Competition Concerns in Storage Ownership

1. Introduction

Competition concerns in storage ownership arise when one company owns a large amount of energy-storage capacity and may use that ownership to obtain or strengthen market power. In modern electricity markets, storage includes battery energy-storage systems, pumped hydro, thermal storage and other technologies.

Storage can provide important services such as energy shifting, balancing, frequency control and congestion management. However, concentrated ownership of storage facilities can create competition concerns, particularly when the same company also owns generation, transmission, trading or retail businesses.

The central legal question is whether storage ownership creates efficiencies while also allowing a firm to exclude competitors, discriminate against market participants or control an essential input.

2. Storage as an Energy-Market Asset

Battery storage can perform several functions:

store electricity when supply is high;

discharge when demand is high;

provide balancing services;

provide ancillary services;

reduce network congestion;

support renewable energy; and

participate in electricity trading.

Because storage can operate across several electricity-market functions, ownership may provide a company with a strategic advantage.

For example, a company owning both generation and large-scale batteries may be able to optimise its electricity production and trading activities more effectively than smaller competitors.

3. Competition Act 1998

The Competition Act 89 of 1998 is relevant where storage ownership gives a firm significant market power.

Section 7 establishes the statutory framework for determining dominance, while section 8 regulates certain prohibited conduct by dominant firms.

Possible competition concerns include:

refusing competitors access to storage;

discriminatory access conditions;

exclusionary contracts;

excessive pricing where the statutory requirements are satisfied;

using storage ownership to disadvantage rival generators or traders; and

leveraging storage market power into another electricity market.

Ownership itself is not automatically unlawful. The focus is on the market structure and the conduct associated with that ownership.

4. The Important Senwes Case

A particularly useful South African precedent is Competition Commission of South Africa v Senwes Ltd.

Although Senwes concerned grain storage rather than electricity storage, its legal reasoning is highly relevant because it directly involved the relationship between ownership of storage infrastructure, market dominance and downstream competition.

Senwes owned a large network of grain silos and was dominant in the grain-storage market. Competitors in grain trading depended on access to storage facilities. The Constitutional Court recorded that rival traders faced difficulty competing because of the storage arrangements applied by Senwes.

The case demonstrates why ownership of strategically important storage infrastructure can create competition concerns.

5. Vertical Integration and Exclusion

The Senwes dispute is particularly important because the company was vertically integrated: it operated in the storage market and also participated in downstream grain trading.

The concern was that storage arrangements could disadvantage competing traders.

The Competition Tribunal originally considered whether Senwes' storage tariff practices constituted exclusionary conduct under section 8(c).

The Constitutional Court's decision is useful because it confirms that competition law can examine the effects of a dominant firm's conduct on competition in a related downstream market.

A similar issue could arise in electricity if a company owns substantial battery storage while also competing in electricity generation or trading.

6. Application to Battery Storage

Consider a hypothetical situation where Company A owns most of the large-scale battery storage in a particular electricity market.

Company A also operates an electricity-trading business.

If Company A reserves its storage capacity exclusively for its own trading activities, independent traders may find it difficult to compete.

Competition authorities could therefore examine:

whether Company A is dominant;

whether storage is an important input;

whether competitors have realistic alternatives;

whether access is being restricted;

whether the restriction has an anti-competitive effect; and

whether legitimate efficiency or technical reasons justify the conduct.

7. Storage and Essential Facilities

Some storage facilities may become strategically important infrastructure, particularly where storage capacity is scarce.

However, not every storage facility is automatically an essential facility. The relevant market, available alternatives, technical characteristics and economic conditions must be examined.

Where access is necessary for competitors to participate effectively, transparent access rules can reduce competition concerns.

Possible regulatory safeguards include:

non-discriminatory access;

transparent capacity-allocation procedures;

published technical requirements;

transparent pricing;

independent operation;

restrictions on discriminatory information sharing; and

monitoring of affiliated transactions.

8. Storage Ownership and Market Concentration

Competition authorities may also examine mergers involving storage assets.

For example, if a major electricity generator acquires a large battery-storage company, authorities could examine whether the transaction:

increases concentration;

eliminates an independent storage competitor;

strengthens the buyer's generation-market position;

restricts rivals' access to flexibility services; or

creates opportunities for foreclosure.

The Bidvest Group Ltd and Island View Storage Ltd merger provides another useful storage-related competition precedent, although it concerned liquid-bulk storage rather than electricity storage. The Competition Tribunal examined horizontal concentration and market shares before approving the transaction without conditions.

9. Storage and Renewable Energy

Battery storage is becoming increasingly important for solar and wind generation.

Concentrated storage ownership could influence:

renewable-energy dispatch;

electricity prices;

balancing markets;

ancillary-service markets;

congestion management; and

access to flexible electricity capacity.

Therefore, competition authorities and energy regulators may need to consider storage ownership as part of the wider electricity-market structure.

10. Regulatory and Competition-Law Balance

Storage regulation should not unnecessarily prevent investment. Large storage projects can generate legitimate efficiencies, including improved grid stability and greater integration of renewable electricity.

Competition law therefore requires a balance between preventing exclusionary conduct and recognising genuine technological or efficiency benefits.

The Senwes litigation illustrates this balancing approach: exclusionary conduct must be assessed in terms of its effect on competition and any claimed efficiency justification.

11. Conclusion

Competition concerns in storage ownership arise when control over scarce or strategically important storage capacity can influence competition in electricity markets.

The most useful South African precedent is Competition Commission v Senwes, because it demonstrates how ownership of storage infrastructure can interact with dominance and downstream competition.

The Bidvest/Island View Storage merger decision is also useful for understanding competition analysis involving storage assets.

For electricity markets, the legal framework should therefore focus on market concentration, access to storage, vertical integration, discriminatory conduct, foreclosure risks and efficiency benefits. As battery storage expands, transparent ownership and access rules will become increasingly important for maintaining competitive and efficient electricity markets.