The new day-ahead STOR auctions launched in April 2021, using a ‘pay-as-clear’ method. This means that National Grid ESO pays the price of the highest accepted bid for every megawatt of capacity it procures. Interestingly, we’ve seen wild day-to-day fluctuations in clearing prices, with swings as large as £5.55/MW/h from one day to the next. But what’s been behind these huge discrepancies?

There are two reasons. The first is the ESO’s aversion to holding capacity above their procurement target, known as overholding. This has seen the ESO reject cheaper bids that would’ve meant overholding, in favour of more expensive bids that came closer to hitting its target exactly. While it makes sense to avoid paying for more capacity than necessary, there have been times when overholding would’ve resulted in significant savings.

The second reason is the reluctance of STOR providers to make curtailable bids. These are bids that can be accepted at partial capacity - for example, a provider might bid 10 megawatts, and the ESO can choose to accept 5 MW if it doesn’t need the whole amount. However, due to the technical and commercial challenges of making curtailable bids, providers have largely decided against doing so.

In June 2021, the ESO proposed changes to its STOR procurement methods. Both underholding and overholding will be allowed, where they reduce the cost of the service. If this proposal had been in place from April, 61% of the market value would have been wiped out.

This fall in cost is great news for the ESO and the end consumer, but the fall in revenues will harm STOR providers. It’ll be interesting to watch how these changes affect future bidding behaviours. To dig deeper into the numbers behind this, find out more about these changes, and understand the ramifications beyond STOR, check out Alex’s report in full on the Insights section of our platform.

You can read Part One here, and Part Two here.