Falling revenues are leading to changing operational strategies for battery energy storage. This includes changes in how much cycling some operators are willing to perform in the pursuit of additional revenue. Battery energy storage systems averaged more than 1 cycle per day for the first time in Q4 of 2023, a 9% increase from Q3.

In Q3 of 2023, Modo Energy looked at how grid-scale batteries in Great Britain were cycling. After a reduction in October, batteries continued the trend of increasing cycles each quarter throughout 2023.

So, why did this increase in cycling occur? And what batteries and strategies are driving this?

• Batteries averaged over 1 cycle per day for the first time in Q4 2023, a 9% rise from Q3. This increase was mainly driven by one-hour batteries, which saw a 20% increase in daily cycles.
• Higher cycling strategies for one-hour batteries led to higher revenues. This was achieved by focusing on Dynamic Regulation High alongside wholesale trading.
• The composition of Dynamic Regulation High service shifted from being dominated by two-hour batteries to one-hour batteries, which now provide 56% of the service’s volume.
• Cycling twice daily rather than once increased revenues by 38% for one-hour batteries in December. This premium for additional cycling increased from 23% in Q3 following falling revenues.

One-hour batteries are driving increased cycling

The 9% increase in the average number of daily cycles in Q4 was driven by operators turning to higher-cycling strategies in search of higher revenues. This was due to reductions in frequency response prices in November and December following the launch of the Enduring Auction Capability.

One-hour batteries were the main cause of the overall increase in cycles. These systems averaged 1.07 cycles per day across the quarter, a 20% increase from Q3. They hit an all-time high of 1.15 daily cycles in December. By contrast, 2-hour assets averaged 1.08 daily cycles in Q4, 5% lower than in Q3.

Higher cycling strategies led to higher revenues for one-hour batteries

The cycling of batteries is heavily linked to revenue strategy. Systems averaging less than half a cycle predominantly operated in Dynamic Containment. These were hit hardest by the fall in frequency response prices, averaging £28k/MW/year in Q4.

Meanwhile, one-hour batteries averaging two cycles or more per day all followed a strategy focused on Dynamic Regulation High, earning up to £50k/MW/year on average. Two-hour batteries pursuing the same strategy cycled half as much.

Finally, those cycling once per day tended to follow a mixed strategy across various markets. This resulted in an average of £36k/MW/year.

More one-hour assets are following a Dynamic Regulation High strategy

One-hour duration batteries chasing additional revenue has caused a big shift in the makeup of Dynamic Regulation High. Since its launch, the service has been dominated by two-hour systems. In October these made up almost 60% of the service’s volume. By December, most Dynamic Regulation High was instead procured from one-hour batteries, providing 56% of volume during the month.

This shift has happened despite the requirement volume for Dynamic Regulation increasing from 200 MW at the end of Q3 to 350 MW at the end of Q4. One-hour duration systems, therefore, are importing much more energy through Dynamic Regulation High than previously. Subsequently this has increased their cycling, accounting for 33% of the increase for one-hour systems.

This shift has increased the average cycles measured across all batteries, alongside a wider increase in wholesale trading as more battery capacity went uncontracted than ever before at the end of 2023.

What does a Dynamic Regulation strategy look like?

For one-hour assets such as Capenhurst 2, following a Dynamic Regulation High strategy meant cycling 50-100% more than two-hour systems doing the same. To understand what this strategy looks like in practice and how it impacts cycling for different assets, let's look at an example from November 22nd.

On this day, both Capenhurst 2 (One-hour, EDF) and Hawkers Hill (Two-hour, Tesla) operated a Dynamic Regulation High and wholesale trading strategy. Both batteries provided between 12 and 20 MW of Dynamic Regulation High throughout the day. This meant they were importing energy whenever frequency was high.

However, due to its lower energy capacity Capenhurst 2 needed to discharge this energy far more frequently. This meant selling small amounts of energy at off-peak times throughout the middle of the day. Meanwhile, Hawkers Hill had the energy capacity to hold energy through the day and then sell the energy during the evening peak, earning an additional £100/MW.

This additional value came despite Capenhurst 2 performing three cycles compared to the two Hawkers Hill performed. This demonstrates why two-hour assets can earn more revenue while following the same strategy, at a lower average cycling.

As revenues fall, the uplift from extra cycling is becoming proportionally more important

While cycling more has led to increased revenue, it ultimately causes increased degradation for the battery. This reduces the useable energy in the system, which could impact future revenues.

In Q3, one-hour batteries that performed two cycles per day earned £46k/MW/year on average. This was £11.1k/MW/year more than batteries that cycled once per day. In Q4, this revenue uplift was £10.8k/MW/year, dropping to £9.7k/MW/year in December.

However, overall revenues fell by even greater amounts. One-hour systems earned 45% less revenue in December than in October, with revenues dropping to £26k/MW/year on average. This meant the uplift in revenue from performing two cycles versus one in December increased to 38%, compared to 23% in Q3.

Cycling strategy is about more than just revenues

Some operators have contracts with the asset owner that include a revenue ‘floor’. This means the operator must pay out on the floor if revenues fall below, and they may also earn no optimization fee. This could explain why some operators opt for a higher cycling strategy with certain systems to keep revenues above a floor.

While cycling more has led to increased revenue, it ultimately causes increased degradation for the battery. This reduces the useable energy in the system, which could impact future revenues. Additionally, the number of cycles possible is limited by each system’s warranties - many may still only allow one cycle per day. Therefore whether the uplift from additional cycling is worth it will differ by battery system, owner, and optimizer.

Source Data:

1. Modo Energy Live Asset Operations
2. DX Sell Orders
3. Modo Energy Index Breakdown GB