Renewables like wind and solar are critical to the clean energy transition. However, harnessing their power can be a challenge: the sun doesn’t always shine, the wind doesn’t always blow, and many regions have transmission infrastructure with limited available capacity. Also, in relation to a successful market ramp-up of clean energy sources, in particular hydrogen, sufficient energy storage capability is crucial, since production and supply will not always take place simultaneously.
Energy storage offers a solution by banking energy for peak usage, supporting grid reliability, and providing the means to effectively scale sources. Yet, as demand grows, operators in key jurisdictions must navigate an evolving patchwork of regulations, including in some cases rules that vary for different types of energy storage.
The European Union (EU), for example, has no single regulatory framework governing energy storage and relevant regulatory frameworks distinguish between the power sector and other sectors (e.g., natural gas and hydrogen). Difficulties also arise in the United Kingdom (UK) where the country’s Electricity Act 1989 requires energy storage to be classified as “electricity generation” – thereby compelling most energy storage operators to obtain an energy generation license. The United States (U.S.) also lacks consistent energy storage regulations, with requirements and classification rules that can vary across the nation’s Independent System Operators and Regional Transmission Organizations.
The lack of clarity poses obstacles for energy storage companies and project developers. Fortunately, new and pending legislation may soon make developing these projects easier. Here’s what industry executives should be tracking:
- EU: The Renewable Energy Directive III, finalized earlier this year, sets more ambitious clean energy goals and provides greater regulatory clarity for the industry, allowing projects previously on hold to move forward. The Directive also includes much-needed definitions for specific types of renewable energy.
- UK: Parliament is in the final stages of approving primary legislation to amend the Electricity Act to designate electricity storage as a distinct subset of generation, in order to provide clarity and certainty over its treatment within the existing regulatory frameworks. The reforms are structured to ensure continuity with current electricity storage practices, while also providing flexibility to treat storage differently from electricity generation when appropriate.
- U.S.: While there is no federal energy storage framework on the horizon, the 2022 Inflation Reduction Act contains US$369 billion in clean energy incentives and tax credits, including energy storage systems and technologies. The bill also made standalone energy storage assets eligible for the investment tax credit and offered provisions to strengthen the domestic battery manufacturing sector.
For those looking to navigate this evolving regulatory landscape – across types of energy storage, member states, and/or regional requirements – there is no one-size-fits-all approach. Leveraging the knowledge and experience of in-house teams, lawyers, consultants, and technical experts can help ensure that energy storage operators make these shifting requirements work best for them.