Solar & Storage Live 2024 took place between September 24th and 26th at the NEC in Birmingham. On day two, Modo’s GB Markets Lead Wendel discussed the current key trends for battery energy storage in Great Britain. This article summarizes that presentation.
1. Battery energy storage capex is falling, a lot
- The cost of building a new battery energy storage system has fallen by 30% in the last two years.
- In 2022, a new two-hour system would have cost upwards of £800k/MW to build. In 2024, that figure is £600k/MW.
- Cost reductions are expected to continue into 2025 and beyond.
2. Lower Capex is offsetting lower revenues
- Lower Capex is important because battery energy storage revenues have fallen by two-thirds in the last two years, lowering future expectations.
- A 20% swing in battery cost can shift project IRRs by 4% - meaning many new projects may now be investable despite falling revenues.
- These Capex reductions can even bring durations beyond two hours into play.
3. Battery energy storage buildout has been slower than expected...
- Capex reductions are good for the long-term pipeline of battery energy storage in GB, but in 2024 buildout has been slower than expected.
- The amount of new capacity added per quarter increased throughout 2023, with over 1.5 GW of new BESS capacity coming online throughout the year.
- However, in 2024 quarterly additions have been less than half of what was seen in 2023. This has been driven by delays in getting many systems fully connected to the grid.
..But the arrival of big BESS may change this
- Currently, the largest battery system in GB is 100 MW, but the arrival of systems larger than this may turn 2024
- Ferrybridge, Blackhillock, and Thurrock may all come online by the end of the year, bringing a total of 650 MW online between them.
- If these projects do come online, this could quickly rescue what has otherwise been a poor year for new battery capacity.
4. Capex reductions + degradation = augmentation?
- Falling Capex also opens up new options for augmenting existing batteries, which can improve the energy capacity of degraded systems.
- Degradation data isn’t publically available, however we’ve estimated it using metered generation data.
- This suggests that, on average, batteries are seeing a 4.2% reduction in energy capacity after 365 cycles - in line with many degradation curves.
- For the systems experiencing harsher degradation, augmentation could now be a viable strategy.
5. Revenues: Frequency response -> wholesale trading -> Balancing Mechanism?
- Battery revenues have fallen by over 60% in the last two years, mostly due to the saturation of frequency response markets.
- Historically these services have accounted for over 90% of battery revenues, but they are now a minor component, replaced by greater trading and Balancing Mechanism revenues.
- Balancing Mechanism revenues, in particular, have grown in 2024 and hit their highest-ever level in August, accounting for 24% of fleet revenue.
6. More arbitrage means greater carbon savings from battery energy storage
- The move from frequency response to energy arbitrage-based revenue streams means batteries are now saving carbon through the energy flowing into and out of the systems.
- When performing frequency response, a battery's energy outputs are less aligned with the grid's carbon intensity, resulting in a net increase in grid carbon.
- However, since September 2023, these energy outputs are now saving carbon, due to the shift to wholesale trading and the Balancing Mechanism
7. Skip rates have improved - but have a long way to go
- In the Balancing Mechanism, skip rates have improved in 2024 - from over 90% in 2023 to around 75% in August. This has resulted in a 2.5x increase in the energy being dispatched to batteries.
- However, there is a split between energy and system-flagged (constraint) actions. The former has seen an improvement in skip rates, while the latter still sees a skip rate of 90%.
- This is because system actions are not yet using new technology introduced through the Open Balancing Platform, meaning dispatches are still using manual, less efficient processes.
8. BESS revenues are now linked to wind..
- Since April 2024, battery revenues have been closely aligned to the amount of wind generation on the grid. Essentially, when it's windy outside, batteries have been earning more.
- High wind generation this year has led to a record number of negative prices, boosting the value batteries can earn from trading.
- Meanwhile, high wind generation also drives greater demand for the flexibility batteries provide - both in frequency response services and in the Balancing Mechanism.
..And windy days now see batteries doing things like this
- On the 10th of September, batteries earned the single-highest daily amount since October 2023.
- On that day, batteries had two possible trading opportunities due to the wholesale price shape.
- System requirements mean that batteries were also dispatched for a significant amount of upward flexibility during the middle of the day, offsetting planned charging. This was to balance out curtailed wind in Scotland.
9. Battery energy storage revenues are increasingly locational...
- The Balancing Mechanism is locational, and its increase in significance for batteries means revenues are increasingly locational too.
- Batteries in the north of Scotland, and in the southeast of England have earned more than average.
- Meanwhile batteries in the midlands and southwest of England have earned less than average.
- As locational requirements shift with new generation and transmission capacity coming online, these patterns may also change.
10. ...And increasingly varied between assets
- The shift away from frequency response to arbitrage, not least because of these new locational elements, means that revenues are increasingly varied between individual batteries.
- In August, the highest-earning one-hour battery earned 38% more than the one-hour index.
- The same pattern exists for two-hour batteries. In August, the highest-earning two-hour battery earned 37% more than the two-hour index.
- Differences in revenues are coming from location, but also optimization strategy.
- Cycling is a significant driver of revenues, with the top-performing one- and two-hour batteries cycling the most of all systems in August.
And a bonus...
- These are prices from a recent day in Victoria, Australia.
- This year has seen record negative prices for much of Europe, but this is nothing compared to what’s going on in Australia.
- Modo will be starting operations in Australia in the next few months, based in Sydney.
- We are hiring market analysts to join the team and will have more opportunities opening up shortly.