Citizens Advice Response to Ofgem Consultation on LDES Cap and Floor Draft Special License Conditions Minded-To Decisions
We recognise the need for more long duration energy storage (LDES) in the electricity system. LDES is necessary as a consequence of installing more renewable generation.
There is significant short-term storage available (i.e., operating up to 4 hours). LDES is important for longer periods of low wind output, particularly in winter. It can reduce the market power of gas at such times by expanding the share of long-duration storage in the merit order.
By underwriting LDES assets through a minimum revenue floor, consumers will be taking on risk, protecting operators and investors when wholesale prices are low. The fundamental point of LDES is that LDES operators must be available to respond to long-duration events and protect consumers from high gas generation prices under scarcity conditions. We think the proposed licence condition needs further work to protect consumers and ensure a fair balance of risk and reward between investors and consumers.
We have a number of concerns about the current proposals. In our view, Ofgem should amend the availability methodology to ensure that floor support is conditional on availability to respond to wind droughts. Alongside this, we are of the view that Ofgem should adopt a reasonable endeavours-style expectation for floor beneficiaries to operate as LDES, on the condition that this is combined with technology-neutral operational constraints.