Version 3.1 of the Modo Energy Battery Revenue forecast has just been released. This update introduces Balancing Reserve and Generation TNUoS as standard, removes frequency response ramp rate restrictions and includes a quarterly update of commodity prices. Updated dispatch strategies are also introduced with improved optimization logic.
You can read the full list of updates in our changelog here.
A webinar was held on July 24th to run through the changes introduced by V3 of the forecast model. You can watch this below and access the slides here.
In this article, we provide details on these updates and their impact on the future outlook of battery revenues.
Modelling and methodology changes
Improved optimization strategies with no ramp rate restrictions
Battery revenues are now provided for two optimization strategies: ‘merchant focus’ and ‘ancillary focus’. These replace the ‘merchant only’ and ‘merchant & ancillaries’ strategies from Version 3.0 and earlier.
The new ‘ancillary focus’ strategy includes a view of future Balancing Mechanism revenue in frequency response decisions. This means the system will forgo lower-priced frequency response contracts if it can earn greater revenues in the Balancing Mechanism in real time. As dispatch rates increase, this becomes a more profitable strategy.
The ESO is also currently consulting on changes to frequency response rules that propose to remove existing ramp rate restrictions. We have now removed these restrictions in our dispatch model, which allows batteries to capture better wholesale prices when contracted in frequency response.
Balancing Reserve provides an additional revenue stream
Balancing Reserve launched in March 2024. Batteries contracted in this service receive a payment for reserving capacity that can be dispatched in the Balancing Mechanism. Balancing Reserve has been added to the forecast with prices based on the current market outturns. It is included as an option in optimization decisions taken in both ‘merchant focus’ and ‘ancillary focus’ strategies.
Near-term Balancing Mechanism dispatch rates increase reflecting improvement in the utilization of batteries
Following the transition to the 30-minute rule in March 2024, dispatch rates for batteries rose from an average of 2% in Q1 to 9% in Q2. This increases the dispatch volume that batteries are expected to receive for a given available volume. Dispatch rates within the model have been increased between 2024 and 2026 to reflect this acceleration in dispatch effectiveness.
Generation TNUoS included as standard
Changes have been made to both Generation TNUoS, paid by transmission-connected batteries, and the Embedded Export Tariff, paid by distribution-connected batteries.
Wider Generation TNUoS is now included as standard for transmission-connected batteries, and distribution-connected batteries larger than 100 MW. In April 2024, the ESO published its forecast of wider generation tariffs for 2025-2029, which forms the basis of updated tariffs in the model.
The Annual Load Factor (ALF) used is calculated after the first three years based on the operation of the site. This can lead to significant changes in charges for longer duration and higher cycling batteries.
Embedded Export Tariffs, meanwhile, now consider battery duration and are weighted by a capture rate based on battery behavior in historic triad periods. Tariffs here have also been updated following the publication of new forecasts by the ESO.
Other changes
- Battery Capex costs have been reduced by an average of 30%, reflecting recent market changes. As a result, battery capacity is 4GW higher in 2045 in Version 3.1 than in Version 3.0, with an increase in 6 and 8-hour duration systems.
- Gas prices have been updated with the latest futures curve prices, having a minor impact on total revenues.
- Solar load factors have been aligned to the wind year to better account for the correlation between the two. This increases wholesale spreads throughout the forecast period and reduces the frequency of negative pricing.
- Improved battery fleet optimization means wholesale prices better reflect the impact of the storage fleet. This increases wholesale prices in the latter half of the forecast where total battery capacity is highest.
- Revenues for co-located sites are now separated out between battery and solar, with solar revenues given per MWp.
Short-term outlook - 2024 to 2027
Battery revenues for a 2-hour battery are projected to increase from around £60k/MW/year to £81k/MW/year at the end of 2024. This is due to increasing value from the Balancing Mechanism and higher wholesale spreads in winter.