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Electricity storage in France: new calls for tenders will be launched

Article 85 of the Climate and Resilience Act dated 22 August 2021 created Article L. 352-1-1 of the French Energy Code, which provides for the use of calls for tenders to develop electricity storage capacities. Decree n° 2022-788 of 6 May 2022 specifies how the tender mechanism will be implemented.

 

Introduction of a general framework

The increasing share of renewable energies in the energy mix of EU Member States has led the European Commission and EU Member States to reconsider their strategy in relation to the flexibility of the electrical system (e.g. peak shaving, storage) to ensure the operational reliability of electricity networks in the context of increased intermittent power generation.

In line with the Commission's communication on "Launching the public consultation process on a new energy market design"1, European Union institutions recalled that energy storage had become fundamental to progress towards a completely decarbonized electricity sector, fully free of emissions, and considered that in the new organization of the electricity market "energy storage services should be market-based and competitive"2.

In this context, the Climate and Resilience Act3 completed the regulation of electricity storage in France. The new article L. 352-1-1 of the Energy Code provides for the minister in charge of energy (the "Minister") to resort to a tender process if storage capacities do not meet the objectives of the multiannual energy program (programmation pluriannuelle de l'énergie) ("PPE"), or if the French Transport System Operator's ("RTE") multiannual forecasted balance sheet (bilan prévisionnel pluriannuel) highlights a need for flexibility.

Decree No. 2022-788 of 6 May 2022, published in the Journal Officiel on 7 May 2022 (the "Decree"), has defined the terms and conditions for the implementation of the tender process4.

 

The mechanism has become essential to secure the operational reliability of energy networks in times of crisis

In recent years, the development of storage facilities has been uneven, depending on whether the non-interconnected zones ("NIZ")5 or mainland France was concerned.

In NIZs, the development of storage capacities has been greater due to their geographical situation and the specific needs of power networks in these areas. In this context, storage capacities have been developed either by means of:

  • a so-called "decentralized" procedure where operators of a "hybrid" production facility including both means of production (i.e. solar photovoltaic or wind) and storage capacities benefited from a power purchase agreement following a call for tenders6 or on the basis of a tariff order7 ; or
  • a so-called "centralized" procedure, under which storage projects may, after examination by the French Energy Regulatory Commission ("CRE"), benefit from either (i) a compensation for public electricity service charges, if they have a positive impact on avoided additional production costs, and/or (ii) allocations from the Electricity Equalization Fund (Fonds de Péréquation de l'Electricité), if they generate savings in network costs8.

In mainland France, storage did not benefit from any specific support scheme, until the adoption of the Decree. Two different situations can be identified:

  • Pumped storage power stations (PSPS) which are subject to the general framework for hydroelectric facilities and subject to a concession agreement (when the installed capacity exceeds 4,500 kW) or to an authorization. Although this is a more mature storage method, its development is made difficult by the procedural constraints and the time required to complete construction works. The PPE currently in force provides for a development target of 1.5 GW of PSPS capacity between 2030 and 20359.
  • Other storage methods which, considered by CRE in 2019, were not intended to benefit from any specific public support as these are competitive activities, but should, if necessary, benefit from existing market mechanisms. In this context, CRE invited the transmission and distribution system operators to make publicly available data relating to congestion on their networks, and their needs in terms of flexibility, in order to mobilize local flexibility in an effective manner. CRE also suggested that RTE ensures that access rules to market mechanisms (in particular, rules governing long-term call for tenders on the capacity mechanism) be adapted so that storage devices could participate effectively10.

The development of PSPSs, while of great interest, involves very large investments, takes time to develop due to the lengthy administrative procedures (notably in relation to environment-related authorizations) required for their construction and suffers from the impasse over the opening of hydroelectric concessions to competition. Some alternative storage methods, such as batteries, do not face this type of difficulty.

Within this framework, long-term calls for tenders (so-called "AOLTs") were launched in 2019 and two-thirds of the projects selected were battery storage projects, whilst the remaining third concerned peak shaving, with all selected capacities amounting to 377 MW. More recently, experimental tenders for local flexibilities were launched by RTE in December 202111.

Currently, approximately 230 MW of batteries are connected to the grid, with another 200 MW in the pipeline. The new procedure introduced by the Decree will certainly represent an important opportunity electricity storage.

CRE has recently reviewed its analysis of the draft Decree, taking into account an increased need for flexibility resulting from the ongoing energy crisis, which is likely to jeopardize the security of electricity supply and has led to a "surge in wholesale prices".

In this context, CRE now considers that "the launch of calls for tenders for the development of storage capacities is one of the urgent measures to be implemented". The procedure provided for in the draft decree, submitted to CRE for its opinion, seemed unsuitable (as too lengthy) compared to the urgent need to ensure security of supply for coming winters. Consequently, CRE decided not to issue a formal opinion on the submitted draft decree, but emphasized that an accelerated procedure should be adopted, allowing faster recourse to calls for tenders for electricity storage12.

 

A flexible and concerted process

Pursuant to Article L. 352-1-1 of the Energy Code, the Decree provides for a transparent and non-discriminatory bidding process. The key elements of this process are as follows:

  • Drafting of the tender specifications will involve all the stakeholders. The Decree provides that RTE is responsible for drawing up the specifications, which will be prepared based on guidelines provided by the Minister. The draft specifications will be submitted to storage professionals for consultation and, where appropriate, the relevant public distribution system operator. Finally RTE will hand over the specifications to the Minister, who may amend the project as necessary;
  • Some latitude is given to the Minister and RTE.
    • Although Article L. 352-1-1 of the French Energy Code specifically mentions PSPS, batteries and hydrogen, this list is not intended to be exhaustive and leaves room for other technologies (e.g. flywheels, supercapacitors, thermal storage, etc.). The Decree provides that the tender specifications shall determine the various categories of storage technologies that may be concerned by the tender process. Therefore, depending on the needs of the network (very short-term, short-term or longer-term storage), RTE will have the discretion to determine the start and end dates of the desired commitment periods and the technical profile of the relevant storage, etc.;
    • The Decree does not include any particular constraint regarding (i) the duration of the consultation, or (ii) the minimum deadlines for the submission and processing of applications and offers. As these calls for tenders are not subject to the specific regulations governing public procurement contracts, RTE and the Minister will be able to determine timing constraints imposed on applicants, depending on the urgency of flexibility needs. A fair balance will be required to allow operators to respond in a way that allows equal competition.
  • The designation of the successful bidders will follow a competitive procedure. Once the content of the tender specifications has been determined, the Minister will publish a tender notice in the Official Journal of the European Union. The call for tenders will then be coordinated by RTE, which will be responsible for receiving the applications, examining the tenders in a "non-discriminatory" manner and suggesting to the Minister a list of the tenders that should be selected. The Minister can then select the successful bidders and inform the unsuccessful applicants, and/or decide not to follow through with the tender process;
  • Payment terms will be specified on a case-by-case basis. The duration and financial terms of the contracts will be set out in the tender specifications. In any case, the remuneration of the successful bidders shall cover the immobilized capital without exceeding a normal return (taking into account the risks inherent in these activities).

 

The first calls for tenders could be announced shortly

The regulatory framework in place provides the Minister and RTE with important latitude to determine which technologies could be eligible for tenders. However, questions have arisen on the possibility of launching calls for tenders soon, in particular, since Article L. 352-1-1 of the Energy Code provides that processes shall only be implemented if (i) electricity storage capacities do not meet the objectives of the multi-year energy plan or, alternatively, (ii) the multiannual forecasted balances prepared by RTE highlight "flexibility needs".

In this respect, it should be noted that whilst the PPE adopted in 2020 intends to improve the flexibility of the electricity system, in particular by expressly setting a target for the development of peak shaving capacities13, references to electricity storage remain rather limited. At this stage, the PPE merely sets out an objective for the development of hydroelectric storage in the form of PSPS, with a view to developing an additional 1.5GW storage capacity between 2030 and 2035.

The absence of targets for other storage methods is likely to create some ambiguity. In this respect, when asked by the rapporteur of the text before the French Senate, the French Government initially seemed to be willing to wait for the next PPE to include tenders within its objectives (i.e. by 2023) in order to remove any ambiguity14. Nevertheless, even in the absence of an explicit mention to other storage methods in the PPE, calls for tenders could still be launched before a new PPE is enacted, as these technologies could contribute to the objective of increasing the share of intermittent renewable energies in the French energy mix15.

In addition, if RTE did not highlight any particular flexibility needs in its 2021 multi-year forecast report16, and considered in February 2022 that it was not necessary to develop thermal or battery power plants by 203017, then recent geopolitical events and the increased need for security of supply might lead to an acceleration in the development of renewable energies. This could lead RTE to review its flexibility needs, without having to wait for the end of the year and the publication of its 2022 multiannual forecast balance sheet.

Finally, the PPE also mentions (without making it an objective) the possibility of developing storage methods other than PSPS. In particular, the development of battery storage by 2028 is expressly referred to, to "avoid or defer investments for the reinforcement of networks in order to avoid local congestion when renewable energies produce at the same time in areas constrained in terms of network and thus avoid their capping"18. In 2020, the French Government was implicitly following in the footsteps of the recommendations previously made by CRE.

In this context, RTE has already undertaken to publish forecast estimates of residual constraints on the public transmission system (i.e. to identify areas where "production may temporarily exceed transmission capacity"). This should allow producers, consumers and flexibility operators "to find out about opportunities for managing these constraints and then to offer local balancing services to RTE", in particular storage services19. Publicly available data already permits the identification of several areas where RTE is likely to have flexibility needs because of an exposure to residual constraints: regions Haut-de-France, Grand-Est, Bourgogne-Franche-Comté, Auvergne-Rhône-Alpes and Nouvelle-Aquitaine20.

In its deliberation of 7 April 2022, CRE has underlined the need to adopt an accelerated process, which would allow for the implementation of calls for tenders for electricity storage as soon as possible.

A legal framework allowing the organization of storage tenders with public support is now in place, and it will be up to the French State and the transmission system operator to provide further information to market players on future call for tenders.

 

Click here to download PDF 'Electricity storage in France: new calls for tenders will be launched' in French

 

1 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions — "Launching the public consultation process on a new energy market design" (COM/2015/0340).
2 Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity and amending Directive 2012/27/EU, §62.
3 Law No. 2021-1104 of 22 August 2021 on combating climate change and strengthening resilience to its effects.
4 Decree No. 2022-788 of 6 May 2022 setting the terms and conditions of the tender procedure for the development of electricity storage capacities and specifying the term of fixed-price, fixed-term contracts mentioned in Article L. 332-2 of the Energy Code.
5 The departments of Guadeloupe, Guyana, Martinique and Reunion, the community of Mayotte and the region of Corsica are concerned.
6 Calls for tenders for the construction and operation of solar power generation facilities in non-interconnected areas - CRE.
7 Order of 8 March 2013 setting the conditions for the purchase of electricity produced by facilities using mechanical wind energy located in areas particularly exposed to cyclonic risk and having a device for forecasting and smoothing production.
8 CRE's methodology, set in its deliberation No. 2017-0701 of 30 March 2017, is expected to be revised soon. A public consultation was open until 1 June 2022. Public consultation No. 2022-04 of April 21, 2022 on the revision of the methodology for the examination of an electricity storage facility project in non-interconnected zones - CRE
9 Since the time required to commission these facilities is estimated to circa ten years due to the procedural constraints and works that must be carried out, the first calls for tenders in this area should be launched by 2025 (subject to capacities that would be granted, if necessary, in the form of public service concessions).
10 Le stockage d'électricité en France, Document de réflexion et de proposition, septembre 2019.
11 https://ted.europa.eu/udl?uri=TED:NOTICE:658014-2021:TEXT:FR:HTML
12 CRE Deliberation No. 2022-105 of 7 April 2022 providing an opinion on the draft decree setting the terms and conditions of the tender procedure for the development of electricity storage capacities.
13 Article 11 of Decree No. 2020-456 of April 21, 2020 on the multiannual energy program.
14 Bill to combat climate change and strengthen resilience to its effects: Report (senat.fr)
15 The summary of amendment No. 7381 to the bill on combating climate change and strengthening resilience to its effects states that the purpose of the tender mechanism is "to facilitate the development of the storage sector, in correlation with the objectives of developing renewable energies in line with the multiannual energy plan".
16 The forecasted balance sheets | RTE (rte-france.com)
17 Energy Futures 2050 Report, RTE, February 2022. BP50_Principal results_feb2022_Chap7_security of supply_0.pdf (rte-france.com): "with the reference trajectory on the closure of nuclear power [...] the security of supply criterion can be met without any particular effort on consumption flexibilities"
18 Pts. 5.3.6, p. 192 of the PPE for the 2019-2023 and 2024-2028 periods.
19 RTE met en ligne son site répertoriant les contraintes existant sur le réseau électrique
20 Publication of the constraints studies | RTE (contraintes-reseau-s3renr-rte.com). Publication of the data for the seven other metropolitan regions is planned for the second half of 2022.

 

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