The launch of the new Enduring Auction Capability is squeezing prices in frequency response services. One area that could provide value to battery energy storage is trading within the continuous intraday market. Higher daily spreads in this market can lead to higher revenues than trading in day-ahead markets alone.
In 2023, trading within the intraday market could have resulted in a 35% revenue uplift compared with the day-ahead market. Combining the two can lead to greater revenues still - increasing revenues by up to 96%, for shorter-duration assets.
Despite this, battery energy storage systems currently appear to be trading more in day-ahead markets.
The intraday market offers higher trading spreads than the day-ahead market
Overall, prices in the intraday market tend to be more volatile than in the day-ahead market. This is because it's closer to real-time, where swings in the market can be greater.
In 2023, daily spreads in the continuous intraday market have averaged £103/MWh, 45% higher than the average in the day-ahead market (£71/MWh). The intraday market offered greater spreads than the day-ahead market on 90% of days in 2023.
Additionally, price spikes above £300/MWh have only occurred in the intraday market.
The above spreads are based on the volume-weighted average price for each period. However, the intraday market runs continuously, which means a range of prices for each period. The maximum spreads available from all traded prices, rather than the average, are a much higher £177/MWh.
Power traded for delivery at 6:30pm on March 7th, for example, had a volume-weighted average price of £708/MWh, but trading ranged from £200/MWh to £1,200/MWh. Capturing the highest price for this period would have increased the daily spread for this day from £600/MWh to £1,000/MWh.
Not all of this can be captured as revenue
The revenues a battery can earn are limited by a lack of price foresight and cycling and efficiency constraints. Assuming capture of the average prices in each period, a strategy of intraday trading can result in annual revenues of £30,000/MW for a one-hour, one-cycle system. This equates to a daily revenue of £81/MW, 26% lower than the average daily spread.
The intraday trading figure is 37% higher than that in the day-ahead market. A strategy combining day-ahead and intraday trading sees greater uplift - up to an 80% increase on a simple day-ahead strategy.
Potential revenues depend on the duration and cycling constraints of an asset. Maximum revenues are available for a two-hour system completing 2 cycles per day. Modelled revenues for such a system are £81,000/MW/year when optimizing across day-ahead and intraday markets.
Systems performing two cycles per day generated revenues that are, on average, 23% higher for one-hour systems and 20% for 2 hour systems. Due to the shape of the demand curve, adding a third cycle has a limited effect on revenues, increasing them by around 1% on average across 1- and 2-hour systems.
Overall, revenues available in the wholesale market depend more on duration than cycling, which we have explored previously.
Optimizing across intraday and day-ahead markets offers the best potential
The highest revenues are available to systems trading across the day-ahead and intraday markets. This allows optimizers to execute physical trades at the best price on either market, if they can be accurately forecasted. However, much of the premium for this strategy results from re-optimization.
Optimizers can adjust their positions as prices develop in the intraday market, to take advantage of higher spreads. Power sold on the day-ahead market can be bought back in the intraday market and sold at a higher price in another settlement period, for example.
The potential for re-optimization means that annualized revenues in the ‘day-ahead and intraday’ scenario are 80% higher than the day-ahead market and 34% higher than the intraday market alone. Systems optimized this way are also the least sensitive to cycling and duration constraints
‘Churn’ provides a route to finding even greater value from the intraday market
It may be possible to achieve higher revenues by taking advantage of the variability in prices for power within a period in the intraday market. It is possible to trade in and out of positions several times as prices develop, generating revenue from changes in price without needing to physically deliver power.
For example, an optimizer may sell power for delivery at 8:30pm on the day-ahead market at £200/MWh. On the intraday market, an optimizer can ‘churn’ through this position several times as the price develops. In the example below, the system delivers the same 50MWh of power at 8:30pm, but the optimizer trades in and out of the position twice.
These four trades, in addition to the original day-ahead trade, result in a total traded volume of 250MWh. Because only 50MWh is delivered, this position has a ‘churn factor’ of 5x. Pursuing this strategy for the day would have resulted in capturing two additional spreads, tripling revenues.
In theory, optimizers can trade in and out of positions several times, and in several settlement periods. The amount of churn possible is only limited by foresight of price trends and limited volumes available in the market.
How many optimizers are actually operating in the intraday market?
It is not possible to see what systems have traded, or in what markets. However, it is possible to correlate the physical dispatches of systems with prices in each market. This gives an indication of whether a system prefers trading in one market or the other
In October 2023, physical dispatches correlated more closely with the day-ahead price than the intraday price for most assets. SMS, Arenko, and Shell, however, all optimized assets that were biased towards the intraday price. This suggests they may be taking advantage of the potential in this market.
While the intraday market offers a significant opportunity for batteries to generate revenue, lifting revenues by up to 96% compared to a day-ahead only strategy, physical data suggests that much of the potential for this market may still be untapped. With revenues from frequency response services at an all-time low, we may see more optimizers adopt an intraday strategy to bolster future revenues.