Pricing
21 Mar 2024
Zach Jennings

Balancing Reserve: First week in review

Balancing Reserve was launched last week, with batteries dominating the first auction. The service is being introduced to reduce the costs of balancing the system and provide the ESO better visibility of reserve volume. After one and a half weeks, are batteries still dominating the service, what have prices been, and how is Balancing Reserve affecting Balancing Mechanism dispatches?

  • Balancing Reserve has accounted for 12% of all battery revenue since its launch. 43 batteries have participated so far.
  • Positive reserve prices have averaged £4.45/MW/h, while negative reserve prices averaged £1.07/MW/h due to a low price cap of £1.55/MW/h.
  • Prices in the positive service have stabilized since high prices in the first auction, below £5/MW/h in 87% of settlement periods. This is due to gas peakers entering the market.
  • Batteries providing the positive service received an in-merit dispatch rate for Balancing Mechanism Offers of 9.4%, compared to 7.4% for those that didn’t secure a contract

Balancing Reserve prices have stabilized after early volatility

Prices for the positive service in the first auction were volatile, ranging from £0/MW/h to £29/MW/h, averaging £9.57/MW/h. Since then, prices have stabilized, with 87% of settlement periods seeing prices below £5/MW/h.

Negative reserve prices have averaged £1.07/MW/h. This is because the ESO has capped prices at £1.55/MW/h. Positive reserve also has a price cap, which follows the typical shape of the demand curve, peaking at 07:00 and 18:00 daily.

When wholesale prices increased, like on March 20th at 18:00, clearing prices in positive reserve also rose.

Gas peakers are competing for Positive Balancing Reserve, flattening prices

An increase in the volume of gas peakers bidding for the positive service has been the main driver behind the reduction in clearing prices.

These units largely sat out the first auction, offering just 64 MW in each 30-minute period on average. Since then, gas peakers have bid 270 MW across the day, and over 90% of this volume is priced below £5/MW/h.

Gas peakers compete with batteries for most Positive Balancing Reserve volume. Gas peakers and batteries have each provided 45% of positive Balancing Reserve on average, with the remainder coming from CCGTs. At times when gas peaker bid prices have risen batteries have provided over 75% of positive reserve volume.

Battery bids are less dependent on the wholesale price than gas peaker bids

Positive Balancing Reserve bids from individual battery units have varied little from one settlement period to the next. Most units bid at the same price throughout the entire day. This is because there are multiple revenue streams batteries can operate in which are available later. They have therefore bid an availability fee representing the opportunity cost of providing reserve.

Gas peakers have fewer revenue streams available, as they mainly look to sell energy on the wholesale market. This means that while the majority of bid volume from gas peakers is below £5/MW/h, this changes depending on wholesale prices.

On March 20th, the day-ahead Nordpool wholesale price reached £112/MWh at 18:00. As a result, all gas peakers increased their bids. These bid prices meant the clearing price rose to £20.45/MW/h for that settlement period.

Coal and CCGTs are now providing most of Negative Balancing Reserve

Coal and CCGTs now account for most contracted Negative Balancing Reserve volume. The low price cap of just £1.55/MW/h means accepted volume is often below 100 MW, all provided by batteries. However, when CCGTs and Coal are online during peak demand periods, they provide cheap negative reserve availability. This allows the ESO to purchase over 400 MW of Negative Balancing Reserve within the price cap.

Balancing Reserve could be improving in-merit dispatch rates for batteries

The in-merit dispatch rate for batteries reached 8.5% in the week following the launch of the new service. This is higher than the average across the previous month, which was a record high.

This increase is mainly driven by batteries with Positive Balancing Reserve contracts. These units received a dispatch rate of 9.4% for Offers in the Balancing Mechanism, compared to 7.4% for those without a positive reserve contract. This suggests that being contracted in the service could have a positive impact on Balancing Mechanism dispatches.

43 batteries have provided the service so far, and these units comprise 65% of Balancing Mechanism registered batteries. As this figure increases, we should better understand the impact of Balancing Reserve on battery dispatches.

Batteries providing Balancing Reserve currently top the leaderboard

The GB BESS index has averaged £34k/MW since the service's launch, with Balancing Reserve revenue comprising 12% of this figure. This is a 48% rise on the 21 days before the service launched.