Throughout October, we reviewed battery buildout in Q3, the latest pipeline to 2027 and the value of local flexibility markets for battery energy storage systems. We also updated the GB Forecast to version 3.2 and took a look at how this relates to NESO’s winter outlook for 2024/25.
A quick summary of the key findings from October’s research is given below
October summary
- Batteries in Great Britain earned their highest revenues of the year in October at £58k/MW/year.
- Batteries focused on Dynamic Regulation High and the Balancing Mechanism earned the highest revenues
- Operational Utilization is a type of local flexbility service that could be suited to grid scale batteries, as it operates in similar way to the Balancing Mechanism, but with significantly smaller volumes.
- Version 3.2 of the Modo Energy Battery Revenue forecast for Great Britain introduces advanced demand modeling for electric vehicles and heat pumps, and other changes related to Capacity Market derating factors and commodity prices.
- Wholesale price spreads are expected to increase by 60% in winter 2024/25 compared to winter 2023/24
- Q3 2024 saw the highest buildout of the year so far, with 259 MW of new build battery capacity beginning commercial operations.
- Long term battery revenues are forecast to increase to an average of £110k/MW/year—almost half of their 2022 peak but more than double current revenues.
Could local flexibility markets be valuable for grid-scale battery energy storage?
In 2023, distribution network operators (DNOs) contracted a record 3.2 GW of capacity into local flexibility services. The size of this market has grown by an average of 50% per year over the past four years. Could these services prove valuable for grid-scale BESS?
Out of the three general flexibility service designs, Operational Utilization services could be the best-suited to grid-scale battery energy storage. This market is structured similarly to a distribution-level Balancing Mechanism, allowing batteries to earn revenues from utilization fees, without sacrificing trading flexibility by contracting capacity at peak times.
Modo Energy subscribers can read the full article to learn how these services are structured, and which batteries are currently contracted.
More demand, more competition: The impact of Improved modelling of demand with advanced considerations for electric vehicles (EVs)
In early October, we published the latest update of our model for Great Britain - version 3.2 (Q4 2024).
The update includes:
- Improved modelling of demand with advanced considerations for electric vehicles (EVs), vehicle-to-grid (V2G) and heat pumps
- Updated Capacity Market derating factors, commodity price outlooks and Balancing Mechanism dispatch rates
- Refreshed capacity buildout for wind, gas and battery energy storage systems (BESS)
- Improved revenue modelling for large BESS (>300MW)
The electrification of transport and heat - via EVs and heat pumps - will have implications for the grid, power prices and BESS revenues. Both increase total demand, change the daily demand profile and also introduce potential new sources of flexibility which can compete with batteries.
According to our latest model, electric vehicles will account for 15% of total overnight demand by 2035, largely from smart chargers utilizing cheap overnight power prices.
Read more about the updates in V3.2 and catch up on the livestream. Modo Energy forecast subscribers can also access the forecast to build your own views.
Battery energy storage revenues have fallen two-thirds from their 2022 peak - how much could they recover?
Battery energy storage revenues in Britain today are around 60% lower than they were at their peak in early 2022. This comes as frequency response markets have saturated, leading to prices one-seventh the value since then.
Trading strategies have shifted towards wholesale markets and the Balancing Mechanism - which we forecast will deliver 93% of lifetime revenues for a two-hour battery.
In the long term, we project battery revenues to increase to an average of £110k/MW/year—almost half of their 2022 peak but more than double current revenues.
But what does this mean for the investment outlook for batteries? At current Capex levels, this exceeds the £74k/MW/year to £85k/MW/year revenues that we estimate are required to make an acceptable return on investment.
We refreshed our GB BESS Outlook for Q4 2024, including the latest data from version 3.2 of the forecast. Head to the executive summary to read more.
Higher power price spreads expected during winter in Great Britain
Wholesale price spreads are £90/MWh In winter 2024/25, in V3.2 of the GB BESS forecast. This is a £35/MWh increase from the price spreads seen in winter 2023/24. In winter 2023/24, price spreads in the day-ahead market averaged £55/MWh. This was due to relatively low volatility in the wholesale market.
This winter, higher spreads are expected due to the retirement of Great Britain's last coal power plant, increased gas prices, and reliance on wind generation - which can lead to high prices on low wind days and negative prices on high wind days.
Great Britain is also expected to be a net importer across winter, due to lower power prices in Europe. This leads to a greater reliance on interconnectors, which could also increase price volatility.
To find out more about what the grid is expected to look like over winter 2024/25 and the impact on battery energy storage revenues, read the article here.
259 MW of new battery capacity began commercial operations in Q3 2024 in Great Britain
Q3 2024 saw the highest amount of new-build battery energy storage capacity begin commercial operations in 2024 so far. This new capacity came from nine batteries and, for many owners, represented the first sites to be operational in markets in Great Britain.
Following the addition of these new sites, total battery capacity in Great Britain stands at 4.3 GW with a total energy capacity of 5.8 GWh. This means the average duration of batteries in Great Britain is 1.33 hours.
Q3 is a significant quarter for battery buildout each year as it's the final quarter before the start of the new Capacity Market year. 4.3 GW of battery connection capacity has agreements that started at the beginning of October. Of the 1.6 GW yet to come online at the start of Q3, 0.2 GW began commercial operations by the end of the quarter. This means 1.4 GW of connection capacity is still yet to begin commercial operations.
Despite Q3 having the largest buildout of the year so far, battery buildout in 2024 lags behind the buildout of 2023. Owners and developers have pointed to grid connection queues, DNO scheduling, grid outages and equipment issues causing delays.
Visit the article to learn which batteries began commercial operations, how much new capacity is projected to be online by the end of 2024, and to download the latest version of the pipeline.
On the Podcast, Aaron Wade explores battery energy storage costs in 2024 and beyond
Topics on Transmission in October ranged from exploring the latest in supply chain insights and cost projections to understanding what Virtual Power Plants (VPPs) are. We also dived into the German energy market, power systems and BESS in The Netherlands and the latest summer revenues in ERCOT.
Understanding the factors driving cost reductions in battery cells is crucial for staying competitive. As demand for energy storage skyrockets, the pressure to reduce costs has never been higher. Material costs are not the only thing influencing prices, breakthroughs in cell chemistry, system efficiency and manufacturing practices all play a role in determining system prices.
Further episodes on the podcast include:
- BESS and the German energy market with Lars Stephan
- Virtual Power Plants with Geoff Ferrell
- Battery storage in The Netherlands with Rens Savenije
- ERCOT summer revenues update with Brandt Vermillion