It’s been six months since we launched Phase - our media network dedicated to energy markets and energy storage. And we’ve been overwhelmed by the response we’ve received! We’ve had an unbelievable amount of fun putting together everything you see on Phase. Whether it’s in-depth interviews with industry pioneers on Modo: The Podcast, or the short-bite, educational Energy Academy series - it’s been a blast.
But as much fun as getting in front of the camera is, we’re still super focused on bringing you unique written content too. From introductory explainers and regular market updates, to deep-dive research reports and detailed battery revenue analysis. With that in mind, this six-month anniversary seems like a good time to look back at our most popular Phase articles.
Remember - you can now leave comments on articles on Phase. If you’ve got a question you’d like answered, an opinion you want to share, or you just vehemently disagree with what we’ve written, you can let us know at the bottom of the page on any Phase article. We’ll send you a notification when somebody replies to your comment.
10. Future of GB BESS buildout
What we said:
- From March 2022 to the end of 2025, there is an expected increase of 4,995 MW of BESS capacity in GB.
- This consists of 99 projects that have all secured Capacity Market contracts for delivery during this period.
- By the end of 2025, the installed capacity of BESS in GB could exceed other forms of storage (such as pumped hydro), making BESS the dominant storage technology.
9. Dynamic Containment - price caps and demand elasticity
What we said:
Batteries operating in Dynamic Containment could see significant changes in their bidding patterns and revenues as a result of these changes.
The inputs to the algorithm that determine the auction’s clearing prices have changed - so who secures what contracts, and at what price, will also change. There is a new, increased, complexity in the DC market. Participants and optimisers will have to understand this and potentially adjust their business practices to maximise revenues.
Some of the bidding strategies seen historically (for example, hockey stick bids) will prove less successful as market sophistication increases and strategies will need to adjust. With a demand curve that changes daily, participants may have trouble predicting where the market will clear and as such, we’d expect market competition and efficiency to increase. In normal circumstances, this would represent a loss of value for participants, however, this also comes at a time when the new demand curves show a lot more value in the market, and for the time being, the latter driver is the dominant force.
8. Should you consider a solar-constrained grid connection?
What we said:
Lucrative arbitrage opportunities tend to occur during winter months, when solar generation is at its lowest. This means that there’s a lower impact on merchant revenues than in summer. In addition, frequency response procurement targets are often higher in summer months as there is less inertia on the system. With frequency response services being procured day-ahead (by EFA block), assets with access to a good solar forecast should theoretically be able to operate freely around those periods of constraint.
So, while this type of export constraint would have some impact on BESS revenues, that impact could be minimised through decent forecasting and clever optimisation. Therefore, for sites that are struggling to obtain an unconstrained grid connection, we believe it is worth considering this type of agreement.
7. The evolution of the GB battery energy storage revenue stack
What we said:
- Seeing the stack on a monthly basis allows us to see patterns as they form. We can see the impacts of new markets (when they emerge), and also the overall diversification of the stack.
- We can see that FFR and EFR carried the revenue burden until October 2020. This goes back to our previous observation: this month saw the launch of Dynamic Containment.
- Dynamic Containment became the dominant revenue stream for around a year.
- In September 2021, we see the green bar forming quite a large part of the stack. This represents wholesale markets, and corresponds with the wild price spikes we saw in September.
6. LMP - Part Two: what will nodal pricing mean for battery energy storage?
What we said:
Under nodal pricing, we imagine that NG ESO will be responsible for maintaining system frequency around 50 Hz. But how will nodal pricing affect ancillary services (and the battery energy storage systems that provide them)?
NG ESO is currently developing a mapping tool. This will allow it to better identify the location of assets. In turn, this will help the control room manage constraints locationally. Under nodal pricing, it is possible that frequency response markets would have different requirements in different locations, according to the make-up of generation and network constraints on each part of the network.
Other factors, such as loss of load or inertia, also have the potential to change requirements by node. For example, Hinkley Point C brings with it a 1800 MW of potential loss of load - which might bring with it large Dynamic Containment requirements. Yet, it might have little need for Dynamic Regulation and Dynamic Moderation. This is because inertia will be high, due to all those huge, spinning turbines.
Alternatively, a node with very little synchronous generation but lots of solar or wind generation could have significant requirements for DR, as inertia would be quite low. Even though there’s no significant loss of load risk, the potentially large RoCoF - for example, when clouds move over the area - might drive a relatively large DM requirement.
5. Dynamic Containment: who’s setting the clearing price?
What we said:
Since the Dynamic Containment auction changes took place on the 1st of April 2022, we’ve seen a number of bidding strategy trends. Many participants are using a ‘hockey-stick’ approach to their bidding. This means linking large volumes of low-priced bids with small volumes of high-priced bids to maximise chances of acceptance.
The changes have led to some participants creating more value in the market than others. These price-setters are consistently pushing up clearing prices, which subsequently benefits everybody else. However, with this strategy comes risk. Often, these participants have seen more of their bids rejected, compared to those who are price-takers.
What’s clear is that there are a number of approaches to bidding in Dynamic Containment auctions. It remains to be seen whether we will continue to see this much volatility in clearing prices as we move into the summer months (when the ESO’s requirement is set to increase). We’ll be sure to keep you up to date with the trends behind these clearing prices across the entire frequency response suite - as these markets develop, and as we gather more data.
4. April 2022 Leaderboard overview
What we said:
- On average across the month, low-frequency Dynamic Containment (DCL) cleared at £18.67/MW/h.
- The average clearing price for providing the service symmetrically (at 90% rated power) was £20.76/MW/h in April, 8.7% higher than in March 2022.
- The DR service(s) launched on 8th April, with average clearing prices of £30.8/MW/h and £32.17/MW/h in both the high- and low-frequency services respectively.
3. LMP - Part One: what is nodal pricing?
What we said:
In single energy price markets, there are mechanisms that can help signal pricing: network costs have various locational elements. In GB, distribution and transmission costs vary by the 14 Grid Supply Point (GSP) groups. For example, the Transmission Network Use of System (TNUoS) rate in Northern Scotland is less than half that in London (comparing the half-hourly demand tariff for 2022/2023).
In a nodal pricing market, locational value is instead signalled in short-term wholesale electricity prices (spot prices). Short 5-minute settlement windows are suggested, with fairly granular ‘nodes’ at which prices differ. These could be the 14 GSP groups or even the 352 GSPs. Variations between nodes would dictate the local energy economics - and therefore prices.
The markets would do more of the balancing between supply and demand, and constraints would be managed through market incentives. The system would be more efficient, so total system costs would be lower.
While GB has decarbonised to ~40% renewable energy, system balancing costs have skyrocketed. The ESC report estimates that £0.5bn of the £1.3bn spent on balancing the system in 2020 was due to managing constraints. These costs are set to accelerate as more intermittent generation comes onto the system. Nodal pricing is seen as a way to reduce these costs without significant investment in network infrastructure.
2. June 2022 Leaderboard Analysis
What we said:
The Modo benchmark for June 2022 was £23,175/MW for the month. Those assets making a higher return than this could be considered more successful than the average.
Unlike previous months, the most successful assets - those generating the highest revenues - were those that largely provided DC and not FFR (with one exception). Assets most frequently accepted into DC were able to capture the high clearing prices we saw throughout June 2022. A couple of assets stood as outliers to this trend, utilising the high-frequency DR service to charge up (and be paid to do so) whilst dispatching in wholesale markets at the same time - albeit at the cost of more cycles per day.
June has been the most lucrative month ever for battery assets in GB. Revenues were 46.29% higher than in February 2022 - the previous all-time high! It’ll be exciting to see how revenues evolve from here.
1. Mandatory Frequency Response: the other frequency response market
What we said:
Much like FFR, MFR is the change in power output of a power station in response to grid frequency, as it deviates from 50Hz. This means the power station will generate more power when frequency is below 50 Hz (primary and secondary response), and generate less power when frequency is above 50 Hz (high response). The response times are similar to FFR as well: primary requires a change in power output within 10s, secondary within 30s, and high within 10s.
MFR is a real-time service: the ESO will instruct MFR units to provide frequency response via the Balancing Mechanism, when the system requires more real-time balancing. When this happens, these power stations will typically lower their output, so that they have enough headroom to respond to the needs of the system.
The MFR market is large - with 360 MW of primary MFR, 230 MW of secondary MFR, and 540 MW of high-volume MFR procured on average (per month) between May 2021 and May 2022. Though slightly smaller than DC, MFR is comparable in size to FFR.
So, there you have it - the top ten most read articles since we launched Phase. As ever, your feedback is super important to us! If you’ve got anything you’d like to see us cover in future, please do let us know - either in the comments, via the chat function, or on LinkedIn.