Energy storage and its regulation
Published on 28th Feb 2023
Importance and potential of energy storage
Electricity storage is a key tool for the management and flexibility of energy demand as it allows energy to be stored at times of peak production and fed into the grid when demand is highest.
As pointed out by Red Eléctrica de España ("REE"), electricity can be stored through the following methods:
- Large-scale, measured in GW: reversible (pumped) hydro and thermal storage.
- Grid storage, measured in MW: cells and batteries, capacitors and superconductors and flywheels.
- At end-user level, measured in kW: batteries, superconductors and flywheels.
In view of the potential of storage installations in the penetration of renewable energies in the energy market, especially batteries, the Council of Ministers approved in February 2021 the Energy Storage Strategy (the "Storage Strategy"), which sets the objective of moving from the 8.3 GW currently available to 20 GW in 2030 and 30 GW in 2050.
This document was published to support the deployment of renewable energies, boost decarbonisation and ensure the security, quality, sustainability and economy of supply, as well as the promotion of more cross-cutting challenges, such as economic recovery after Covid-19, fair transition, the demographic challenge and the circular economy.
General considerations on energy storage in Spanish legislation
In Spain, storage installations are legally defined as installations in which the final use of electricity is deferred to a time later than when it was generated, or which convert electrical energy into a form of energy that can be stored for subsequent reconversion of that energy into electrical energy.
The owners of storage installations are considered to be subjects of the electricity system and their legal regime is expected to be regulated in the near future.
The legal regime for storage installations has been assimilated to that of generation installations, both with regard to requests for access and connection to the grid (with specifics for hybridised storage, as we shall see), and to their authorisation regime, requiring Prior Administrative Authorisation, Administrative Authorisation for Construction and Authorisation for Operation. These installations must also be registered in the Administrative Register of Electricity Production Installations, and hybridisation is expressly provided for in the regulations (article 27.2 of Royal Decree 1183/2020, of 29 December, on access and connection to the electricity transmission and distribution grids (the "Royal Decree 1183/2020"), as well as in a MITECO FAQ ("How do the milestones of article 1 of Royal Decree-Law 23/2020, of 23 June, apply to the hybridisation of an installation with an access permit already granted?") that they must comply in due time with the administrative milestones set out in Royal Decree-Law 23/2020, of 23 June, approving measures in the energy sector and other areas for economic recovery (the "RD-Law 23/2020")). Presumably, stand-alone installations must also meet these milestones as they are considered generation installations.
With regard to the environmental permit, strictly speaking storage installations are not included within the scope of application of either the ordinary or simplified environmental impact assessment provided for in Law 21/2013, of 9 December, on environmental assessment, and therefore, in principle, unless they affect protected natural areas or cultural heritage, they should not be required to obtain such a permit. However, we understand that in practice the requirement for such a permit will be assessed by each administration depending on the specific characteristics of each project.
On the other hand, it is foreseen that both stand-alone and hybrid storage installations will be able to participate in capacity tenders for the granting of access permits at specific nodes of the transmission grid.
In addition, these installations are exempt from grid access tolls.
Storage typologies according to their source of supply and mode of operation
Focusing on batteries as the most common storage method, at least at present, there are two different types depending on the energy supply source from which they are fed and their mode of operation.
Firstly, there are storage installations that are hybridised with power generation installations that are fed by the energy produced by the generation installation and share their access and connection point to the grid, so that only one access and connection permit is required. In addition to the above, models have also been observed in the market in which hybrid installations can also take energy from the grid, although this scheme does not yet have legal support.
Secondly, stand-alone storage installations, which take and dump energy from the grid through bidirectional inverters that rectify or invert the direct current of the batteries to adapt it to the alternating current of the grid to which they are connected through transformers, which raise the voltage to the required value. Their purpose is to trade in the market by storing energy when there is more supply and dumping it when there is more demand.
A storage installation may be hybridised, provided that the requirements of Article 27.3 of Royal Decree 1183/2020 are met:
- Hybridisation with a generation installation that already has an access and connection permit. In this case, it will only be necessary to update the access and connection permit granted and deposit a new guarantee of 50% (€20/kW) with respect to the new technology.
- Hybridisation with a generation installation that does not yet have an access and connection permit, applying for the hybrid permit for both technologies from the start or updating the application that could have been made for the first technology to incorporate the second. The guarantee for the lower power technology will be 50% (€20/kW).
If the requirements of the regulations are not met, the storage installation will have to obtain a new access and connection permit, but the original permit granted will not be lost by the initial installation.
With regard to their sizing, we note that it has been common in the market to use a ratio of 1-1 of generation and storage power (with a coefficient of energy loss of the batteries of around 30% with respect to their installed power). In addition, the requirement established in article 27.3.e) of Royal Decree 1183/2020 must be taken into consideration, according to which in no case may the installed capacity of the technology that has been granted access and connection permits be less than 40% of the access capacity granted in the access permit.
On the other hand, it is foreseen that for hybrid installations to be eligible to receive the economic regime for renewable energies through the auctions called under Order TED/1161/2020, of 4 December, the storage system must be used exclusively for the storage of the energy produced by the generation installation.
Finally, in relation to the single permit, the need arises that the owner of the generation installation and the storage installation must be the same. Therefore, if a third party is interested in the installation of hybrid batteries, this limitation has to be taken into account in the articulation of the legal transaction.
Their regulation is in a very incipient stage of development, there is hardly any express mention of them and relevant aspects of them remain without a legal framework. Despite this, there is growing market interest in them. This interest, among other factors, is due to the 80% reduction in the cost of lithium-ion batteries in the last decade.
As specific aspects of this technology, it should be noted that, for the purposes of the access and connection procedure, it will be considered as a generation installation, without prejudice to the fact that the technical feasibility of access as a grid demand installation must also be assessed, for which purpose the grid operator must be informed of the operation of the battery and its technical details. The technical access contract that is signed shall also make reference to these details.
Furthermore, the operators of these installations may, either directly or through independent traders or aggregators, participate, as appropriate, in the production or demand-side management market.
Current and future support for CAPEX for energy storage
Based on the exponential development of energy storage, a call for aid for innovative energy storage projects hybridised with electricity generation installations using renewable energy sources was published at the end of 2022 within the framework of the Recovery, Transformation and Resilience Plan, by means of Order TED/1177/2022, of 29 November, approving the regulatory bases. The budget is 150 million euros (with two specific sub-lines of 6 and 20 million euros for the Balearic and Canary Islands), which will be awarded on a competitive basis and managed by the IDAE. Applications will be accepted for energy storage projects for all technologies, except hydrogen storage, whether existing or new, until 20 March 2023.
In addition, 150 million euros in aid for stand-alone storage is expected to be published in the first quarter of 2023.
Future regulation of storage in our country
Law 7/2021, of 20 May, on climate change and energy transition, the PNIEC, the Long-term decarbonisation strategy and the Storage Strategy itself anticipate the development of new regulations applicable to storage in the following areas: (i) the development of the legal regime for storage operators; (ii) the simplification of administrative procedures and the reduction of administrative burdens; (iii) the modification of the system operator's operating procedures to include storage; (iv) the inclusion of storage in the planning of the electricity transmission grid; and (v) the creation of sandboxes in which pilot R&D&I projects are developed, etc. Likewise, and significantly, approval is expected of the Circular establishing the methodology and conditions for access and connection to the transmission and distribution grids in terms of electricity demand, as well as its detailed specifications, applicable to storage installations when they act as demand installations.
There is no doubt, therefore, that in the coming months there will have to be important legislative developments that will contribute to making the legal framework applicable to energy storage more robust.
Should you wish to find out more about the new regulatory and energy sector legislation and its possible implications, please do not hesitate to contact one of our experts listed below or your usual contact at Osborne Clarke.