28 Feb 2023
Flora Biggins

Signal: February 2023 update

Signal is our 3-year revenue projection for battery energy storage in Great Britain. To give you the most up-to-date forward view of battery revenues, we regularly refresh our inputs into Signal. This article shares the results of Signal’s latest fleet-wide and asset-specific projections, with inputs frozen as of 20th February 2023.

Here, we look at the following:

  • The latest 3-year battery fleet-wide revenue projections, using the 20th February 2023 inputs.
  • How changes to National Grid ESO’s control room and ancillary services requirements affect the revenue projections.
  • Asset-specific battery revenues for systems participating in wholesale trading.
  • For the first time, we’ll also look at asset-specific revenues for batteries participating in Dynamic Containment. Check out our methodology update to learn how we have modeled prices and revenues in this market.

Signal fleet revenue projections - 3 year

Figure 1 below shows Signal’s current view of future market revenues across the BESS fleet up to February 2026. The calculations use the current average fleet duration of 1.1 hours.

Figure 1: Signal’s battery revenue projection (p50 scenario) covering March 2023-February 2026. Inputs frozen as of 20th February 2023.

The current forward view of fleet revenues sees, on average, record lows across 2023 of £43k/MW/a.

So what’s pushing down this projection?

  • Increasing wind generation and healthy gas storage levels in Europe are stifling wholesale spreads and bringing down the projected wholesale revenues for battery storage.
  • We are now in a fully saturated Dynamic Containment market, and therefore we expect Dynamic Containment prices to track the wholesale opportunity cost broadly.
  • Therefore, the drop in projected wholesale revenues (mentioned above) results in a decline in projected Dynamic Containment revenues.
  • As part of phasing out the monthly Firm Frequency Response service, National Grid ESO is reducing its monthly volume requirements starting from March 2023. It expects to complete the phase-out by October 2023.
  • The increased competition for a reduced volume in this service will likely drive down prices further. As a result, we expect the average fleet Firm Frequency Response revenues to fall significantly until the service is fully retired.

That said, there is one market where we expect battery revenues to increase - the Balancing Mechanism.

  • Despite control room upgrades being pushed back to December 2023, battery acceptance rates by volume in this market are at their highest level since National Grid ESO’s reserve from storage trial.
  • We expect the Balancing Mechanism to make up 5% of the fleet average revenues across 2023, increasing to 12% by 2025.

How does the February 2023 projection compare against the previous Signal projection?

Figure 2 (below) compares Signal’s latest fleet-wide projections against the p50 projection from the last update.

Figure 2: Fleet (1.1-hour duration) average revenue projections from the latest update vs. the previous (January) update.
  • Compared to the January update, the p50 revenue projections have fallen on average 27% across the forecast horizon to £43k/MW/a across 2023.
  • Falling prices across the forward curves have caused this drop. In particular, forward Peakload prices have fallen 30% for winter 2023-2024, compared with the January Signal projection.
  • This is due to lower volatility in prices expected next winter, partly due to the recent warm winter (2022/23) meaning gas storage levels in Europe are higher than previously expected.

Asset-specific revenues in February 2023 projection

In January’s Signal projection, we used our hourly forward power curve to quantify optimized asset-specific wholesale revenues. As part of February’s Signal projection, we additionally model forward Dynamic Containment Low and High prices. We then use these to quantify battery revenues in this service and for batteries participating in Dynamic Containment and wholesale.

Strategy revenue comparison

Figure 3 (below) shows the average annualized revenues across 2023 for 1 and 2-hour duration batteries pursuing different wholesale and Dynamic Containment strategies. Modeling assumptions include a DC symmetrical de-rating factor of 0.9 and a round-trip battery efficiency of 88%.

Figure 3: Average annualized revenues across the remainder of 2023 for 1 and 2-hour batteries doing different strategies.

Based on these inputs and assumptions, the Signal projection calculates the following:

  • 1-hour batteries can make the most money in Dynamic Containment, rather than wholesale. Due to falling spreads, wholesale trading will be less profitable for these batteries.
  • 2-hour batteries achieve greater revenues in wholesale by allowing up to 2 charge-discharge cycles per day. However, these systems can maximize revenues by participating in a combination of wholesale and Dynamic Containment. Specifically, Figure 3 above shows revenues for a mixed strategy of participating in Dynamic Containment Low and High in EFA blocks 1, 3, 4 and 6, with wholesale trading in EFAs 2 and 5.
  • It should be noted that these revenues are higher than Signal’s fleet average revenues, which model saturation in ancillary services, including Dynamic Containment. Only a percentage of the fleet can participate, and the remainder will look to merchant markets to generate revenue.

Effects of duration

Figure 4 (below) shows the monthly annualized revenues for 1 and 2-hour batteries pursuing the most lucrative strategies: Dynamic Containment and combined Dynamic Containment (EFAs 1, 3, 4 and 6) and wholesale (EFAs 2 and 5), respectively.

Figure 4: Annualized revenues for 1 and 2-hour batteries pursuing the most lucrative strategies: DC and DC + wholesale, respectively.

Based on the Signal projection for February:

  • 2-hour batteries can achieve 29% greater revenues than 1-hour batteries over the next three years by combining Dynamic Containment (EFAs 1, 3, 4 and 6) and wholesale (EFAs 2 and 5), compared with a 1-hour system in Dynamic Containment.
  • This is especially evident over the colder months (October - March), where 2-hour batteries can achieve 38% greater revenues. In these months, wholesale spreads are greater due to higher demand and tighter margin, which can sometimes lead to extremely high prices - we saw this on 12th December last year.

What to expect from Signal going forwards?

  • More data for you and your team to explore: you can now download our optimized revenues in both wholesale and Dynamic Containment alongside our hourly forward power curve.
  • Solar and storage co-located revenues: we are updating our model to include revenues for solar and storage co-located sites. So watch this space!
  • Updated documentation: for you to get the most out of Signal, our methodology and assumptions should be accessible and transparent. We are improving these to make your Signal experience as smooth as possible.

We love your feedback!

We’re always excited to hear your feedback on Modo Signal, especially our latest projection updates. Please get in touch via Intercom if you’d like to discuss anything with the Modo team, and we’re happy to schedule a call!

You can also check out our Signal roadmap, where you can suggest, comment, and vote on future improvements.

Copyright© 2024 Modo Energy. All rights reserved