09 Aug 2022
Neil Weaver

How Signal works: the values and fundamentals behind it

When we decided to build a forward view of battery energy storage revenues, we had to stay true to our core values:

  • Enabling Asset Success.
  • Using empirical data (from public sources).
  • And remaining fully transparent in our methodology.

Signal is a brand new product, but it’s built on the same foundations as our Leaderboard and Revenue Benchmark.

We’ve taken everything we’ve learned over the past three years. We’ve spoken to asset owners and operators to ensure that you can get the most out of it. And we’ve collated all of the above - to come up with a product that we believe will revolutionise the way battery energy storage is valued and financed.

Signal: the future of Asset Success.

Signal is a three-year forward view of battery energy storage revenues in Great Britain. But how does it work?

Which markets are we including (and why)?

Signal provides a benchmark forecast of revenues, based on:

  • Estimated day-ahead wholesale revenues.
  • Estimated frequency response revenues (for Dynamic Containment, Dynamic Moderation, Dynamic Regulation, and Monthly Firm Frequency Response).

For now, we have decided not to include Balancing Mechanism revenues. This is because they make up a very small part of the current (overall) revenue stack. However, we will continue to use BM revenues in our Leaderboard and Benchmarking tools. BM revenues will be included in Signal in future, if it makes sense to do so.

In line with our commitment to exclusively using publicly available data (and not relying on third parties, which could compromise our impartiality), we have not factored non-physical trading into our Signal figures.

Focusing on fundamentals

As Signal is built specifically for batteries, it relies on the fundamentals of energy storage economics. Assets import energy when it’s cheaper, and export when it’s more expensive - i.e. capturing spreads.

How batteries ‘capture spreads’.

Within-day wholesale price spreads inform all aspects of our Signal figures. Not only do they directly affect wholesale trading revenues, but they also have indirect effects on frequency response revenues - in terms of both opportunity costs, and auction parameters (price caps and volume requirements).

http://Signal methodology: how within-day wholesale price spreads affect battery energy storage revenues.
How within-day wholesale price spreads affect battery energy storage revenues.

Traditional power price forecasts estimate average wholesale price behaviour over a given period of time. However, for battery energy storage revenues, the bulk of traded (wholesale) revenues comes from extreme (high) price events. Therefore, Signal predicts the frequency and timing of these days - not the average.

Most models predict the average wholesale price. Signal predicts extreme price events.

What does Signal look like?

Using the foundations outlined above, Signal provides a benchmark forecast of revenues, to varying degrees of uncertainty - in this case: P90, P50, and P10.

  • P90 is the lowest value. 90% of the time, we would expect the forecast monthly revenue benchmark to meet or exceed this amount.
  • P50 is the median value. 50% of the time, we would expect the forecast monthly revenue benchmark to meet or exceed this amount.
  • P10 is the highest value. 10% of the time, we would expect the forecast monthly revenue benchmark to exceed this amount.

On the Signal homepage, you’ll see the above three figures, for the total battery revenue projection, plotted on a graph, for the next 36 months.

Alongside the graph, you can also download a spreadsheet containing all of the underlying data, separated on a market-by-market basis. This will allow you to do your own, in-house analysis - and build Signal into your day-to-day operations.

We’ll also produce written analysis of Signal’s inputs and outputs - similar to our Research reports and Market Updates on Phase.

Signal is now available as an add-on for all of our paying users, starting from £2,499 a month.

Want to know more about Signal? 📡

If you want to know more about how Signal works, please get in touch. We know that to get the most out of Signal, you need to understand how it works. That’s why we’re making it completely transparent. We’re excited to explain our entire methodology. So, if you're using Signal in your business model, you can explain how it works, including all the details.

You can leave a comment on this article, find us on LinkedIn, drop us an e-mail, or get in touch via our chat function - and one of the team will get back to you to set up a demo!