To give you the most up-to-date forward view of battery revenues, we regularly refresh our inputs to Signal. This article presents the results of Signal’s latest projections, with inputs frozen as of 16th January 2023. We’ll be looking at the following:
- The latest 3-year battery Benchmark revenue projections with all inputs updated.
- A closer look at projected revenues in the Balancing Mechanism.
- Signal’s first asset-specific revenue projections for batteries participating in the wholesale market with different trading strategies.
Latest fleet revenue projections
Figure 1 shows Signal’s current view of future market revenues across the BESS fleet, considering a 1.1h duration battery.
- In December, for the first time, batteries made more money in wholesale than in any other market. We expect this trend to continue, with wholesale comprising an increasing proportion of revenues across the battery fleet.
- In contrast, we see a decreasing proportion of revenues from Dynamic Containment. This is due to a growing battery fleet - meaning a smaller proportion will be accepted to provide this service, and more batteries will adopt merchant strategies.
- We also expect Balancing Mechanism revenues to increase with the ESO announcing control room improvements (namely, the introduction of the Open Balancing Platform) set for release in September, which should enable greater acceptance rates. Additionally, we expect higher participation in the Balancing Mechanism as more batteries look for alternative sources of revenue outside of Dynamic Containment.
How do these compare against Signal’s last update?
Figure 2 (below) compares Signal’s latest fleet-wide projections against the p50 projection from the last update.
- Compared to Signal’s last update, projected revenues across the fleet have fallen. In particular, we see a 50% drop in revenues for February (for Signal’s p50 projection) compared with the last update and a 30% lower revenue for the rest of 2023.
- This reflects falling wholesale price spreads along the forward power curve due to lower expected volatility in energy markets. This lower volatility results from record wind generation and French nuclear reactors returning online.
We also see a large drop in projected Dynamic Containment revenues, as shown in figure 3 (below).
- Dynamic Containment revenue projections have fallen over the next two years until 2025.
- There are two reasons for this. Firstly, falling price spreads along the forward curve mean that wholesale opportunity costs have decreased. Therefore we expect Dynamic Containment prices also to decrease accordingly.
- Secondly, the ESO has updated its Dynamic Containment requirements for 2023. On average, these new requirements are lower. However, we expect requirements to increase by 400 MW on average in 2025 when Damhead Creek 2 (1800 MW) comes online. This is because volume requirements depend on the system's single largest potential generation loss - currently, this is the 1400 MW North Sea Link interconnector.
What’s changed?
Forward power prices
We’ve updated the forward power baseload and peakload curves, which we use to generate an hourly forward curve. Check out our recent articles on forward markets and how we use them within Signal for more information. Animation 1 (below) shows how these curves have evolved from 17 November 2022-30 December 2022.
- Baseload and peakload prices for 2023 have fallen from highs of >£800/MWh on 30th November to an average of £300/MWh on 30th December. This shows that the current value of future power has dropped.
- With record-breaking levels of wind generation and French nuclear reactors returning online, there should be sufficient supply to match demand. As a result, lower volatility in energy markets is expected.
Dynamic Containment requirements
Additionally, we have updated Signal with the ESO’s recently published indicative Dynamic Containment requirements for 2023. These are shown below (figure 4) and compared against 2022’s indicative requirements.
- On average, the updated requirements for Dynamic Containment Low are 100 MW lower in the summer months than last year.
- We, therefore, expect that fewer batteries will provide this service over the next year. As a result, more batteries will adopt merchant strategies - trading power in wholesale and the Balancing Mechanism.
- However, in its recent Operability Report, the ESO reports an increase in the largest potential generation losses in 2025 by 400 MW (with Damhead Creek 2 representing a potential loss of 1800 MW). In order to maintain system stability, we expect Dynamic Containment requirements to increase accordingly. We model an average increase of 400 MW from 2025 onwards.
Battery buildout rate
We’ve also updated battery buildout expectations within Signal in line with a growing rate of installed capacity.
- The last quarter of 2022 has seen 433 MW of capacity coming online. This is a 27% increase in the existing capacity at the end of the previous quarter. We’ve also seen larger batteries built, with notable examples of Capenhurst (100 MW) and Pilswood (98 MW).
- We’ve correspondingly updated our battery buildout projection in line with this increase. We foresee an additional >300 MW online by 2025, compared with our previous projection.
- As a result of the increased buildout rate, the proportion of fleet revenues in wholesale and the Balancing Mechanism will increase. The proportion of fleet revenues from ancillary services will decrease.
What’s new in Signal?
We recently made some changes to Signal’s methodology. These included adding the Balancing Mechanism and building an hourly forward price curve to quantify future revenues. How have these changes affected Signal’s latest projections?
Balancing Mechanism
Figure 6 (below) shows average fleet revenue projections in the Balancing Mechanism.
- Balancing Mechanism revenues are projected to increase from September 2023 onwards, with the implementation of the ESO’s Open Balancing Platform, which should see greater battery acceptance rates.
- Additionally, as more batteries adopt merchant strategies, we expect the participation rate in the Balancing Mechanism will increase.
- Under our assumptions, Balancing Mechanism revenues will make up, on average, 14% of fleet revenues in 2025.
Asset-specific wholesale revenues
We use our hourly forward prices (shown in figure 7, below) to quantify optimized asset-specific wholesale revenues for batteries with different durations and cycling constraints.
Signal’s asset-specific revenues assume full participation in day-ahead wholesale markets, with no service stacking - although we are currently working to include other markets! Prices follow Signal’s projected hourly forward curve and are pushed through a dispatch optimization model. We assume a battery charging efficiency of 88% and prior knowledge of hourly prices the day ahead.
Figure 8 (below) shows the revenues for 1 and 2-hour duration batteries optimized in the wholesale market and able to cycle up to once or twice per day.
- In colder months (October-March), optimized revenues for batteries that can cycle up to twice a day are 6% higher than those cycling once. However, in warmer months, revenues for batteries cycling up to twice a day are 38% higher.
- In summer, prices tend to drop in the middle of the day, creating double trading opportunities. Additionally, for days with extremely high (or low) prices, most of the wholesale value comes from a single spread. On these days - mainly in the colder months - the relative increase from cycling twice is lower.
An example dispatch profile for a 1-hour battery cycling up to twice a day on a summer weekday is shown in figure 9, below.
- Due to charging inefficiencies, extra power is imported to charge the battery fully. This occurs during hours with the second-lowest prices for each cycle to optimize revenue.
- The second daily wholesale spread is smaller than the first, so the extra value added by cycling twice is proportionally lower.
- Therefore, batteries that can only cycle once a day earn, on average, 1.6x greater revenues per cycle than batteries able to cycle up to twice a day.
What to expect from Signal going forwards
- ESO Operability Report: At the time of writing, the ESO has released its Operability Report, which suggests that we could see a >4 GW ancillary service market with the launch of Quick Response. We haven’t finalized our methodology for including these markets in Signal, so we don’t currently model them. However, these will be included in Signal in the near future.
- More data for you and your team to explore: we are making new datasets (hourly power curve and asset-specific optimized revenues) available in data downloads which will be updated weekly to give you the most up-to-date view of battery revenues.
- Asset-specific revenue projections for batteries in multiple markets: our asset-specific revenue projections only consider batteries in wholesale. We are currently updating our model to include ancillary services within these projections.
You can download our latest datasets here. These include:
- Fleet-wide revenue projections and market split for 1 and 2-hour batteries.
- Our new hourly forward price curve and optimized wholesale revenues.
We’d love your feedback!
We’re super excited to hear your feedback for this iteration of Modo Signal. Please get in touch via Intercom if you’d like to discuss anything with the Modo team, and we’ll be happy to schedule a call!
You can also check out our Signal roadmap, where you can suggest, comment, and vote on future improvements.