31 Mar 2023
Flora Biggins

Signal: March 2023 update

Signal is our three-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 27th March 2023.

Here, we look at the following:

  • The latest three-year battery fleet-wide revenue projections, using the 27th March 2023 inputs.
  • How these revenues are impacted by the upcoming launch of Quick Reserve, and the latest battery buildout update.

Signal fleet revenue projections

Figure 1 below shows Signal’s latest three-year view of future revenues across the BESS fleet up to March 2026. The calculations use the expected average fleet duration from our latest buildout update (1.2h in April 2023, increasing to 1.5h in March 2026).

Figure 1: Signal’s battery revenue projection (p50 scenario) covering April 2023-March 2026. Inputs are frozen as of 27th March 2023.

On average, the current forward view of fleet revenues sees lows across Year 1 of the projection (April 2023 - March 2024) of £49k/MW/a. However, we see a year-on-year increase to £66k/MW/a across Year 3 (April 2025 - March 2026).

It is worth noting that Signal excludes Capacity Market revenues, which saw significantly high prices in the recent T-1 and T-4 auctions.

So, what’s causing the low projections across Year 1?

  • The spreads in the forward market for power are low: year-ahead base load and peak load are sitting at £140/MWh and £180/MWh, giving an average spread of just £30/MWh.
  • The Dynamic Containment and FFR markets are over-supplied with batteries, and revenues continue to fall as saturation and phase-out drive down prices.
  • You can read about these factors in more detail in our February 2023 Signal update, where we saw a dramatic drop in projected revenues.

And, why do we see fleet revenues increase year-on-year beyond Year 1?

Launch of Quick Reserve

  • This is one of National Grid ESO’s new ancillary services, which will be a key market for batteries and provide a new revenue stream.
  • We assume 300 MW of procurement for Quick Reserve from October 2023 onwards. This is the minimum expected requirement under ‘stable conditions’ and its anticipated launch date.
  • Batteries are the best technology for this service as they respond near-instantaneously in both directions. So, we assume that batteries only will provide this minimum response.

Increasing Dynamic Containment requirements

  • Dynamic Containment requirements depend on the system's largest loss: the single largest source of generation (or demand) on the grid. If disconnected (or lost), it would cause a significant frequency event, and the service protects against such losses.
  • Currently, the largest loss is the 1400 MW North Sea Link interconnector. This will change in 2025 with the construction of the 1800 MW Damhead Creek 2 power plant.
  • So, we assume that in 2025 Dynamic Containment requirements will increase by 400 MW compared with current requirements - meaning more batteries can participate in this service.

Increasing average fleet duration

  • For March 2023’s fleet average projection, we use the expected fleet duration from our latest buildout report. We expect the average fleet duration to increase from 1.2h in April 2023 to 1.5h in March 2026. You can find our buildout projections in data downloads, along with our fleet average revenues.
  • Longer-duration batteries earn greater merchant revenues by trading across multiple hours.
  • Despite increased ancillary service requirements for Quick Reserve and Dynamic Containment, wholesale and Balancing Mechanism will still be the most important markets for batteries. This is due to a colossal buildout expectation and the dawn of the mega-battery.
  • With wholesale and Balancing Mechanism becoming the dominant revenue streams, longer-duration batteries that can capitalize on these will push up fleet average revenues.

How does the March 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 average revenue projections from the latest update vs. the previous (February 2023) update.
  • Compared to February 2023’s projection, the p50 revenues have fallen by 1% for 2023.
  • However, from January 2024 onwards, the p50 projection has increased by 18%. This is due to an increase in average fleet duration pushing up merchant revenues and increased ancillary service requirements creating more opportunities for batteries.

How do these projections look for my battery?

Alongside our fleet average projections, we publish asset-specific revenue projections for batteries in wholesale and Dynamic Containment. We update these weekly, and they are configurable for different battery durations and cycling.

We currently show 1-hour and 2-hour systems cycling 1 and 2 times per day. But, if you have a particular configuration you’d like us to run our dispatch model for, please get in touch!