What did battery energy storage asset success look like in 2022? In December, we published our review of the battery energy storage market in 2022, giving a sneak preview of our 2022 leaderboard.
This article presents the full leaderboard for 2022 alongside some key trends and best-performing strategies we’ve identified.
In the video below, Wendel walks you through just what revenues for 2022 looked like on an asset-by-asset basis.
Spoiler alert
- Two-hour systems generated the highest revenues for 2022 thanks in part to the launch of Dynamic Regulation
- The relationship between duration and revenues is growing stronger with the saturation of Dynamic frequency response markets
- The optimal operational strategy changed throughout the year, with monthly FFR strategies going from worst to best in 6 months
The Leaderboard
Important things to note: Only battery energy storage systems in operation since the start of 2022 have been included. EFR systems are also excluded. Triad revenues have not been included.
Key trends from the year
Duration plays a bigger role
Dynamic Regulation was introduced in April 2022, and we are now seeing the duration of battery energy storage starting to impact its earning potential. This is clear by looking at the additional value Contego has earnt over the rest of the battery fleet.
Why is Dynamic Regulation better suited to two-hour systems? Dynamic Regulation is a very high utilization service - around 20 times higher than Dynamic Containment. A two-hour has half the cycling of a one-hour system and so can bid twice the MW volume as a one-hour system with the same cycling output.
Figure 2 shows the distribution of annual revenues for the year plotted against system duration.
Excluding Contego, a positive trend is still visible but not as obvious. The main reason for this is the prevalence of two revenue streams across the entire fleet.
Dynamic Containment (61%) and Monthly FFR (31%) have accounted for 92% of all battery revenues for the year. These are essentially duration-agnostic services.
The revenue streams mainly affected by duration are Dynamic Regulation, wholesale trading, and the Balancing Mechanism. The three of these have remained small elements of the overall revenue stack for battery energy storage due to the exceptional prices available in other services.
However, with the saturation of dynamic frequency markets in late 2022, prices in Dynamic Containment and Monthly FFR have started to fall. Therefore we expect the relationship between revenues and duration to strengthen in 2023.
Diversifying revenue streams and outcomes
A fascinating and unexpected outcome of the year is that, despite the record high prices in Dynamic Containment and Monthly FFR, the best-performing assets have been those with the most diversity in revenue streams.
In fact, there hasn’t been a single operational strategy that has dominated the entire year.
Figure 3 below shows the distribution of monthly revenues across the year, grouped by operational strategy.
Note: ‘operational strategy’ refers to the frequency response services an asset participated in. Balancing Mechanism and wholesale market revenues are still included in these numbers.
The optimal operational strategy in any given month has changed continuously throughout the year. An FFR-heavy strategy would have seen a battery losing out on up to 3 times as much value during the summer. By contrast, this strategy has been responsible for the highest returns this winter.
This all shows that the best outcomes come from being flexible in which revenue streams are accessed on a monthly basis or even daily basis.
Operational case studies
Contego
Contego is a two-hour battery energy storage system operated by Tesla and owned by Harmony Energy-FRV. It has been the best-performing battery of 2022.
Figure 4 shows the monthly revenues Contego has earnt throughout the year, alongside the Modo Benchmark for each month.
Contego was one of the first batteries to enter the new Dynamic Regulation service launched in April, and it has yet to look back.
A Dynamic Regulation-heavy strategy in April and May transitioned to a hybrid Dynamic Regulation High/wholesale trading strategy as prices changed across the year. The additional value it could earn in this strategy saw it more than double the benchmark multiple times.
Even while prices in Dynamic Regulation High crashed to zero as other operators clocked onto the strategy, the value Contego has earned from stacking wholesale trading on top has still seen it outperform the rest of the battery fleet.
Red Scar
Red Scar is a 1.5-hour battery energy storage system operated by Habitat Energy and owned by Gresham House. It has been the third-best-performing battery of 2022.
Figure 5 shows the revenues earnt by Red Scar across the year alongside the monthly Modo benchmark.
Red Scar has been one of the best batteries at maximizing value from every available revenue stream. At different points across the year, it has had significant contributions from each major revenue stream: from monthly FFR at the beginning of the year to Dynamic Moderation in November and December.
However, Red Scar really outperformed in what is generally considered a significantly underperforming revenue stream. It earnt by far the most revenue in the Balancing Mechanism of any battery asset, at £7k/MW/yr. The next highest is Creyke Beck at £5.8k/MW/yr.
While overall still a small part of Red Scar’s revenues, it did contribute significantly in certain months. The Balancing Mechanism delivered 14% of Red Scar’s monthly revenue in December.
Red Scar is located near Preston, in a region of the network which sees constraints with onshore wind flowing south from Scotland and offshore wind connecting in from the Irish Sea.
The additional value Red Scar has earned in the Balancing Mechanism is the first evidence we have seen of location driving significantly different outcomes in this service.
This is one to watch in 2023, as the Balancing Mechanism is expected to become even more important with falling revenues elsewhere.
Leaderboard table
Find the full leaderboard for 2022 below:
