06 Nov 2023
Wendel Hortop

Battery energy storage: revenues continue to rise in October

Monthly average battery energy storage revenues rose to £4.8k/MW in October, their highest level since July. This marks the second consecutive month of increasing revenues after a rise of 19% in September.

  • The 22% increase means October delivered the fourth-highest revenues in 2023 so far.
  • The £4.8k/MW average revenue is equivalent to £57/k/MW/year.
  • The average revenue for batteries under 1.5 hours in duration was £4.3k/MW. Meanwhile, the average for those over 1.5 hours in duration was £6.2k/MW.

What were the key factors that drove up revenues in October?

Wendel discusses the reasons for October’s increase in battery energy storage revenues

Growing trading value continues to be the biggest factor in increasing battery revenues

Wholesale trading revenues drove most of the increase in battery revenues for October, just like in September. A 45% increase meant they reached their highest level since December 2022, overtaking the previous annual high in January. This contributed to a 9.4% increase in monthly battery revenue.

This increase in trading revenues followed a 32% rise in trading spreads. Gas prices continued to rise into winter, up 17% from September, leading to a similar uplift in day-ahead spreads. However, the biggest driver of increased spreads came from sustained high wind generation during the month.

High wind generation was the biggest driver of improved price spreads

The second half of September saw very high wind generation levels, which continued through October. Wind generation averaged 10.3 GW across the month, up 40% from September and the highest level since February.

When this high wind generation happened during periods of lower demand (either overnight or during the day on weekends), power prices fell significantly. This occurred on 14 separate occasions, double the number seen in September.

These drops in price led to an increase in price spreads across October. Price spreads on the 14 days these falls happened averaged £123/MWh, as opposed to £82/MWh on the days that followed a more regular pattern.

Dynamic Containment and Dynamic Moderation contributed to further increases in revenues

Increases in Dynamic Containment and Dynamic Moderation prices accounted for a further 7.8% increase in battery energy storage revenues in October. This was the second month in a row where Dynamic Containment prices have risen since the record-low in August. Meanwhile, a 60% increase in Dynamic Moderation prices led to its highest monthly average price since November 2022.

The 20% increase in Dynamic Containment price can be linked to increased wholesale trading value during the month. However, the change in Dynamic Moderation prices came as a result of a fundamental shift in how ESO views the service.

In September’s Frequency Response Market Information Report, ESO announced that they would begin increasing Dynamic Moderation requirements, alongside a change in how they value the service (which ultimately sets price caps).

This process started in October. Requirement volumes increased by 20 MW initially, followed by another increase of 50 MW at the end of the month.

Meanwhile, price caps for the service also increased, tripling from the average in September. These two changes meant that prices rose to their highest level since November 2022.

The launch of the EAC may hurt the chances of further revenue increases in November

While the trend over the last two months has been one of increasing revenues, the launch of the Enduring Auction Capability on 2 November could have significantly reduced the chances of this happening for a third month in a row.

The introduction of co-optimization and, to a lesser extent, overholding has improved the efficiency of procuring frequency response for ESO, leading to lower clearing prices. The new ability for providers to bid at negative prices has also pulled down prices, especially for Dynamic Regulation High and Dynamic Moderation High. All in all, every service bar Dynamic Regulation Low has seen its prices fall since the EAC launched.

If this pricing trend continues, operators will be left hoping for further increases in trading revenue to offset dips from frequency response services.