In this blog I look at what this storage might mean for electricity distribution companies (Distribution Network Operators – DNOs).
Why should DNOs be interested in Storage?
Putting batteries and other storage facilities on the distribution network makes good engineering sense; it can avoid or delay investment where peak demand increases, it can bring renewables level with carbon technologies for reliability and certainty, manage energy characteristics, and can provide temporary respite in an outage.
Putting batteries behind the meter on customers’ premises also makes engineering sense; it reduces peak demand, can optimise energy use for the customer, and provides some outage protection. It may also make economic sense, however the business case and market model for storage aren’t yet clear, and relying on the reducing price of batteries to create a business case is like watching the kettle while it boils.
Whichever model emerges it will need to reward investment with a regular return and this is exactly the business that a DNO is in.
The rules are complex
In many countries, including the UK, there are rules in place that prevent DNOs from playing a major role in storage, these rules include caps on both investment and revenue. There are changes being discussed that will introduce storage licences alongside generation, transmission and distribution licences, but these will take time. There is innovation funding that may get DNOs started, but is unlikely to be large enough to establishing a business. So, DNOs need to look to alternative mechanisms to enter this market.
So thought is needed on the business model – non-regulated could be the answer
DNOs should consider looking to the non-regulated part of their businesses to create a DNO Storage business. They should consider the operating model for this business and what capabilities does it need. As part of this they will need to define the economic success parameters for storage and the contractual and commercial frameworks that will need to be in place. They will also define the engineering success parameters for storage, the technical options, and what engineering problem do they solve.
And the commercial model
What will the DNO Storage Market look like? A ‘store-and-return’ model is the most commonly discussed, whereby the storage facility buys energy in and then sells it back, for this to work at a DNO level there will need to be a DNO pricing model, which could be complex. A ‘capacity’ model results in an availability payment to the storage provider with rules governing usage. Finally a outcomes based service could make payments based on maintaining specific operating characteristics of the network, for example the output from a solar plant never results in negative feeds across a transformer. The actual answer is likely to be a combination of the above and some other models yet to emerge. DNOs should consider this now and start to build their understanding and commercial capabilities.
Storage as a growth engine for DNOs
The ideal situation for a DNO is to be a business that returns both profits and growth. In the UK many DNOs return profit, but limited growth. To be a player in the future of energy businesses, DNOs need to look for real growth opportunities and storage is an obvious choice. In summary – DNOs should plan for storage as part of their medium term strategy and expect that this is going to start as a non-regulated business.