2023 has been a year of extremes for battery energy storage in Great Britain. In this article, we look back on what has changed in the battery energy storage industry throughout the year.
Total battery capacity continued to grow, reaching 3.5 GW by the end of 2023
The installation of new battery energy storage capacity has continued to rise.
- The total operating power capacity of batteries in Great Britain is now 3.5 GW, up from 2.1 GW at the end of 2022.
- Total energy capacity has grown even quicker, up to 4.5 GWh from 2.3 GWh in 2022.
- This means the average duration of battery energy capacity in GB is now 1.27 hours, up from 1.1 hours in 2022.
34 new battery projects came online in 2023, an increase of over 50% from that in 2022. The number of operational battery projects (greater than 5 MW) now stands at 108. This includes four new 98+ MW systems which arrived in 2023: Dollymans, Clay Tye, Bumpers, and Richborough Energy Park.
This is a record increase in capacity - and it’s increasingly coming in the form of two-hour systems
While the headline capacity number has grown, more significant is the acceleration of this deployment. 1.5 GW of new battery capacity came online in 2023, compared to 681 MW in 2022 and 343 MW in 2021.
This means the rate of installation of new battery capacity has doubled in two consecutive years. If this continues in 2024, we should expect 2.9 GW of battery capacity to come online, bringing total capacity up to 6.4 GW.
In contrast to previous years, almost half of this new capacity is now two hours (or longer) in duration. This has quadrupled the capacity of two-hour systems operating in Great Britain in just one year. As we highlighted in our build-out report in April, the battery pipeline is quickly shifting towards longer duration. This means we expect the capacity of new two-hour projects to overtake one-hour capacity in 2024.
Ten new players have entered the market this year
2023 saw ten new companies enter battery ownership in Great Britain, accounting for 500 MW of new capacity. Sosteneo Fund and Pulse Clean Energy were the largest, adding 98 MW and 84 MW, respectively. A further ten companies with existing capacity added to their portfolios, accounting for the remaining 942 MW added this year. Harmony Energy Income Trust (169 MW), SMS (150 MW), and Gresham House (140 MW) were the largest contributors to new battery capacity.
2023 saw three new players entering the battery optimization market, too. Scottish Power operates the 50 MW co-located Whitelee battery, which we discussed the operation of in May. Yuso operates the new 50 MW Tollgate battery, owned by Nippon Koei. Finally, bp has taken over the operation of the 10 MW Hill Farm battery, previously optimized by Open Energi. A further 83 MW has been announced and is expected to begin operation in the first half of 2024.
Frequency response saturation is here
2023 has been a year of declining revenues for battery energy storage. In November, revenues reached their lowest point ever, a record that looks to be beaten in December. It looks likely that 2023 will end with batteries earning an average of £51k/MW, down 67% from the record £153k/MW in 2022.
This has been driven by a significant decline in frequency response revenues, down 73% in 2023. This accounts for the entirety of the fall in overall revenues. This has been caused by the saturation of the frequency response markets, which properly arrived in December 2022. The launch of the Enduring Auction Capability in November has reduced prices even further.
New Dynamic products have grown in importance, but batteries are relying on frequency response less than ever
The two new frequency response markets launched last year, Dynamic Moderation and Dynamic Regulation, have increased in size and importance in 2023. As part of the retirement of Monthly FFR, the procurement volumes of these services have increased - now at 180 MW for Dynamic Moderation, and 350 MW for Dynamic Regulation. The Enduring Auction Capability has made it easier for participants to enter each service, boosting participation in November and December.
Despite this, more battery capacity is now going uncontracted in frequency response than ever. Volumes of Dynamic Containment have not increased, and Monthly FFR has now ended as a service - while more battery capacity continues to come online.
1.9 GW of batteries were uncontracted in December 2023 - 55% of total operational capacity. This means frequency response is quickly declining in importance in determining battery revenues.
Wholesale volatility of the previous two years has not been repeated
Wholesale price spikes, as high as £2,500/MWh, in 2021 and 2022 meant we were looking for more of the same in 2023. However, this hasn’t happened - the highest price reached so far in 2023 is £255/MWh on the 23rd of January. This has suppressed revenues from wholesale trading - even though batteries are spending less time than ever providing frequency response.
By contrast, zero and negative prices have become much more common. In the N2EX day-ahead market, 90 hours were at zero or negative price, compared to 35 in 2022 and 8 in 2021. This provided additional value to storage, which can be paid to charge when prices are negative.
Balancing Mechanism revenues haven’t improved - yet
Revenues from the Balancing Mechanism have increased in 2023 - to an average of £4,600/MW, up from £1,900/MW in 2022. However, this increase has not been as much as hoped - to begin to offset falling frequency response revenues.
The total volume of dispatches for battery energy storage has grown significantly in 2023. Dispatch volumes reached a high in October when they totaled 29 GWh, 4.5 times what they were in January.
However, battery volume available in the BM has also increased by 3.3 times. This means dispatch rates, and therefore volumes, on an individual asset basis have not increased by much through 2023. The average dispatch rate in the year's final three months was 5.1%, compared to 4.2% in January.
The 2023 Leaderboard
Congratulations to Pillswood A, the top-performing system on our 2023 leaderboard. The system is owned by Harmony Energy Investment Trust and operated by Tesla.
Honorable mentions go to Rufford (operated by Anesco), and Capenhurst 4 (operated by EDF) - the top-performing, sub-two-hour systems.
Duration and cycling have grown in importance in determining revenue
Two-hour systems mostly came out on top in 2023. Much of this has come from the continued value of combining a strategy focused on Dynamic Regulation High with wholesale trading. The duration premium grew in 2023 as Dynamic Containment reduced in importance. On average, systems greater than 1.5 hours earned 25% more than those under 1.5 hours.
Cycling has also grown in importance for battery revenues. Batteries are cycling more this year than in previous years - up 21% from 2022. Higher cycling is returning higher revenues in 2023, again due to the declining importance of Dynamic Containment. On average, cycling twice daily has returned 22% more revenue than a one-cycle strategy.
Finally, the registration route of batteries is increasingly making a difference in operation. As many as ten non-Balancing-Mechanism registered systems are now pursuing a NIV-chasing heavy strategy. Meanwhile, how ABSVD is applied to different systems has resulted in some non-BM systems performing well following a strategy focused on Dynamic Regulation Low.
What’s coming in 2024?
Here are our top three things to look out for battery energy storage next year:
1. More records for capacity additions look set to be broken - but will delays play a part in slowing this down?
2024 has the potential to smash new capacity additions again. There is enough in the pipeline for next year to reach 7 GW in total capacity. However, it remains to be seen just how effectively the industry can get this online - 1.2 GW of projects continue to be delayed from 2022 and 2023.
2. The development of the Open Balancing Platform will continue, but big changes for batteries may not come till the end of 2024
How effectively the control room will use the new bulk dispatch capability launched on 12th December remains to be seen. The biggest improvement for batteries in the Balancing Mechanism may come at the end of the year, with planned changes for how these systems communicate their state of charge with the control room, which will end the 15-minute rule.
3. New Reserve products are on the way - but which of these will suit batteries?
2024 will launch two new services: Balancing Reserve in March and Quick Reserve in September. We expect the second of these to be dominated by batteries, which may add a valuable new revenue stream. The first will see batteries need to compete with other flexible generation technologies such as CCGTs and gas peakers - but with prices in frequency response so low, it could still provide value for batteries.