Understanding revenue stacking for battery energy storage

Revenue stacking is the ability to earn revenue simultaneously from multiple sources using the same capacity. In practice, this can be a complex operational task. So, let’s dive deeper into the topic and look at:

• which services can be stacked;
• how revenue stacking works in practice; and
• some real-life examples of revenue stacking.

What can you stack?

Table 1 (below) shows which markets can be stacked (as of August 2022).

Note: Each service in the Dynamic Frequency Response suite (Dx) has a low- and high-frequency service, which can be provided either symmetrically or asymmetrically. This is shown in table 1 (below) as L-H instead of being greyed out.

• Assets cannot stack the different services in the Dx. This includes providers participating in different services at partial capacity (e.g. a 10 MW asset is not allowed to provide 5MW of DC and 1 MW of DR in the same EFA block).
• On 27 January 2021, the rules for the Dynamic Containment (DC) service changed to allow for 'stacking' with the Balancing Mechanism (BM). Fast-forward to August 2022; this means assets can now participate in any of the Dx services and the BM simultaneously.
• The key consideration for providers stacking merchant markets (wholesale/BM) with services in the Dx suite is to ensure stacking doesn’t compromise their ability to deliver the service. This means maintaining an appropriate state of energy (SoE) and always being capable of delivering 100% of their contracted response volume.

How does stacking work operationally?

To revenue stack, decisions must be made ahead of physical delivery. Table 2 (below) shows when auctions close and results are given to market participants (as of August 2022), highlighting when decisions need to be made to make revenue stacking work in practice.

Note: All times discussed below are in GMT and remain this time even when clocks change to BST.

• Firm Frequency Response (FFR) tenders are submitted on the first business day, a month ahead of delivery (e.g. bids for September 2022 delivery would be submitted on 1 August by 17:00). Results are given on the 12th business day (e.g. September 2022 delivery tender results would be given on 16 August).
• In the Balancing Mechanism (BM), gate closure is 1 hour prior to the start of the settlement period to which it relates (e.g. Bid-Offer prices relating to delivery in the Settlement Period 16:30 - 17:00 must be received by the System Operator before 15:30 on the same day).

Asset operators must decide to participate in both day-ahead hourly markets (Nordpool and EPEX) before the Dx services auction results are released. This means if operators were to wait for the Dx auctions results, any wholesale revenue stacking would have to be carried out in the later EPEX day-ahead half-hourly auction or in the intraday market.

For Dx-BM stacking, asset operators can price themselves in close to physical delivery. This can provide arbitrage opportunities but also acts as a great tool to reduce SoE costs when providing services in the Dx. There are limitations to participating in the BM. If you want to know more, check out this recent article - BESS in the BM: understanding the reasons for dispatch and ‘skipping’.

Revenue stacking in action

Example 1: Dx-wholesale stacking (Holes Bay)

In figure 1 (below), Holes Bay uses the high import power associated with providing asymmetric DRH to stack revenues by using wholesale markets (green blocks) to manage its SoE. (Plus subscribers can read more about how Holes Bay was operated on this specific day here.)

Example 2: Dx-BM-wholesale stacking (Red Scar)

In figure 2 (below), Red Scar is stacking three different revenue sources in EFA 6. Whilst providing asymmetric DCH, Red Scar was paid to export in wholesale markets (green blocks) but was turned down (or bid down) in the BM (the purple blocks). This meant the asset mostly stayed idle but managed to stack three different revenue sources simultaneously. (Plus subscribers can read more about how Red Scar was operated on this specific day here.)

Example 3: Dx-BM stacking (GB fleet)

The BM is a great tool for SoE management and can provide lucrative opportunities when stacked with Dx services. As frequency response requirements fall and the market becomes saturated, being able to stack where possible and save money on the cost of SoE management will become more important to net revenues. Figure 3 (below), which shows the total BOA volume for sites with Dx contracts, suggests that currently, most assets are not stacking these services.

Prior to November 2021, DC was exclusively a low-frequency asymmetric service (e.g. assets only exported/discharged power into the grid). Therefore, BM-DC stacking was primarily limited to assets using bids to manage SoE.

Bonus: FFR-merchant ‘soft-stacking’ (Thurcroft)

Figure 4 (below) is an example of ‘soft-stacking’. ‘Soft-stacking’ is participating in multiple markets simultaneously, albeit utilising different MWs. During this period Thurcroft is contracted in monthly FFR at 20 MW of a possible 50 MW and uses its remaining 30 MW of capacity to participate in merchant markets. This highlights the capability to take arbitrage positions in merchant markets whilst contracted at a partial capacity in frequency response services.

Final thoughts

It will be interesting to see how revenue stacking evolves as frequency markets become saturated and the operational complexity of BESS in GB continues to increase. Moving forward, revenue stacking could be vital to BESS Asset Success. At Modo, we’re always keeping a close eye on the market and will make sure to keep you posted with the latest operational strategies and insights.