The new Balancing Reserve service is due to launch on March 12th, following final Ofgem approval for the service. This will introduce a new service designed to guarantee balancing reserves in the control room, which battery energy storage registered in the Balancing Mechanism will be able to participate in.
You can read more about the final parameters of the service in our explainer here.
But what technologies are likely to participate, and at what price? And how could batteries incorporate the service into a trading strategy?
- Balancing Reserve is open to BMUs over 1 MW. Batteries will see competition for contracts from CCGTs, gas peakers, and wind in particular, with availability fees set by opportunity cost.
- The Negative Balancing Reserve service may see consistently low availability fees set by wind and CCGTs.
- Positive Balancing Reserve prices are likely to be volatile based on wholesale market conditions. Prices may be as low as £0.01/MW/h much of the time, with some periods seeing upwards of £100/MW/h .
- The service offers potential for stacking, allowing batteries to integrate Balancing Reserve with existing strategies like Dynamic Regulation High.
- While the main revenue uplift comes from availability payments, it remains to be seen how the introduction of the service may impact utilization of batteries in the Balancing Mechanism.
Storage is almost unique in providing bi-directional reserve, but it will face competition for contracts
All Balancing Mechanism Units (BMUs) above 1 MW that meet ramping and energy requirements can provide Balancing Reserve. This means a wide range of technologies can compete for contracts in either direction. However, of these, only storage, and CCGTs running at part-load, will be able to provide the service in both directions.
The opportunity cost of maintaining availability within the service will set a unit’s pricing - and this is likely to differ significantly by technology.
Negative Balancing Reserve
Aside from storage technologies, CCGTs and wind generation are most likely to compete for Negative Balancing Reserve contracts.
CCGTs can provide negative reserve at a low availability fee if they are already running above their Stable Export Limit (SEL). Likewise, wind can provide the negative service at very low cost if already generating. The costs of providing the service come if they are dispatched, and this can be covered via a utilization fee in the Balancing Mechanism.
Between these two technologies, we expect availability fees for Negative Balancing Reserve to be very low. This may leave little room for batteries to compete.
Positive Balancing Reserve
CCGTs (when running) and gas peakers (OCGTs and reciprocating engines) are expected to compete for Positive Balancing Reserve contracts. The availability fee of these units depends on the opportunity cost of maintaining reserve headroom. This is determined by what they could earn selling energy in the wholesale market.
If power prices do not exceed the short-run marginal cost of running, gas peakers won’t run. When this is the case, these units can provide availability for Positive Balancing Reserve at a very low cost. When these units can profitably run in the wholesale market, they have a much higher availability fee, set by the profit they would have made selling power instead.
This pricing behavior can be observed in the STOR market.
STOR is a good indicator of Positive Balancing Reserve prices
Balancing Mechanism-registered gas peakers and OCGTs provide 90% of procured Short-term Operating Reserve (STOR) volume. This market is similar to Balancing Reserve, with an availability and utilization fee, and so could provide an example of expected prices.
In January 2024, 33% of availability provided by gas peakers was priced at £1/MW/h or lower - but this number varies significantly day-to-day.