17 May 2024
Wendel Hortop

Balancing Mechanism: The cost of skipping battery energy storage

The utilization of battery energy storage in the Balancing Mechanism has improved in 2024, following the re-launch of Bulk Dispatch in January. The change to the 30-minute rule in March has also helped, with in-merit dispatch rates reaching a new high in April 2024.

However, batteries continue to be ‘skipped’, which carries a cost, with more expensive actions taken instead. The cost of these skips has risen significantly since January 2023.

Wendel talks through the cost of skipping batteries in the Balancing Mechansim

In 2023, skipping battery actions increased balancing costs by £24 million. This is calculated by the total cost of the actual dispatches in the Balancing Mechanism minus the cost of the cheaper battery alternative. The highest monthly cost of £3.9 million occurred in October 2023, closely followed by December 2023.

The cost of battery skips, on a monthly basis, has reduced by half in 2024 compared to the final three months of 2023. Despite this, total costs have reached £8 million across the first four months of the year.

The total cost of Balancing Mechanism actions for the same four months in 2024 was £551 million. Battery skips have, therefore, increased overall Balancing Mechanism costs by 1.5% across this period.

Cost of skipped battery energy storage actions in the Balancing Mechanism

Methodology: How do we reach this estimate?

To get to this final figure, we go through multiple steps using half-hourly Balancing Mechanism data. This is an improved methodology from that used to estimate the carbon cost of skipped battery actions in December 2023. Across these steps, we have excluded system and ‘strategic’ actions (defined as actions turning on inflexible thermal generation).

  1. Battery availability: For each Bid and Offer submitted by battery units, we calculate how much energy it made available in that half-hour.
  2. Skipped battery actions: The price of each of these Bid and Offers are compared to the most expensive action taken in that half-hour. If battery volume was available at a cheaper price, it is defined as ‘skipped’.
  3. Expensive dispatch actions: The price of actual dispatches is compared to the average price of skipped battery actions in each half-hour, for Bids and Offers. If a dispatch occurred at a more expensive price, it is defined as an ‘expensive’ action.
  4. Skipped battery volume: On a half-hourly basis, total skipped battery volume is compared to expensive dispatch volume. This tells us how much of this volume could actually have been replaced by batteries.
  5. Capping battery volume: Skipped battery volume is capped at one-cycle’s worth of energy per day. This ensures it is actually deliverable within energy and cycling constraints.
  6. Ranking expensive dispatch actions: For each day, expensive actions taken are grouped by technology, ranked by price, and compared to the capped battery volume.
  7. Alternative cost: For each day, the actual cost of these expensive actions is calculated. This is compared to the alternative cost of the skipped battery volume that could be taken.

Skipped battery energy storage volume grew to a high of 132 GWh in December

Throughout 2023, the volume of skipped battery energy storage actions grew. This reached a peak in December, of 132 GWh, over three times the monthly figure in January 2023.

This increase followed the growth in battery capacity making itself available in the Balancing Mechanism. This increased from 750 MW in January 2023 to 2.4 GW at the end of December.

However, skipped battery volume has fallen since December. This follows the first release of the Open Balancing Platform in December and the move to the 30-minute rule in March.

Volume of skipped battery energy storage actions in the Balancing Mechanism

CCGTs and pumped storage account for 64% of the volume taken instead of cheaper battery actions. Wind accounts for 13%, all of which are Bid actions.

Wind dispatches account for 44% of the total cost of battery skips

Despite making up a lower proportion of skipped battery volume, wind dispatch actions account for the highest proportion of costs. Since January 2023, they have accounted for 44% of the total net cost, or £14 million. These actions cost the ESO the most, as these units require payment to be turned down to recover the value of lost subsidies.

This grew through 2023, in line with the volume of wind dispatch actions skipping battery energy storage. This contributed to costs on individual days more than doubling that from the start of 2023.

Pumped storage is the second-largest contributor to the cost of skipped battery actions. These dispatches typically receive a premium in price for battery actions, and have consistently accounted for a large proportion of skipped battery volume.

Despite their high energy volume, CCGT actions only account for 7% of the cost. This is because these are usually priced closely to the alternative battery volume available.

Using skipped battery volume would have reduced the cost of these actions by 40%

Between January 2023 and April 2024, the volume of skipped battery actions accounts for 1.2 TWh of energy. This had a total cost of £79 million (net of Bids and Offers). If battery actions were taken instead, this would have cost £47 million - a saving of £32 million or 40%.

The £47 million of skipped actions would have ended up going to batteries, as opposed to alternative technologies in the Balancing Mechanism. By recycling this value back to the available volume, we can determine the value of this skipped energy to battery energy storage.

The value of these skipped actions to individual batteries has fallen over time

The total monthly net value of skipped battery Bids and Offers grew through 2023, from £3.3 million in January 2023 to £5.5 million in December. The value of these actions has fallen to an average of £2.6 million per month in 2024, 46% of that in December.

The total value of these skipped battery actions has not followed the increase in available Balancing Mechanism battery capacity. This is because of the fall in power prices across this time scale, alongside improvements to dispatch rates in 2024.

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