Battery energy storage revenues fell in July, continuing recent trends tracking wind generation. But the month also saw an election, the release of the latest Future Energy Scenarios from the ESO, and updates on key markets for battery energy storage. This provided a range of subjects for our GB research team at modo to cover.
Below is a summary of all research published by Modo in July on battery energy storage in GB.
Labour’s accelerated renewable plans could benefit battery energy storage
On 4th July 2024, the United Kingdom elected Labour to lead a new government. Their manifesto included an acceleration of net-zero commitments, with greater renewable capacity by 2030. They aim to double onshore wind capacity, triple solar, and quadruple offshore wind capacity by 2030.
This would result in 140GW of renewable generation by 2030, 43% more than in Modo Energy’s current central forecast scenario.
The increase in renewable capacity buildout would be partially achieved through an expansion in Contract for Difference (CfD) contracts. The government has confirmed the first stage of this, with a 50% increase in budget for the next auction round.
Growth in renewable generation would reduce power prices by 2030 but also increase short-price spreads in the short term. Alongside increases in Balancing Mechanism dispatches and ancillary service value, this would be good news for battery energy storage.
We project that hitting Labour’s renewable targets would increase battery revenues by 4% on average through to 2030.
Find out more about Labour’s renewable targets and the impact on battery energy storage here.
But in the short-term buildout of new battery energy storage capacity remains slow
Q2 of 2024 saw the low buildout of battery energy storage in Q1 continue. Just 186 MW of new capacity began commercial operations in Great Britain, following on from 184 in Q1. This compares to average quarterly additions of 400 MW throughout 2023.
Five projects, ranging from 16 to 50 MW in size, came online in Q2. These included the first sites from SSE (Salisbury) and Atlantic Green (Buxton).
Note that in our update, we reported 136 MW of new-build battery energy storage. This has been increased to 186 MW due to Penwortham coming online in June.
The 2024/25 Capacity Market year will begin in October. 1.4 GW of non-operational sites hold Capacity Market contracts for 2024/25, and 1.1 GW of this has an expected operational date in Q3 2024. However, the low ongoing buildout means we project only between 150 - 430 MW of this to start commercial operations in Q3.
In the most optimistic case these projections would put operational battery energy storage capacity on course to hit 5.2 GW at the end of 2024, 1.5 GW below pipeline capacity.
Benchmarking Pro GB subscribers can find out more by reading the full research article here.
Battery Energy Storage capacity is falling behind projections within the latest FES report
The ESO published its annual Future Energy Scenarios (FES) report for 2024 in July. This report outlines potential pathways to net-zero carbon emissions by 2050. It includes a switch from ‘Scenarios’ to ‘Pathways’ which focus on narrower routes to net-zero.
In 2024 the report explores three pathways: Holistic Transition, Electricity Engagement, and Hydrogen Evolution. The ESO has also included a ‘Counterfactual’ pathway which fails to meet net-zero by 2050.
The pathway with the highest level of grid flexibility (Holistic Transition) involves the fastest rate of battery energy storage buildout. This pathway requires 27 GW of battery energy storage by the end of 2029. This would require 23 GW of battery energy storage to come online in the next five years.
Recent battery energy storage buildout rates have slowed. The first half of 2024 saw the lowest new operational capacity since 2022, totaling 370 MW, due to delayed projects. Factoring these delays into Modo Energy’s five-year forecast for battery buildout means battery capacity in 2029 would be 20 GW. This figure would miss all three net zero pathways set out by the ESO.
Read more about the latest version of the FES and what it could mean for batteries here.
Locational differences are beginning to reveal themselves in the operation of batteries - as well as revenues
141 individual battery units located throughout Great Britain make up the 4.1 GW of battery energy storage capacity currently operating in the country. The increasing geographic diversity of this fleet is beginning to reveal locational trends for batteries of operation and revenues.
Grid Supply Point (GSP) zones are typically used to describe a location on the grid, but what really matters is what transmission boundaries a battery sits between. Ultimately, these boundaries (and the constraints that can occur within them) drive most locational Balancing Mechanism dispatches.
How a battery is used in the Balancing Mechanism can depend on which side of a boundary it is located on. During times of grid constraint, batteries on the generation side can be turned down with Bids. Meanwhile, batteries on the demand side of constraints can be turned up using Offers.
Since March 2024, battery energy storage in the constrained regions of North Scotland, London, and the lower B15 area has seen higher revenues on average than the GB BESS Index. However, underneath this, there is a growing difference based on duration.
Want to find out more? The full research article is available to read for Benchmarking Pro GB subscribers here.
Capacity Market derating factors for battery energy storage to increase
Earlier in the Summer, the ESO proposed changes to the methodology for calculating battery de-rating factors in the Capacity Market. This would change the methodology to a ‘scaled’ equivalent firm capacity (EFC) approach. This aims to account for the benefit the whole battery fleet provides the system during stress events.
Switching to the scaled approach increases derating factors for almost all durations of battery energy storage compared to the previous methodology. This means that if prices remain the same, batteries could earn an additional 29% value from the Capacity Market compared to the latest auctions.
However, while batteries would see an increase compared to the most recent auctions, de-rating factors would still be at their second lowest since the Capacity Market began. This is due to the ongoing decline in derating factors caused by the limited duration of battery energy storage.
Ramp rate restrictions likely to go as part of wider frequency response rule changes
In July the ESO consulted on changes to the dynamic frequency response suite of services. If implemented, the changes will affect Dynamic Containment, Dynamic Moderation, and Dynamic Regulation.
The largest of these changes is the removal of maximum ramp rate restrictions for batteries contracted in frequency response. Maximum ramp rates restrict the rate at which batteries can increase power in the opposite direction to their frequency response contract. This can cost batteries up to 12% of trading revenues today.
Alongside changes to ramp rates, the ESO proposed the following:
- Stricter guidance on state of energy management
- New penalties for non-delivery
- Expanded requirements for operational data from non-BMUs
- The ability to send disarm and re-arm instructions outside contracted periods
- An increase in maximum contract size to 100 MW
- A zero deadband for non-duration limited units
- The ability to pay secondary providers directly
The ESO and Ofgem will review responses to the consultation, and, if approved, the changes will go live in November 2024.
For more details, check out the whole article here.
Final design of Quick Reserve announced, with service expected to launch in November
The ESO has provided the final service design of Quick Reserve, which will launch in November 2024. This is the second initiative to secure firm reserve in advance, following the launch of Balancing Reserve in March 2024.
Quick Reserve is designed to provide access to fast-acting energy response that can help manage energy imbalances on the grid caused by changes in renewable generation. Batteries in the Balancing Mechanism can already provide this response, but contracting this ahead of time will give the ESO greater certainty of the reserves it has available.
Fast ramp times of 1 minute mean that battery and pumped storage are the only technologies capable of providing the service in either direction. Renewables, such as wind, could provide Negative Quick Reserve.
Batteries currently provide 1.9GW of frequency response and reserve in each direction, almost half of total installed battery energy storage volume. The new Quick Reserve service will increase the total ancillary service volume for batteries by a minimum of 300 MW in November 2024, reducing total unreserved battery capacity.
This could see an increase in overall ancillary service prices when the service launches. However, the significant pipeline of new battery energy storage capacity means any price increases are likely to be short-lived.
Find out more about the new service in the full article here.
V3.1 of the Modo BESS revenue forecast released
In July we released Version 3.1 of the Modo Energy Battery Revenue forecast. This update introduces Balancing Reserve and Generation TNUoS as standard, removes frequency response ramp rate restrictions and includes a quarterly update of commodity prices.
GB BESS Outlook subscribers can read about how these changes impact projected revenues for battery energy storage in the article here.
A webinar was also held following the launch, during which Robyn and Wendel discussed the changes introduced by V3 of the forecast model. Watch the full replay below.
And... Ben Guest from Gresham House joins Quentin on the podcast to discuss tolls
In June Gresham House and Octopus Energy announced the agreement of a two-year tolling contract for 568 MW/920 MWh of battery energy storage capacity. This is the first such deal ever agreed upon in the GB market and provides a guaranteed revenue return on the assets to the Gresham House Energy Storage Fund.
Ben Guest, Managing Director of New Energy & Fund Manager at Gresham House Energy Storage Fund, joined Quentin on the Transmission podcast in July to delve into the deal.