Big changes are coming to battery energy storage markets in 2023. We’re going to see co-optimized bidding brought in for Dynamic frequency response services, and the launch of new Reserve services. Knowing how to navigate these changes will be vital.
- Being able to provide multiple Dynamic frequency response services will likely be advantageous - as all three services will be able to be provided simultaneously later this year.
- With the launch of Quick Reserve, it could pay to be an early mover. Historically, being quick to market has paid off.
In this article, we explore which assets (and optimizers) have proven capable of providing multiple frequency response services - and who has benefited from early mover advantage in new markets.
Want to download the data behind this analysis? Grab the Excel file here.
Who can provide frequency response services?
Currently, far fewer assets have proven capable of providing Dynamic Regulation and/or Dynamic Moderation than Dynamic Containment. Figure 1 (below) shows this.
- 98 different units have participated in Dynamic Containment to date.
- However, the numbers are much lower in the two new services: 37 in Dynamic Regulation and 32 in Dynamic Moderation.
Dynamic Containment is now a well-established market - with 22 different participants. In fact, it’s so well-established that it’s now completely saturated (read more about the changes this has had on the market here).
Figure 2 (below) shows the market's growth since its launch in October 2020.
- 1.9 GW of battery storage is now able to provide the Dynamic Containment service - an increase of a third in the past three months alone.
- With requirement levels for the service averaging 612 MW over the last month, this demonstrates just how saturated the market is now.
- Saturation has seen prices drop significantly. Therefore, relying on this revenue stream may no longer deliver optimal returns for asset owners.
Meanwhile, volumes in Dynamic Regulation and Dynamic Moderation are expected to increase following the retirement of Firm Frequency Response. This means these services will be responsible for greater value in the market.
Additionally, later this year all three services will be able to be ‘stacked’ (provided simultaneously). So, which optimizers have already proven capable of delivering those services?
Who’s in the other Dynamic frequency response markets?
Initially, takeup in the two newer Dynamic frequency response services was slow - but we’ve seen more assets enter the market over time. These have been the larger systems in the battery fleet, which has quickly filled up the smaller requirement for both services.
Figure 3 (below) shows when each of these batteries first participated in the two services.
So, let’s have a look at which optimizers have entered these services - and when.
You can also download this data as an Excel file here.
Dynamic Regulation
Figure 4 (below) shows how the market for the service has grown - and how prices have evolved.
- To date, 13 optimizers have proven themselves capable of providing Dynamic Regulation.
- As we can see, early movers into the service were able to take advantage of months of high prices - which barely dropped below £30/MW/h until September.
It pays to be an early mover
However, none of this matters if there were better opportunities elsewhere, right? Well, let’s look at a quick case study.
Zenobe’s Open Energi-operated Hill Farm asset (10 MW/12 MWh) was an early mover in the Dynamic Regulation service - and the revenues it earned in those first few months helped it beat the Modo benchmark during the most lucrative period of 2022. (See figure 5, below.)
Dynamic Moderation
Figure 6 (below) shows how the market for Dynamic Moderation has grown - again, alongside prices.
- Low price caps (relative to the other Dynamic frequency response services) have made Dynamic Moderation a comparatively unattractive market for batteries.
- However, early movers were still able to take advantage of consistently higher prices than we see in the service now.
Why have some optimizers stuck with Dynamic Containment?
To date, there have been several good reasons for providers to stay focused on Dynamic Containment:
- Dynamic Containment has delivered record-high revenues since the launch of both products. Prequalification and implementation of new controls take time - which could instead be spent maximizing Dynamic Containment revenues.
- Requirement volumes for the two never Dynamic frequency response services have remained lower than Dynamic Containment - so winning contracts can’t be guaranteed.
- Both services require higher cycling than Dynamic Containment - especially Dynamic Regulation - and providers may prefer to opt for the lower-cycling option.
Of course, there isn’t a single ‘correct’ strategy. An asset or optimizer hasn’t underperformed simply because they haven’t participated in certain markets.
Why does this matter?
Ultimately, it’s impossible to say which optimizers are best prepared for the coming changes in frequency response services (and beyond). However, past behavior can be a decent indicator of what’s to come.
So, what will battery energy storage owners and operators need to watch out for in 2023?
- Autumn 2023 will bring the new Enduring Auction Capability (head here to read our explainer). This platform will allow co-optimized auctions - and up to three-way stacking - for the three Dynamic frequency response services. Being able to provide all three of these services will likely be an advantage in the new auctions.
- Historically, those first into markets have been able to take advantage of higher prices - before competition increases. Quick Reserve is set to begin in October - and early movers could benefit. (Head here to find out more about Quick Reserve.)
- This will all bring changes to bidding and control strategies. Early participation in a market indicates an ability to update strategies and technologies to take advantage of new services.
Interested in the data behind this analysis? Head here to download the Excel file.