Pricing
25 Nov 2021
Alex Done

Monthly FFR - December market update

Leaderboard Asset Revenues (Apr 2022)

 

November proved to be an exciting month for the FFR market, with a substantial rebound in both volumes (+600%) and prices (+50%). With National Grid Electricity System Operator (NG ESO) publishing the results of their latest FFR tender (for December delivery), let’s take a look at how the market has changed.

In this article, we explore:

  • The results of the latest monthly FFR tender (including a summary of price and volume).
  • A comparison of ancillary service strategies, and how FFR revenues stack up against Dynamic Containment (DC).
  • What this means for frequency response saturation as we move into December.

Results from the latest tender

Volumes

Figure 1 (below) shows the procured and rejected dynamic FFR volumes in addition to the ESO’s procurement targets for November and December delivery.

Figure 1 - Accepted, rejected and targetted monthly dynamic FFR volumes for tender rounds 142 (November delivery) and 143 (December delivery). Volume excludes bids rejected under rejection code 4 (i.e. bids for which multiple tenders were received for the same unit).
  • Average dynamic FFR procurement levels for December have fallen by 162 MW from the previous month. This is most notable across the overnight block (EFA 1, 2) where procurement fell by ~50%.
  • Procurement volumes in all EFA blocks fell short of the ESO’s December requirement of 550 MW.
  • 96% of rejected capacity was unsuccessful in securing contracts on the grounds of ‘insufficient requirement’, contrary to the ESO’s initial communication of a 550 MW requirement across all EFA blocks.

Prices

Figure 2 (below) shows the range of accepted bid prices compared to the market reference price (volume-weighted average accepted bid price), for both November and December delivery.

Figure 2 - Accepted bid price, (volume-weighted) average bid price and price range for dynamic FFR in tender rounds 142 (November delivery) and 143 (December delivery).
  • Daily (volume-weighted) average FFR prices increased by £4.18/MW/h from November to December.
  • Average bid prices for December remained stable across EFA blocks 1-4, with minimal change on November pricing.
  • Average pricing in EFA blocks 5 and 6 saw a significant increase (+27% and +61% respectively), with more aggressive bidding strategies driving up the market reference price.
  • Gore Street ESF secured the highest contract for an individual EFA block, with their 9 MW Port of Tilbury site accepted at £45.83/MW/h in EFA 5.

Strategy comparison

Choosing between FFR and DC is proving an interesting question for BESS owners and operators at the moment. Let’s take a look at how things have played out so far across November and our expectations for December FFR revenues.

Figure 3 (below) shows how expected revenues for November-December FFR contracts compare to the value available in DC markets.

Figure 3 - Average daily revenues for a range of ancillary service strategies. FFR revenues assume 24/7 contracts remunerated at the volume-weighted average EFA block price, minimum accepted EFA block price and maximum accepted EFA block price. DC revenues are calculated as the daily average revenues for a 24/7 contract remunerated at the market-clearing price.
  • Average 24/7 FFR revenues increased 22% from November to December, driven by more aggressive pricing in EFA blocks 5 and 6.
  • Average FFR revenues for both November and December exceed those earned from a 24/7 DCL strategy in November, with the most lucrative FFR contracts outperforming DCL strategies by 2x.
  • Revenues from symmetric DCL+DCH strategies trump the average FFR earnings for both November and December. However, the uptake of delivering the symmetric service has been lower than expected.

What does this mean for December DC revenues?

Figure 4 (below) shows the capacity of sites contracted in monthly FFR plus the remaining DC-eligible BESS capacity. ESO-forecasted DCL procurement targets are also shown.

Figure 4 - Remaining eligible DC capacity, not locked into monthly FFR contracts. Eligible DC capacity is taken as the sum of the largest volumes secured per unit to date (983 MW).
  • With lower levels of BESS capacity accepted for dynamic FFR in December delivery, we expect to see a larger volume a BESS participating in DC, increasing competition and exerting downward pressure on prices. However, this will coincide with slightly higher expected requirements.
  • One thing to keep an eye on is how December requirement forecasts stack up against realised requirements - in November we saw the ESO procuring more DCL than expected.
  • Note, the ESO is yet to release details of its DCH requirement for December.

Key takeaways

The increased participation of BESS in dynamic FFR is set to continue into December, albeit to a lesser extent than November, with FFR volumes falling by ~33% from last month. Prices have seen a further rally from October (+77%), meaning FFR is poised to be the most lucrative revenue stream from ancillary services as we close out 2021.

FFR migration will undoubtedly impact DC market saturation, with an extra 160 MW vying to secure DC contracts. While this increased competition will exert downward pressure on prices, providers can take some comfort in the ESO’s increased DCL requirement forecasts.