greek Regulatory Authority for Energy in 2019, under the EU Smart Islands Initiative under which three Aegean islands (Astypalaia, Symi, and Kastellorizo) have been selected as pilot “smart island” projects. Tesla has also expressed its interest in the “hybrid energy islands” initiative which the Greek Ministry of Environment and Energy is currently examining, and which is aimed at increasing renewable energy penetration in the NIIs, to over 60 per cent.
A key issue will be the undetermined regulatory framework for the commercial operation of both pumped-hydro and a number of hybrid projects (combining wind and pumped-hydro technologies) which are currently being developed in NIIs. This highlights the need for regulation to catch up with progress in the energy storage sector.
The updated National Action Plan 2019 on Energy Storage and Conversion5 published by the industry group Energy Storage Netherlands identifies various issues that adversely affect the accelerated deployment of storage projects at different levels of the energy system and which need to be addressed in the national regulatory framework. This National Action Plan provides valuable guidance in respect of the amendments necessary in the Dutch regulatory framework to achieve the Climate Act target.
We are experiencing a considerable increase in interest into energy storage projects from both project developers and (project) financiers, both for hybrid ‘renewable plus storage’ projects and for stand-alone energy storage projects. However, the absence of a comprehensive strategy to create a level playing field for energy storage projects in the Netherlands still affects viability and bankability of these projects. Although energy storage projects are considered interesting from an equity perspective in the Netherlands, debt financiers are still assessing if and how sufficiently stable cash flows can be generated by projects to service the debt.
The Electricity Market Design Directive together with national legislative initiatives are important steps to facilitate the clean energy transition from a regulatory perspective. Much remains to be done in this respect, but fortunately this is not deterring developers from moving ahead with a broad range of energy storage investments which will be an important element of the future energy system in the Netherlands and the EU.
Loi n° 2015-992 du 17 août 2015 relative à la transition énergétique pour la croissance verte
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