There are over 100 grid-scale battery energy storage systems currently operational in Great Britain. Of these, just 16 are two-hour systems - meaning batteries that can continuously import or export electricity for up to two hours. The vast majority of batteries in Britain today are one-hour systems.
However, as the market evolves, we’re seeing two-hour batteries becoming more commonplace. Between July and September, seven new grid-scale batteries became commercially operational in Britain. Five of these, totaling 79% of all new capacity brought online in that time period, have two-hour durations.
It generally costs around 40-50% more to build a two-hour system than a one-hour system. But are two-hour batteries actually earning this amount more in revenue?
In 2023, two-hour systems have earned 28% more than one-hour assets
Battery energy storage systems can earn revenues in a variety of markets. Some revenue streams are better suited to one-hour systems, and some to two-hour systems.
In 2022, battery revenues were dominated by Dynamic Containment. This is because the service was undersaturated for the first three-quarters of the year - leading to consistently high prices.
Providing Dynamic Containment typically requires a battery to cycle 0.1 times per day. As such, one-hour systems can operate in this service constantly, without needing to worry about any warranty cycle limitations.
This also means that two-hour batteries do not have any advantage when operating in Dynamic Containment, and both systems earn the same revenue for doing so. Last year, both one-hour and two-hour batteries averaged around £8,000/MW/month from providing Dynamic Containment.
In 2023 so far, revenues from Dynamic Containment for two-hour batteries have fallen 85% from 2022 levels - but overall revenues have only dropped by 55%.
This is because two-hour batteries can make use of other markets more effectively - particularly wholesale trading and Dynamic Regulation.
Because two-hour batteries can cycle more, they’re better placed to take advantage of larger wholesale trading spreads.
In addition to wholesale revenue, two-hour systems have made almost five times as much money from Dynamic Regulation as one-hour batteries.
Dynamic Regulation requires more energy throughput than other frequency response services, so one-hour systems cannot perform the service continuously without over-cycling the battery. Two-hour systems do not have the same issue (double the energy capacity means cycling is halved).
The gap between one-hour and two-hour battery revenues is growing
The saturation of Dynamic Containment - and the fact that two-hour systems can better take advantage of opportunities in other markets - means that two-hour batteries have outperformed one-hour systems in 2023.
In fact, September 2023 was the first month in which the worst-performing two-hour system earned higher revenues than the best-performing one-hour system (when comparing Balancing Mechanism-registered assets).
Capacity Market contracts can be lucrative for two-hour assets
Two of the best-performing two-hour batteries in 2023 so far have been Hawkers Hill (20 MW / 40 MWh, owned by Tag Energy and operated by Tesla) and Pillswood A (49 MW / 98 MWh, owned by Harmony Energy Income Trust and operated by Tesla).
Pillswood A has been the best-performing two-hour asset without a Capacity Market contract for 2022/23 so far. It has earned 15% more revenue (£/MW) than Hawkers Hill in frequency response and merchant markets.
The benefit of a Capacity Market contract
Hawkers Hill has followed a similar operational strategy (albeit less successfully). However, Hawkers Hill was awarded a lucrative T-1 Capacity Market contract for 2022/23. Since two-hour systems benefit from a higher de-rating factor than one-hour batteries, Capacity Market contracts are more valuable for them.
Hawkers Hill earns £37.50/kW/year from its Capacity Market contract - due to two-hour systems having a de-rating factor of 50% for 2022/23. And, for 2023/24, Capacity Market contracts can still offer a revenue boost for two-hour systems, even with de-rating factors dropping to 37.5%.
By 2030, two-hour batteries will be earning 90% more than one-hour systems
The saturation of Dynamic Containment means batteries are more dependent on merchant markets - i.e. wholesale trading and the Balancing Mechanism.
In 2022, two-hour systems earned 20% of their revenue from these markets. In 2023, that figure has risen to 28% - with winter still to come.
Looking ahead to 2030, Modo Energy’s Central Scenario Forecast predicts that over 80% of revenues for two-hour systems will come from wholesale trading and the Balancing Mechanism.
We expect revenues for two-hour systems in 2030 to be around 90% more than for one-hour assets. Essentially, the difference in potential revenues for two-hour systems in 2030 will fully justify the extra CAPEX, and two-hour systems will see a better rate of return than one-hour systems.