Version 2.3 of the Modo Battery Revenue forecast, the latest quarterly update, was released in January. This brought three major updates to the model to better reflect major battery revenue streams.
You can read more about this update in our changelog here.
In this article, we provide details on these updates and their impact on the future outlook of battery revenues.
Changes this release
Launch of the Enduring Auction Capability
The Enduring Auction Capability (EAC) platform launched in November. This has resulted in big changes to how batteries bid for frequency response contracts, including allowing negative-priced contracts for the first time. It has also introduced co-optimization, which clears the market at the lowest cost across the six dynamic frequency response services, reducing prices.
Our frequency response forecast price has been updated to reflect new bidding strategies and pricing dynamics. This causes a 23% reduction in forecast revenues in 2024 for a two-hour system.
Falling gas and carbon prices
Future expectations of commodity prices that underpin the model have all fallen in the last quarter. Gas prices have fallen 49% since the end of October 2023, as supplies remained resilient amidst a mild winter. As a result, gas prices have been reduced by £10/MWh, or 28%, in 2024 compared to V2.2.
Meanwhile, the UK ETS carbon price has fallen by 60% since the end of January 2023 to just £33/tCO2 at the start of 2024. This follows changes to the mechanism made in the middle of 2023. The total carbon price in 2024 (ETS plus CPS) is £37/tCO2 cheaper in 2024 than in V2.2, a reduction of 38%.
Power prices and spreads are fundamentally linked to these commodity prices. Modeled spreads in 2024 have fallen by 28% due to the falling gas price and a further 8% due to the falling carbon price. This causes a 20% reduction in 2024 revenues for a two-hour system.
New Balancing Mechanism constraint model
Balancing Mechanism actions are now split between energy actions and system actions. Energy actions balance supply and demand across the whole system. System actions address specific locational constraints on the transmission system.
The major system boundaries within GB are now modeled, resulting in a locational requirement for system actions based on constraint flows. This means we now see very different Balancing Mechanism operation and revenues by location.
Finally, competition for Balancing Mechanism actions is also modeled. This impacts the latter half of the model, as the total capacity of battery and other flexible technologies increases.
More information about this can be found in our forecast methodology here.
Other changes
- Enhanced frequency response saturation modeling: New constraints have been introduced that limit the proportion of a frequency response market that a single battery can take up.
- Intraday revenue uplift: Intraday capability is now linked to frequency response participation in scenarios including frequency response.
- Model calibration: Historic Modo benchmarking data is used to apply a calibration factor to forecast battery revenues. These factors have been adjusted with revenues from 2023.
Forecast revenues reflect recent falls in battery benchmark
The GB BESS index fell 50% in the final two months of 2023 following the release of the Enduring Auction Capability (EAC) in November. The EAC has reduced frequency response prices for every service bar Dynamic Regulation Low due to a more efficient method of clearing the whole market. It also introduced negative pricing, which has removed the previous floor of zero. Falling commodity prices have also affected revenues.
V2.3 of the Modo Battery Revenue forecast more accurately reflects these short-term changes to the market. Monthly projected revenues in early 2024 reflect the latest BESS index figures.