The GB BESS index increased 3% in February to £22.6k/MW/year after three consecutive falling months. Increases in Balancing Mechanism and Frequency Response revenues more than offset a fall in wholesale revenues.
- Balancing Mechanism revenues reached £7.5k/MW/year, an all-time high for batteries
- Frequency response revenues rose after hitting record lows last month
- Despite wholesale price spreads falling 20%, wholesale revenues only decreased 3% to £12k/MW/year
- Batteries earned £37k/MW/year when including Capacity Market revenues of £14.3k/MW/year
- The overall GB BESS index increase reverses three months of consecutive revenue reductions
So, what were the main factors affecting battery revenues this month?
Dynamic Regulation and Balancing Mechanism revenues caused the rise in battery earnings this month. Wholesale revenues fell slightly with lower day-ahead spreads available, while Dynamic Moderation and Containment decreased in value.
Frequency response revenues rose overall despite falling clearing prices
Dynamic Containment and Moderation revenues continued to fall as monthly average clearing prices fell by 13% in both markets.
However, Dynamic Regulation offset this. Prices in the Dynamic Regulation High service increased 28% to -£4.87/MW/hour. This service is favored by Balancing Mechanism-registered assets which make up the index.
This increase meant that overall frequency response revenues in the index rose by 6% in February.
Wholesale day-ahead spreads fell to their lowest monthly average since August 2020
The reason for rising Dynamic Regulation High prices was a decrease in wholesale power prices. Prices fell by 18% on average, reducing the value of the service.
Meanwhile, day-ahead price spreads fell 20% to £40/MWh, their lowest since August 2020. This was due to generally mild, windy weather across the month.
The fall in spreads contributed to wholesale revenues falling by 3% to £11k/MW/year.
Balancing Mechanism revenues rose following improved dispatch rates
Balancing Mechanism revenues rose to £7.5k/MW/year, a 10% increase from January. This follows an all-time high of 1.5GWh of energy being dispatched daily to batteries in the Balancing Mechanism.
This increase in energy came from both Bids and Offers, which increased by 60% and 21% in volume respectively.
A significant factor was an increase in the in-merit dispatch rate to 6.5% in February, from 4.5% in January. The increase follows continued improvement to the Bulk Dispatch Functionality the control room now uses to send instructions to batteries.
Since February 5th, an additional balancing engineer has been added to the ESO control room to assist with using the Open Balancing Platform and bulk dispatch for batteries. This means the platform is now used to issue more than 75% of battery instructions.
March sees the introduction of the 30-minute rule, as well as the new Balancing Reserve service. Both of these could have a positive impact on utilization of batteries in the Balancing Mechanism.
Revenues increase despite falling price spreads
Day-ahead price spreads fell to their lowest monthly average in February since the lockdown-affected summer of 2020. However, despite more battery revenues coming from the wholesale market than ever before, total revenues in February increased. So what were the strategies operators used to make this happen?
Balancing Mechanism boosts one-hour revenues, while two-hour systems pay less for Dynamic Regulation High
For one-hour systems, Balancing Mechanism revenues are now over a third of total revenue.
The increase in value seen this month from improved dispatch rates offset the reduction in wholesale revenues. As a result, the BESS Index for one-hour systems in February was £20.5k/MW/year, a £1k/MW/year increase from last month.
A continued popular strategy for two-hour batteries is importing energy through Dynamic Regulation High and selling this in the wholesale market. This strategy contributed to two-hour systems earning over 5 times more revenue from the wholesale market than one-hour batteries.
This kept the BESS index for two-hour batteries £27k/MW/year in February, 33% higher than the one-hour BESS index. This was however a reduction in the premium for additional duration from 36% last month.
The most successful batteries find cheaper power outside the wholesale market
Falling wholesale spreads have meant pure wholesale trading strategies experienced the largest reduction in revenues in February. This strategy tends to see batteries importing slightly more energy in the wholesale market than they export, because of efficiency losses.
The highest-earning systems are importing energy from other markets, where the cost of the energy is lower, and then selling this on the wholesale market. This way, they generate a larger spread than would otherwise be available by wholesale trading. This has historically been via Dynamic Regulation High, however this month the increasing volume of Bids in the Balancing Mechanism has also contributed.
Capenhurst 3 (25 MW, one-hour) was the best-performing one-hour battery in February, earning £33k/MW/year after following this strategy. However, Capanhurst 3 was the only Balancing Mechanism-registered battery to average more than 2 cycles per day. The monthly average for all other Balancing Mechanism-registered batteries was 1 cycle per day.
Some batteries have bucked this trend due to improved Balancing Mechanism performance
In February, Nursling (50 MW, one-hour) outperformed the one-hour BESS Index by 48%, earning £29k/MW/year. It did this by mixing a Dynamic Regulation and wholesale strategy with exports via the Balancing Mechanism. As a result, Nursling earned 53% of its revenue this month from the Balancing Mechanism.
On 14th February, day-ahead price spreads were just £22/MWh, almost half the monthly average. Nursling imported 32 MWh overnight on the wholesale market and then exported this the Balancing Mechanism before the evening peak. It earned £19.5k/MW/year on this day, 55% more than the one-hour BESS index.
It followed this strategy on six different days throughout February, resulting in it exporting 13% more energy on the wholesale market than it imported.