This article (and accompanying video) relates to our Quarterly Battery Workshops. These are bespoke calls with your team - to look at trends and news from the world of battery energy storage from the previous quarter. These are exclusive to users on our Enterprise subscription.
The Workshops involve an in-depth presentation, followed by a lively question-and-answer session. Alex Done (Head of Research) and Flora Biggins (Modelling Analyst) have recorded the latest presentation, for those users who want access to the Battery Workshop at a time that suits them. Make sure to check out the video below.
Below that, we’ve also embedded all of the slides and graphs from the call.
So, let’s jump into everything you need to know from Q3 (July - September) 2022.
What’s new at Modo?
- The Modo family is growing! We have welcomed new analysts this quarter, which means lots of exciting new content.
- We also released Signal, Modo’s three-year forward view of battery energy storage revenues.
- And, in exciting news, we’re expanding to the USA!
Research highlights
1. High-frequency Dynamic Regulation prices fell to zero - but this was still a good deal for battery energy storage assets!
- High-frequency Dynamic Regulation prices have fallen to zero repeatedly in the last quarter.
- However, this isn’t the bad news it might initially appear to be. High-frequency Dynamic Regulation offers batteries the opportunity to charge up, while dispatching into power markets. This has been a lucrative strategy for a number of assets.
- See below for more details.
- Why has this happened? Increasing volumes have been tendering in the market, surpassing the volume cap and causing saturation.
- Despite prices falling to £0/MW/h, batteries can still achieve much higher revenues tendering into this market compared with a purely wholesale arbitrage strategy.
- Batteries are using the service to absorb power from the grid - effectively charging them up for free!
- They can then discharge in wholesale and take advantage of high prices.
2. Battery energy storage actions were ‘skipped’ in the Balancing Mechanism
- Battery energy storage revenues in the Balancing Mechanism have historically been low (<2%).
- This is, in part, due to ‘skipping’ - this refers to bids/offers from non-battery assets that are less economical being accepted over better value battery bids/offers.
- Battery bids/offers are mainly ‘skipped’ in favor of pumped hydro bids.
- It is easier for National Grid ESO to accept a bid or offer from one large pumped hydro site, compared with multiple smaller battery energy storage sites.
- Locational transmission constraints also factor into the decision-making.
3. July’s record heatwave led to big revenue opportunities for battery energy storage assets
- On 18th July, Great Britain experienced a record heatwave. This drove up wholesale prices - and batteries were able to profit.
- Contego and Holes Bay - both two-hour systems - took home the highest revenues.
- These assets were also employing the high-frequency Dynamic Regulation strategy we mentioned earlier.
- Red Scar sold power in the wholesale market during the evening peak. However, it was turned down in the Balancing Mechanism. As a result, the asset only partially discharged.
- It fully discharged the following day, after an overnight top-up charge - generating revenue in the wholesale market and the Balancing Mechanism.
- As a result, it procured £1,900/MW (against a benchmark of £1,091/MW) - with just one cycle over the two-day period.
Market updates
1. Fall in Dynamic Containment revenues driven by market saturation
- National Grid ESO spending across the Dynamic frequency response services has fallen since its peak in June.
- This is due to falling Dynamic Containment requirements and increasing volumes entering the market - consequently driving down clearing prices.
- As a result, monthly battery energy storage revenues fell from their all-time high in June 2022.
- However, the annualised quarterly average revenue (£181k/MW/a) still remained well above historically levels - due to consistent FFR and increasing wholesale.
2. Firm Frequency Response provided a consistent source of revenues - but it won’t be around much longer
- Consistently high Firm Frequency Response prices and volumes mean that it has been a reliable source of revenue for batteries.
- However, Firm Frequency Response is being phased out by the National Grid ESO - and being replaced by Dynamic frequency response services.
3. Wholesale played an increasingly important role in battery revenue stacks
- As Dynamic Containment revenues fell, wholesale revenues experienced strong growth.
- So, despite market saturation in Dynamic Containment, battery energy storage revenues remained high (with an annualized quarterly average of £181k/MW/a).
The current state of battery energy storage
1. New sites entered the market and old Enhance Frequency Response assets came back online to play
Below, you’ll see the current installed battery energy storage capacity, the number of operational sites, and their average duration - as of the end of Q3.
- Zenobe’s Capenhurst site entered a Reactive Power contract.
- Cowstead and Pen y Cymoedd entered the Dynamic Containment market in August.
- Tynemouth and Port of Tyne both provided Dynamic Containment and FFR during Q3.
2. However, build-out still falling short of net zero targets
- Last quarter, battery energy storage build-out was 400 MW behind the expected pipeline (according to Capacity Market expectations).
- This quarter's build-out fell further behind the pipeline.
- This trend may well continue - if we can’t solve issues with supply chains and grid connections.
- According to the Future Energy Scenarios, we are currently ‘Falling Short’ of our net zero targets.
- To get back on track, we need to build (and commission) lots more batteries - and fast!
If you’re an Enterprise user and haven’t yet booked your Quarterly Call, make sure to get in touch with us via Intercom (the little blue circle in the bottom-right of your screen).