GB Methodology

Modo Energy generates benchmark data for battery energy storage systems across different geographical energy markets. The Indices are produced using a standardised set of procedures that is mathematical, consistent, and fully transparent.

1. Introduction

While Modo Energy fully recognises that battery energy storage assets trade in different ways (due to the particularities of each market), the approach taken when assessing revenues is consistent for each market analysed.

The Modo Energy Great Britain Methodology Framework outlines the calculation and construction of Modo Energy’s battery energy storage Indices in Great Britain. This document provides detailed insights into:

• the inclusion criteria for assets;
• the components that make up published revenues;
• and the methodologies employed;

to ensure accurate and reliable benchmarking for Great Britain’s battery energy storage sector.

1.1 Representation

Modo Energy’s Indices are designed to track the performance of grid-scale lithium-ion battery energy storage systems in Great Britain. Given that the characteristics of battery energy storage projects vary from asset to asset, Modo Energy’s Indices may be designed or configured to showcase and compare specific attributes (e.g. system duration).

2. Index Construction

2.1 GB BESS IndicesME BESS GB Indices

Modo Energy currently produces three Indices which track the performance of battery energy storage systems in Great Britain. These are:

• GB BESS IndexME BESS GB: Includes all qualifying assets in Great Britain.
• GB BESS Index (1hr)ME BESS GB (1H): Includes all qualifying assets with a duration of less than 1.5 hours.
• GB BESS Index (2hr)ME BESS GB (2H): Includes all qualifying assets with a duration of more than 1.5 hours and less than 2.5 hours.

2.2 Inclusion Criteria

To be included in the Indices, battery energy storage assets must meet specific criteria:

• Size: Assets must be 6 MW or larger.
• Metering: Assets must not share a meter with co-located assets.
• Registration: Only Balancing Mechanism Unit (BMU) assets are included, as non-BMUs lack operational visibility outside of frequency response markets.
• Availability: Assets must be available (as defined in section 2.2.1, below).

2.2.1 Asset availability

Asset availability is determined by daily market activity. Only assets with recorded market activities - such as submission of Final Physical Notifications or frequency response contracts - are considered active assets and included in the daily Index calculations.

Inactive assets, without any market activity on a given day, are excluded from the Index for that day. This applies to all revenue streams, except for the Capacity Market (see section 4.2.5) - for which the revenues and capacity of all assets with active Capacity Market contracts are included.

3. Revenue Components

3.1 Revenue Components of Indices

This section details the various revenue streams included in the Indices. Each revenue component is essential for evaluating the overall performance and value of battery energy storage systems in Great Britain.

The revenue components included in Modo Energy’s GB BESS Indices are:

• Dynamic frequency response services: These are real-time services designed to maintain system frequency. These services include Dynamic Containment, Dynamic Regulation, and Dynamic Moderation.
• Wholesale market trades: Wholesale markets are platforms where energy is traded between generators, suppliers, and other market participants.
• Imbalance payments: Imbalance payments are financial adjustments made to energy providers for any deviations between scheduled electricity supply/usage and their actual delivery.
• Balancing Mechanism Actions: The Balancing Mechanism is a system operated by NESO to ensure the supply and demand of electricity are balanced in real time, by dispatching or curtailing power.
• Balancing Reserve/Quick Reserve services: The Balancing Reserve and Quick Reserve services procure guaranteed reserve capacity a day ahead of potential delivery - ensuring that capacity is available (to NESO’s Control Room) to be dispatched in the Balancing Mechanism.
• Capacity Market contracts: The Capacity Market is designed to ensure sufficient reliable capacity is available for long-term energy security. Revenues from Capacity Market contracts reflect the monthly payments from awarded Capacity Agreements.

The Index and its components are reported in terms of net revenues for each settlement period.

3.1.1 Historic revenue components

For historical reference, revenues from retired services such as Dynamic Firm Frequency Response (FFR) and Enhanced Frequency Response (EFR) are included.

3.2 Other revenues monitored (but excluded from Index)

This section outlines the revenue components that are tracked for informational purposes on the Modo Energy platform - but are not included in Index calculations.

3.2.1 TNUoS Charges (Triads)

Transmission Network Use of System charges, specifically Embedded Export Tariffs, are estimated - but excluded from Modo Energy’s Index calculations. Demand charges and Embedded Export Tariff payments are levied against the energy imported or exported during Triads.

‘Triads’ refers to the three half-hour settlement periods of highest demand on Great Britain’s electricity transmission system between November and February (inclusive) each year, separated by at least ten clear days.

3.3 Excluded revenues

Revenues from certain services or arrangements are excluded from Modo Energy’s Index calculations. These exclusions include:

• The provision of voltage, reactive power, or other stability services under Pathfinder or other arrangements.
• Revenues from Mandatory Frequency Response.
• Tolling and floor arrangements.
• Distribution Use of System (DUoS) charges.
• Local flexibility markets.
• Bilateral contracts (e.g. Power Purchase Agreements).

4. Divisor

The divisor plays a critical role in the calculation of Modo Energy’s GB BESS Indices, representing the normalization factor used to calculate the average revenues of the group of assets within the Index.

The total revenue earned across all active assets in the Index is normalized by the total rated power or energy capacity of these daily active assets (see section 2.1.1). Rated power is determined from an asset’s nameplate capacity, not its grid connection.

5. Data sources and methodology

5.1 Data visibility and quality

To ensure accuracy, Modo Energy only includes assets for which it has sufficient visibility of data in its Indices calculations. This means only Balancing Mechanism Units (BMUs) are included, as non-BMUs lack operational visibility outside of frequency response markets.

5.2 Balancing Mechanism Registered assets revenue calculation

Balancing Mechanism revenues are calculated using publicly available data, in accordance with the method outlined in BSC Section T, Paragraph 3.11..

5.2.1 Revenue calculation for Dynamic frequency response services

Revenues from Dynamic response services are calculated based on auction results published by ESO. These include payments for providing Dynamic Containment, Dynamic Regulation, and Dynamic Moderation. Revenues are determined by multiplying the accepted service capacity by the market clearing price for each service. This revenue can be positive or negative. Performance penalties are not included, as performance monitoring data is not made publicly available.

5.2.2 Revenue calculation for wholesale market trades

Balancing Mechanism Units (BMUs) submit physical notifications to NESO, which are used to determine the volume component of the wholesale revenue calculation. As Modo Energy has no visibility over an asset's contracted position, it is assumed that all volume enclosed by the physical notifications of a BMU is fully contracted - i.e., the operator is buying or selling energy on the wholesale market, not at the system (or imbalance) price.

Modo Energy assumes the volume enclosed by an asset's physical notification which follows an hourly shape is traded at the arithmetic average of the N2EX and EPEX day-ahead hourly auction clearing prices. The remaining volume (that follows a half-hourly shape) is traded at the RPD HH index of the EPEX continuous market.

5.2.3 Revenue calculation for Balancing Mechanism actions

Assets are dispatched into the Balancing Mechanism by NESO via Bid-Offer Acceptances (BOAs). BOAs instruct assets to deviate from their physical notifications by a specified amount, over a specified period. Revenues from Balancing Mechanism actions are calculated using Bid-Offer Acceptances data, in accordance with BSC Section T, Paragraph 3.11. This revenue can be positive or negative.

5.2.4 Revenue calculation for Balancing Reserve and Quick Reserve services

Assets contracted into the Balancing Reserve (BR) or Quick Reserve (QR) services receive an availability payment for withholding a portion of their capacity from other markets, providing NESO with guaranteed headroom or footroom. Modo Energy collects the awarded contracts and assigns revenues to assets based on the clearing price for each settlement period and the contracted capacity of each asset. As assets are dispatched via the Balancing Mechanism, utilisation payments are included in the Balancing Mechanism revenue component.

5.2.5 Revenue calculation for Capacity Market contracts

Payments for assets holding Capacity Market contracts are evenly distributed across all settlement periods within the month and adjusted using monthly payment weighting factors from the Low Carbon Contracts Company, which scale payments based on demand levels throughout the year. The payments are calculated using the de-rated capacity of the Capacity Market agreement and the clearing price for that auction. Additionally, payments for T-4 contracts are adjusted for inflation using the consumer price index in accordance with Schedule 1 of the Electricity Capacity Regulations 2014.

5.2.6 Revenue calculation for imbalance payments

Imbalance payments are calculated using metering data published by Elexon, beginning with the first settlement run, which occurs five days after delivery. The imbalance is the difference between an asset's contracted position and its metered position, adjusted for any applicable balancing volume, and is settled at the system price.

As explained in section 4.2.2, Modo Energy does not have access to an asset’s contracted position. Therefore, we assume the volume covered by an asset's Physical Notifications (PN) is fully contracted.

For clarity, imbalance payments are calculated as:

ABSVD volume accounts for deviations from the contracted position from delivering applicable balancing services volume. These services include, but are not limited to, Dynamic Frequency Response and Balancing Mechanism actions. The method we follow is outlined in the ABSVD Methodology Statement, which is periodically updated by NESO.

Note that Virtual Lead Party Balancing Mechanism Units do not receive ABSVD payments, as explained by Elexon in this guidance.

5.2.7 Revenue calculation for TNUoS charges (Triads)

Demand charges and Embedded Export Tariff (EET) payments are both levied against the energy imported or exported during Triads. The Triads are the three half-hour settlement periods of highest demand on Great Britain’s electricity transmission system between November and February (inclusive) each year, separated by at least ten clear days.

Triad periods are not officially announced until March, following the winter season. During the winter season, we estimate which periods are likely to be Triads using Elexon's indicative operational Triad peaks dataset, considering only the indicative Triads that exceed a dynamic demand threshold. This threshold will begin the season at a level set by Modo Energy based on demand in the run-up to the winter season and previous years' minimum Triad demand - and will tend towards the minimum demand of Elexon's indicative Triads throughout the season.

TNUoS charges in asset data are liable to shift as the indicative Triad periods are updated by Elexon throughout the Triad season.

5.3 Updates and revisions

The Indices are updated every half-hour settlement period - to reflect the most current data. In cases where more accurate data becomes available after a settlement period finishes, Index calculations are backdated to include this.

6. Governance and Compliance

6.1 Transparency

Detailed explanations of calculation methodologies and revenue components are provided to ensure transparency.

6.2 Stakeholder engagement

Feedback from stakeholders is actively sought - and incorporated into methodology updates. This includes the use of real financial and operational data for internal benchmarking purposes to validate our estimations. Reviews are conducted by a team of experts to maintain accuracy and relevance.

7. Methodology changes

7.1 Review and update process

The methodology is overseen by a dedicated team of analysts to ensure compliance and best practices. The methodology is reviewed periodically to ensure it remains up-to-date with market conditions and regulatory changes. With the introduction of new products (e.g. markets or services in which battery energy storage systems can earn revenues) and the retirement of old ones, the methodology is revised and updated to encompass all market opportunities for battery energy storage assets, provided data is available for assessment.

7.2 Notification of changes

Significant changes to the methodology are communicated to stakeholders in advance, with detailed explanations provided to ensure understanding and transparency. Historical changes are documented and archived in the appendix of this methodology.

8. Consistency and continuity

8.1 Quality assurance

Rigorous quality assurance processes are in place to ensure the accuracy and reliability of all Index calculations. This includes regular audits and validation of data sources and calculation methods.

8.2 Data integrity

Data integrity is maintained through strict data management protocols, including secure data storage, regular backups, and robust data validation procedures.

8.3 Continuity planning

Business continuity planning ensures that benchmark calculations can continue uninterrupted in the event of unexpected disruptions. This includes backup systems and contingency plans for data and operational processes.

Appendix I

Methodology changes

Methodology changes since June 1, 2021, are as follows:

Appendix II

Revenue calculation methodology for Non-Balancing Mechanism Units (non-BMUs)

Whilst Non-Balancing Mechanism Units (non-BMUs) are included in our GB BESS Indices, Modo Energy does provide estimates of non-BMU revenue operations.

Revenue calculations for wholesale market trades

Assets that are not registered as Non-Balancing Mechanism Units (non-BMUs) do not have the same data-sharing requirements as BMUs, so there is less visibility of their physical operations.

Modo Energy assumes that non-BMUs trade on the wholesale market when there is a spread of over 50 GBP/MWh in the Index Price between EFA blocks. Modo Energy assumes these trades only occur in EFA blocks where the asset is not contracted to provide frequency response (even if it is only partially contracted), and that assets do one full charge and discharge cycle in the trade. To replicate real-life inefficiencies in trading strategies, Modo Energy assumes only 70% of this revenue is captured by the asset.

As wholesale revenues are only indicative for non-BMUs, Modo Energy does not report wholesale activity below a one-month granularity. For example, a non-BMU may show wholesale revenues on the monthly Index Breakdown, but will not show wholesale activity on the asset's revenue operation chart for the same month.

Revenue calculations for imbalance payments

By providing frequency response, batteries have to charge and discharge in response to deviations in grid frequency. This energy has to be bought or sold at the system price (also known as the imbalance, or cashout price). To calculate imbalance payments, Modo Energy estimates the volume of energy required to deliver the service by comparing against 1 Hz frequency data. As non-BMUs do not receive ABSVD payments to cover the cost of delivering frequency response services, this volume is exposed to system price. Modo Energy includes these costs as ‘imbalance’.

Revenue calculations for frequency response management

Delivering frequency response causes a battery to charge or discharge, changing its state of charge. This is managed by the battery operator, ensuring that the asset can continue to deliver the service according to its contracted delivery terms.

Modo Energy assumes that enough energy is bought or sold for managing state of charge in each settlement period, so that there is no impact on the asset's state of charge from delivering frequency response across the settlement period. In other words, the volume of energy calculated for imbalance payments is equal to the energy used for state of charge management.

Whilst Modo Energy understands that most non-BMU assets will defer state of charge management until favourable imbalance or wholesale prices can be accessed, there is no visibility over these decisions. Therefore, Modo Energy assumes that state of charge management is done within settlement period, for the purposes on its Indices calculations.

Importing and exporting energy from a battery is not 100% efficient. Modo Energy assumes import efficiencies of 85%, and export efficiencies of 99%. Therefore, to maintain a steady state of charge, an asset must buy 1/0.99 times the energy exported as a result of delivering high Dynamic Response Services, and sell 0.85 times the energy imported as a result of delivering low Dynamic Response Services.

Disclaimer

This document, including the methodologies and indices described herein, is the proprietary work of MODO ENERGY LIMITED ("Modo Energy") and is provided solely for informational purposes. These indices are designed for use in financial analysis, benchmarking, and decision-making. However, they do not constitute investment advice or a recommendation regarding any specific financial instrument, asset, or strategy.

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