Estimating BESS de-rating factors for Spain’s capacity market
Longer duration and advance stress hour visibility leads to higher earnings
Spain’s upcoming capacity market will require BESS projects to be available to deliver firm capacity during stress hours. The de-rating factor, which determines how much of a battery’s installed capacity counts as firm, is one of the most important variable for investor returns.
Modo Energy estimated de-rating factors for Spanish BESS using the capacity market proposal’s methodology and both Great Britain’s and Ireland’s methodology. Longer-duration assets earn higher de-rating factors across all three. For a 2-hour BESS, values range from 0.33 to 0.41. For a 4-hour BESS, they range from 0.55 to 0.68.
Beyond the de-rating factor itself, the operational rules around stress hours will shape how much revenue BESS can capture. According to the Spanish proposal, capacity providers would be informed well in advance when they would be asked to deliver, unlike in Great Britain, which informs capacity providers only hours in advance.
In this case, not being able to anticipate when stress hours will occur also has a direct cost. For a 1-hour BESS focused on merchant trading, operating without advance visibility reduces total revenues by 4.8%. For a 4-hour BESS, the revenue loss narrows to 2.5%.
Key takeaways
In this research, we look at:
- How different de-rating methodologies, including the Spanish proposal, produce different values for Spanish BESS
- When and how stress hours cluster in Spain’s projected 2032 power system
- How stress hour patterns interact with battery duration to shape dispatch planning
- Why advance publication of stress hours gives Spanish BESS an operational advantage over short-notice markets
For additional information on this topic, reach out to the author - paulo@modoenergy.com
De-rating factors increase with duration, but methodology matters
A de-rating factor measures the fraction of installed capacity that counts as firm. A 100 MW BESS with a 0.38 de-rating factor accounts as having 38 MW of firm capacity. That fraction determines both auction revenues and availability obligations.
As detailed in the previous article on the upcoming Spanish capacity market, if this market is finally approved in 2026 and the first main auction is held in 2027, its delivery period would most likely be 2032. Therefore, we have estimated the de-rating factors for BESS assets for this delivery year.
We compared this methodology to two other methodologies: Ireland’s and Great Britain’s. Spain’s proposal assesses how BESS will contribute during stress conditions, similar to the approach used in Italy, Belgium, and France. GB’s and Ireland’s methodologies adjust de-rating values based on the contribution of the entire BESS fleet.
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