Pricing
15 Sep 2022
Doris Woo

Reactive power services: the role of battery energy storage

Since 2019, National Grid ESO has launched a number of reactive power ‘pathfinder’ tenders to procure reactive power services. In this article, we take a closer look at these tenders, and the role batteries have played.

If you want to know more about reactive power, check out our recent explainer.

Spoiler alert

  • Batteries are able to provide reactive power services, and multiple batteries participated in these pathfinders.
  • Highly locational tenders can offer a long-term revenue stream for well-located sites.
  • However, compared to the rest of the battery energy storage revenue stack, these revenues are small.

Why should we care about reactive power?

Voltage is closely managed on the electricity networks - to keep the lights on. As we decarbonize and decentralize our energy system, a growing network of distributed energy assets is making it more and more of a challenge to manage.

Large swings in demand and generation, transmission losses, and high levels of capacitance or inductance on the grid cause voltage instabilities. For the network to run safely and securely, the ESO manages voltage within statutory limits. Reactive power is an important tool for managing voltage.

The cost of managing voltage has been growing over recent years, as shown in figure 1 (below). Costs doubled from April - August 2019 to the same period this year - to £117m.

Reactive power services - the increasing costs of voltage management
Figure 1: Voltage management costs from April 2019 - August 2022.

Because voltage can vary significantly by location, some regions require more management than others. Figure 2 (below) shows that the ESO has spent over £90m on voltage management since April 2019 in both the East Midlands and NW England. In the past 12 months (August 2021 - August 2022), the total cost across GB was £320m.

Reactive power services - voltage management costs by region
Figure 2: The cost of managing voltage between April 2019 - August 2022, split by region.

What are the markets for reactive power?

Historically, National Grid ESO has met its reactive power needs with traditional large thermal generators. Generators are required by the grid code to vary the reactive power of their output via the Obligatory Reactive Power Service (ORPS). There is a second market, the Enhanced Reactive Power Service (ERPS), for those able to offer additional capabilities. For this, the ESO runs a tender every six months.

In recent years, as the ESO seeks to run a zero-carbon system, batteries have started providing additional reactive power services. Zenobē Energy’s Kings Barn site first provided reactive power through the Power Potential project in April 2020, via the distribution network. As transmission-connected assets, Pivot Power’s Oxford Superhub and Kemsley batteries have to provide reactive power services. And, batteries have participated via the High Voltage Pathfinder schemes.

High Voltage Pathfinders

These Pathfinders produced three tenders between 2019-2022, for absorptive reactive power services. Services were procured on a regional basis, due to the localized nature of voltage fluctuations. Specifically, the regions of Mersey, North East England, and West Yorkshire - shown in figure 3 (below).

Figure 3: Geographic scope of the tenders. Clockwise from top, Mersey, Pennines (West Yorkshire), and Pennines (North East).

The tenders resulted in five reactive power contracts, summarised in Table 1 (below).

Table 1: Summary of tender specifications across the three High Voltage Pathfinders.
  • We saw 23 battery bids into the Mersey Long Term tender. These came from Zenobē Energy, Arenko, Shaw-Energi Ltd, and ScottishPower Renewables.
  • Zenobē Energy, Pivot Power, and UKPA Energy participated in the later Pennines tender.
  • The only successful battery tender was for Zenobē’s 100 MW Capenhurst battery. The other batteries were rejected for (mostly) economic reasons - with bids of £65/SP (per settlement period) on average, compared with Capenhurst’s £15/SP.
  • Other winning tenders came from National Grid Electricity Transmission (NGET).
  • The tenders stipulated that the stacking of additional balancing services is allowed, “provided that it does not impact the ability for the provider to deliver the contracted reactive power services if instructed to do so.” This is particularly relevant for battery energy storage systems.

Going forward, we can expect to see more of these tenders. National Grid ESO ran a Request for Information in May and June 2022, to explore the feasibility of launching a tender for additional reactive power absorption services in 2023-2026. The results of this should be out soon.

Case study: Zenobē’s Capenhurst 100MW BESS

Capenhurst is a 100 MW battery storage system, connected directly at 275 kV to the transmission system in Chester. The site will provide 38 MVar of reactive power absorption over nine years, earning £3.1 million over the lifetime of the contract.

Capenhurst (photo credit: Zenobē Energy)

The service was due to commence in April 2022. Zenobē’s intention is to stack “multiple active power, capacity, and voltage services” to boost value, as per the rules of the tender.

How do these revenues compare to the Modo benchmark?

The Capenhurst contract pays an availability fee of £15 per settlement period, equivalent to £0.39 MVAr/h. Based on the assumption that Capenhurst’s reactive power service was fully operational from 1 April 2022, figure 4 (below) compares the revenues of Capenhurst’s reactive power service against active power services over the same period. The revenues shown are annualized and assume that 38 MVar is paid for every 100 MW of availability elsewhere.

Figure 4: The GB fleet average revenue stack alongside the monies earnt from Capenhurst’s reactive power contract.

The reactive power tender equates to £2628/MW/a for a 100MW battery providing 38MVar. This adds between 1-2% to the benchmark revenue stack, for April 2022-August 2022. However, these months have seen the highest revenues on record for storage (for example, see our monthly benchmarking articles). Therefore, it’s likely to make up a larger fraction of the stack in the future.

Compared to ancillary services (where price volatility is always a factor), reactive power availability payments are guaranteed under Capenhurst’s contract - as long as the battery is always at least 90% available. Reactive power may appeal as a small but constant addition to a revenue stack, offering long-term revenues - and supplemented by more lucrative services in wholesale and other frequency response markets.

Key takeaways

  • Reactive power is a crucial tool to keep our transmission system’s voltage within safe limits.
  • While costs of managing voltage have been increasing in light of more complex system needs, more innovative ways of managing voltage, via different asset types which are able to generate and absorb reactive power, are needed.
  • Battery energy storage systems are well positioned to offer reactive power services - if located in the right place!

Batteries made up a large chunk of the High Voltage Pathfinder tender rounds. This is because they can easily provide clean, cost-effective reactive power. While revenues earned through these pathfinders are low compared to the current stack, reactive power services form an additional long-term revenue stream - and diversification from the mainstay frequency response services - for assets in the right locations.