Methodology - Indices

The Importance of Methodology

Methodologies set the guidelines that define how an index and benchmark functions and performs.

Understand the details of the
region most important to you

Great Britain

ERCOT

Electric Reliability Council of Texas

CAISO

California Independent System Operator

Our index approach consists of four primary components:

ConstructionHow assets and markets are selected to evaluate battery energy storage system performance.

CalculationHow index results are generated.

WeightingHow index components are weighted relative to one another.

ReviewHow indices are routinely maintained.

The Index Framework

Understanding the methodology behind an index is vital in influencing how it should be interpreted and its intended application.

Index results can vary greatly unless they follow the same methodology. Knowing how an index is created and its impact on performance is important due to the complex nature of energy markets. This is vital for stakeholders evaluating battery energy storage system performance.An index methodology defines the rules for creating, calculating, and maintaining an index, including which assets are eligible, how the index value is calculated, and how and when updates are made.A core principle of Modo Energy and our index methodology is transparency. We provide comprehensive methodologies to ensure our industry indices can be accurately replicated.

Construction

At the core of an index methodology are the rules that guide its creation.

These rules define which battery energy storage systems and revenue streams are included in an index and which are excluded. When creating these rules, two key factors are considered:

What is the index's intended use?

The index may be used to benchmark battery energy storage system performance, support investment decisions, be used as a performance target in energy storage optimization contracts, used in financial derivatives, or facilitate research.

What scope does the index aim to represent?

The index's purpose is to track the performance of battery energy storage systems. Battery energy storage system projects vary in characteristics, so indices may be designed to showcase specific features, such as regional placement, energy capacity, if the battery assets are colocated with other energy resources, or across different geographies.

Eligibility and Selection Criteria

Eligibility and selection criteria determine which battery energy storage system assets are eligible for and ultimately included in an index. Typical criteria include visibility of commercial operations from publicly available data, an asset's capacity size, the geographical location of the project, battery storage technology, and the involvement of any third-party trading contracts.

Criteria for Inclusion

Criteria used to pick assets for inclusion in an index:

Visibility of operations - the inclusion of assets is dependent on the visibility of their commercial operations through publicly available data.
Third-party trading contracts - tolling or floor arrangements may dictate the exclusion of certain assets.
Battery storage technology - must be a lithium ion-based battery energy storage system.
Asset capacity - must be a minimum of 1 MW nameplate capacity (this limit is subject to being higher dependent on geographical market).
Location - assets must operate under the same electricity system operator.

Weighting

Once the index components are selected, each asset's capacity determines the relative influence that asset will have on index performance.

The Modo BESS Index uses a factor weighting, which is either the asset's nameplate capacity (MW) or energy capacity (MWh). The assets that qualify for inclusion are weighed in proportion to the size of either capacity rating.

Weighted by nameplate capacity

Asset

Normalized revenue

Nameplate capacity

Total revenue

Weight

2,667USD/MW

200MW

533,400USD

35%

2,343USD/MW

50MW

117,150USD

7,823USD/MW

100MW

782,300USD

51%

4,448USD/MW

25MW

111,200USD

Calculation

Understanding how an index is calculated helps stakeholders understand how it measures market performance.

Index values are calculated as frequently as data permits. This is on the same working day that all required data inputs are made available by the given data provider. Once data collection is complete, a standardized set of approaches, formulas, and calculations are applied.The index value is calculated by dividing the index market capitalization by the index divisor.

Weighted by nameplate capacity

Asset

Normalized revenue

Nameplate capacity

Total revenue

Weight

2,667USD/MW

200MW

533,400USD

35%

2,343USD/MW

50MW

117,150USD

7,823USD/MW

100MW

782,300USD

51%

4,448USD/MW

25MW

111,200USD

Total

17,281USD/MW

375MW

1,544,050USD

100%

1,544,050 USD

Index Market Capitalization

375 MW

Index Divisor

4,117 USD/MW

Index Value

Understanding the DivisorThe divisor is a crucial part of index calculation. It acts as the denominator in the equation, with the numerator being the total revenue generated by the assets in the index.The divisor is the cumulative sum of the capacity of assets contributing to the index. This metric allows for a more meaningful comparison by accounting for the size differences between assets. It shows how much revenue is generated per megawatt (or megawatt-hour) of capacity, providing a clearer picture of efficiency and performance across various assets, regardless of their total capacity.This standardization helps assess the profitability and effectiveness of different storage systems, using the index as a benchmark for performance.

Review

An essential part of an index methodology is ensuring that an index remains consistent with its objective.

Electricity markets evolve with new products and the retirement of old ones, so our index methodology may require adjustments to capture all market opportunities for battery energy storage assets. This keeps our indices aligned with their objective to evaluate and measure the performance of battery energy storage systems in wholesale markets.As only publicly available data is used, updates can be made to improve accuracy when new opportunities arise. This could be from new analytical improvements or the availability of new datasets.All changes are systematically documented in the appendices of each regional methodology, ensuring traceability.

“Modo Energy enables us to capitalise on new revenue lines - We were able to immediately participate in the Balancing Reserve, resulting in a 20% increase in our average £/MWh since its launch.”

David MenendezManaging Director UK & BESS at FRV

Weighted by nameplate capacity

Weighted by nameplate capacity

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