EU Electricity Market Reform: Energy Storage
As part of proposals to address recent issues in EU energy markets, the Commission wishes to support long-term investment in energy storage, which will be critical to energy transition.
The Clean Energy Package already includes storage in the energy regulatory framework. Storage is permitted to participate in all markets, which facilitates revenue stacking, and is entitled to access the grid on objective, transparent and non-discriminatory terms.
The Commission notes, however, that accessing finance is a challenge because of the need for long-term visibility and predictability of revenue streams.
In a Recommendation on Energy Storage and accompanying Staff Working Document, the Commission makes ten recommendations. Several aim to guide Member States and regulatory authorities in the effective integration of storage in market and grid regulatory frameworks.
It is also recommended that Member States identify potential financing gaps for short-, medium- and long-term storage and consider the need for financing instruments that provide visibility and predictability of revenues. They should explore whether storage services are sufficiently remunerated and whether operators can add up the remuneration of several services.
Member States should consider competitive bidding processes and explore improvements in the design of capacity mechanisms. Comparatively isolated systems should accelerate the deployment of storage, for example through support schemes for low carbon flexible resources, and should revise the network connection criteria to promote hybrid energy projects.
To facilitate investment decisions for new storage facilities, real time detailed data should be published on congestion, curtailment, market prices, renewable energy, emission content and installed energy storage facilities.
The Commission also published a Proposal for a Regulation to amend the Internal Market in Electricity Regulation ((EU/2019/943) and Directive ((EU) 2019/944), and invites feedback until 23 May 2023. The challenge of mitigating high energy prices will be tackled in a number of ways linked to energy transition, including more efficient utilisation of the grid through increased use of flexibility services, such as storage. The proposal seeks to enable consumers to participate in electricity markets and provide flexibility, even where Member States have been slow to roll out smart meters.
To incentivise System Operators (“SOs“) to optimise the grid, network tariffs would have to take into account the operational and capital expenditures of SOs for operating the electricity system efficiently and in a way that supports flexibility services. Currently, regulatory authorities may introduce performance targets to provide incentives to SOs for these purposes. This would become mandatory.
By 1 January 2025 and then every two years, regulatory authorities would have to assess the need for flexibility on the system for a period of at least five years. Member States would define indicative national objectives for storage, monitored through NECPs. Member States applying capacity mechanisms, as Ireland does, should consider promotion of non-fossil flexibility through use of criteria in mechanism design. Where this is insufficient to meet flexibility needs, Member States could apply more targeted support schemes.
For further detail, our briefing is available here.