BM or non-BM: why is ABSVD splitting the battery energy storage market?
ABSVD prevents the energy dispatched in providing balancing services from facing imbalance charges. However, it is currently only applied to half the battery energy storage fleet, which is having some unintended consequences.
In this article, we look into exactly what is going on and how it is affecting the market for frequency response services.
- ABSVD is currently only applied to Primary BM-registered assets providing frequency response.
- This essentially inverts the costs of providing frequency response services between BM and secondary/non-BM battery storage.
- ABSVD adjustments are ultimately made by Elexon through the settlement process, not directly by National Grid ESO.
- This process slows down the time it takes to receive accurate imbalance volumes with ABSVD applied - it could take up to 5 months.
What is ABSVD?
ABSVD stands for Applicable Balancing Service Volume Data. This may not mean anything to you (and you wouldn’t be alone), however it has ended up being quite important for battery energy storage.
Essentially it is the mechanism that prevents battery energy storage and other assets from facing imbalance charges on the volumes of energy delivered via balancing services. For a full introduction to ABSVD, you can read our previous article on it here.
Seem straightforward enough? Well, unfortunately not quite.
Battery energy storage can register in the Balancing Mechanism (“BM”) - which essentially provides it with a direct link to the National Grid ESO control room. If it does so, it becomes a “BM unit”, while batteries that don’t remain “non-BM units”.
Whether your asset is registered in the BM has some potentially major implications when it comes to ABSVD.
ABSVD currently only covers around half the battery energy storage fleet
The most important thing to know about ABSVD is:
ABSVD for frequency response services currently only covers primary BM-registered assets and does not apply to secondary/non-BM assets.
In the rest of the article we look at why this is the case and the effects it has on battery energy storage.
Why is ABSVD only being applied to Primary BM-registered assets?
A process does exist for ABSVD to be applied to secondary and non-BM assets but this currently does not extend to any frequency response services. The full methodology can be found here, which includes this explanation:
Non-BM Dynamic Containment, Non-BM Dynamic Moderation and Non-BM Dynamic Regulation utilisation volumes will be determined in accordance with system frequency and the characteristic of the response service. This will be included once technically feasible and system development is complete.
The most likely reason for this is that ABSVD has historically been applied for Mandatory Frequency Response, which is only available for primary BM units. This provides an existing process to fit the new dynamic services for BM-registered assets, but not for secondary and non-BM assets.
National Grid ESO has indicated that they want to introduce ABSVD for non-BM assets, but not when this will happen. It has however stated that once introduced it would not be applied retrospectively for non-BM assets.
How does this affect the market for frequency response services?
Because ABSVD is not applied to all battery assets, this creates a big difference in the costs of providing dynamic frequency response services for both types of assets.
For example, a primary BM asset performing Dynamic Regulation High would see the energy imported exempted from imbalance costs (i.e. it is free). This has been significant in driving prices towards zero for the service at times, as explained in this article, as it has a value to the battery if it is sold later. Meanwhile, the secondary/non-BM asset would instead need to pay the full imbalance cost for this energy (and the service is therefore expensive).
Figure 1 below illustrates how ABSVD completely flips the value of energy delivered through each service, based on whether the asset is BM registered or not.
In this example, the wholesale price is 200 £/MWh. Dynamic Regulation High will provide value equal to 26 £/MWh for the primary BM-registered battery on top of any availability fee. However, the same service costs the non-BM battery 26 £/MWh to operate!
We see this in practice, as over the summer we saw BM batteries (such as Contego) operating in only Dynamic Regulation High, whilst non-BM batteries (such as Mannington) were performing both the high and low services.
The value (or cost) of each service has a linear relationship to power price - if wholesale prices halved to £100/MWh, the value and costs associated would also halve.
ABSVD has a smaller impact on Dynamic Containment and Dynamic Moderation as these services see lower utilization than Dynamic Regulation. However, you would ultimately see the same inconsistencies between BM and non-BM participants.
Why is it taking so long for ABSVD to cover secondary and non-BMUs?
This delay is most likely being caused by the complexity of the ABSVD process itself. This also explains why this data takes a while to ultimately reach suppliers (more on this later).
The main complication is that ABSVD is applied through the settlement process, administered by Elexon, and not directly by National Grid ESO. There are technically no ‘payments’ or ‘charges’, just adjustments to a unit’s imbalance volume.
Figure 2 below illustrates the whole process for the optimizer or supplier of the asset to ultimately receive the correct imbalance data.
In order for Elexon to correctly apply ABSVD in their settlement process, they require National Grid ESO to provide them with the data on the adjustments to make for each asset and half-hour period. These data flows are all set up in the process of registering an asset in the BM, but not for non-BM units. This is what is causing the delays in extending ABSVD to cover all of the battery energy storage market.
The volumes calculated by National Grid ESO and passed to Elexon are based on the service, contract size, and frequency as measured by National Grid ESO. No data is required from the asset for this process to run.
What else is important to know about ABSVD?
ABSVD is applied through the settlement process and therefore also subject to the same timelines as settlement. This ultimately ends up causing delays in operators receiving accurate imbalance charges.
Settlement is performed in a series of ‘runs’, a fixed number of days after the day itself has concluded. The objective of this is to allow for changes in metering and other data to filter through the settlement process. Figure 3 shows the timelines for these settlement runs.
After the first settlement run, a full settlement statement is issued and payments are either collected by Elexon or paid out by Elexon. Any adjustments are then made through later settlement runs.
National Grid ESO has stated that they run the process to calculate ABSVD volumes and pass this to Elexon monthly. This means that this data is not likely to reach Elexon in time for when they run their first main settlement run, and so won’t reach the supplier until at least two months have passed.
This leaves the optimizer taking on the risk that these reconciliations will eventually be made, and having to make a decision on how to pass this through to owners.