Since the Enduring Auction Capability (EAC) launched on November 2nd, the average clearing price of frequency response has fallen for every service except Dynamic Regulation Low. The average price across all services is 35% lower than in the two weeks preceding the EAC. This has hit battery energy storage revenues, with most systems seeing lower value than in October.
So, what changes has the EAC brought that have impacted clearing prices in this way?
Bidding behaviors have changed since the launch of the EAC
Over 40% of bids are now made using the new co-optimized bidding provided in the EAC. This means multiple bids can now be submitted for different services for the same EFA block. This has increased the total bid volume in every service since the EAC launched.
This means the ESO now has a larger pool of bids to clear the requirement volume - total bid volume across all services is now 3.9 GW, as opposed to 2.1 GW pre-EAC. Importantly, most of this new volume is cheap. The proportion of low-priced (below £2/MW/h and £0/MW/h for low- and high-frequency services, respectively) has increased in all services bar Dynamic Regulation Low.
- 60% of Dynamic Containment High bids are now below £2/MW/h - up from 50%.
- Dynamic Containment Low bids in this price band have also increased - by 33%.
- Dynamic Moderation and Regulation High have seen total bid volumes treble
- 50% of Dynamic Regulation High bids and 23% of Dynamic Moderation High are negative.
- Bid volume above £10/MW/h in Dynamic Regulation Low has increased.
Bid prices for each service are reasonably in line with the costs for a BM-registered battery to deliver them. This means volume in Dynamic Containment is mostly cheap - below £2/MW/hr. 50% of volume in Dynamic Regulation High is priced negatively due to the value this service provides battery storage (and the inverse for Dynamic Regulation Low). Meanwhile, Dynamic Moderation sits between these two extremes.
This has resulted in some big changes in prices
The change in bidding has resulted in changes in prices across each service. This increase, alongside co-optimization, is allowing the ESO to clear the auction at lower prices than we have seen previously.
- Dynamic Containment Low and High are now regularly clearing below £2/MW/h.
- Meanwhile, Dynamic Regulation Low prices have consistently exceeded £10/MW/h.
- Dynamic Moderation and Regulation High have seen the biggest drops in clearing price, with the latter clearing below £0/MW/h 90% of the time.
However, clearing prices from the EAC have not always followed what would be expected from the bid volume available.
The clearing prices do not always match the bid volume in that price band. For example, Dynamic Containment High’s bid volume below £2/MW/hour often exceeds 1.5 GW, above the 1.2 GW requirement. Despite this, average daily clearing prices have been above £5/MW/hour on four occasions since the EAC launch.
Meanwhile, on November 7th, Dynamic Containment High cleared at £-7.56/MW/hour, despite the lowest priced bid being £-1.75/MW/hour. So, how is this all possible?
Co-optimization is changing the picture
It all comes down to co-optimization. Batteries are making themselves available in more than one service within the same EFA block and letting the ESO decide which to procure. This means if bids are accepted for one service, they are unavailable for the others. Therefore, accepting volume in one market can change the volume that can be chosen in other markets. Batteries are using co-optimization more in some markets than others.
In Dynamic Containment, between 40 and 50% of the 2.5GW bid volume is also bid into other markets. Meanwhile, over 90% of Dynamic Moderation bids have been offered as an alternative to another service. On November 16th, 100% of the volume available in Dynamic Moderation was also bid into other frequency response services.
Dynamic Moderation has been offered as an alternative in 30% of all Dynamic Containment bids, meaning both bids cannot be accepted. The same goes for 20% of Dynamic Regulation bids.
The impact is that the volume accepted in one service now impacts that in another. And this means clearing prices do, too. This was not the case before the launch of the EAC.
The clearing prices of different services are now increasingly linked to each other
These varying levels of co-optimization impact the relationship between frequency response services. Before the EAC, the link between the clearing prices of different frequency services was extremely low - the auctions cleared independently.
Since the launch of the EAC, the link between all services’ clearing prices has increased. The strongest links are between Dynamic Moderation and Regulation in both directions - prices in Dynamic Regulation High and Dynamic Moderation High are now strongly correlated. These two services are also the markets with the highest proportion of co-optimised bid volume.
Clearing prices are becoming more predictable in every market
High response means batteries need to import energy from the grid, and low response means batteries need to export energy. Because of ABSVD, energy imported can be valuable, with the inverse true for exports. Therefore, on average, bid prices are highest in the services with the largest exports and lowest in those with the largest imports.
Co-optimization and the introduction of negative bidding now means clearing prices are more reflective of these energy outputs. On 12 of the first 14 days of the EAC, daily average clearing prices of high-frequency and low-frequency services have fallen in order of their energy requirements.
The launch of the EAC is hitting battery revenues
Batteries are still very dependent upon frequency response services - in October 52% of revenues came from frequency response. Co-optimization in the EAC means the ESO can clear each auction at the lowest possible cost - and this has reduced clearing prices in every service bar Dynamic Regulation Low.
This can be seen clearer in how much the ESO spends on procuring frequency response. The daily auction has cost the ESO an average of £150k since November 2nd, a 36% reduction on previous costs over the 18 days before the EAC.
With this revenue split between over 3 GW of battery energy storage volume, we have seen revenues take a significant hit in November. This will increase the pressure to find revenues from other markets, such as wholesale trading or the Balancing Mechanism.