In recent years, the United Kingdom has experienced significant growth in battery energy storage, driven by the need to balance an electricity grid increasingly dependent on renewable sources. Companies and developers have invested heavily in these projects, anticipating revenue through balancing and ancillary services like frequency regulation. However, the landscape is becoming more complex, and many installations are encountering unexpected challenges.
Expectations vs. reality in ancillary markets
Ancillary services provide essential flexibility to the grid, helping stabilize it during fluctuations in generation or demand. Initially, these markets were viewed as a vital revenue source for storage projects, as batteries could quickly respond to system needs, delivering valuable services amidst the intermittency of renewable energy sources like wind and solar.
However, with the rise in battery installations and increased participation in ancillary services, prices have begun to decline. The heightened competition has squeezed profit margins, as the abundance of options has reduced the revenues companies can earn. Moreover, advancements in managing renewable energy intermittency have decreased the reliance on ancillary services. This progress has been bolstered by technological improvements and better predictability in renewable energy production.
Energy authorities have also begun adjusting market rules and incentives in response to the growing storage capacity, creating uncertainty for investors who had anticipated stable revenues.
Limitations of ancillary services
More realistic analyses indicate that ancillary services cannot provide sustainable high revenues. As participation increases and the need for these services diminishes, prices tend to drop significantly. Therefore, relying solely on ancillary services as a long-term revenue source poses risks.
Revenue stacking for battery energy storage
To navigate this new reality, energy storage projects must embrace revenue stacking—diversifying their income streams.
One promising strategy is price arbitrage, where batteries buy electricity when prices are low and sell when prices are high, capitalizing on market fluctuations. This not only generates revenue but also stabilizes market prices, creating virtual price floors during low demand and mitigating spikes during high demand.
Capacity services represent another crucial revenue stream, providing compensation for being available during peak demand periods.
Hybridizing batteries with renewable energy sources can also enhance long-term benefits and improve project returns. By integrating storage with renewable facilities, batteries can charge during surplus production or low market prices, maximizing revenue and contributing to market price stabilization.
Challenges facing battery energy storage
Battery energy storage is vital to the energy transition, but the context for these projects is evolving rapidly. The anticipated ongoing high revenues from ancillary services have not materialized, prompting companies to diversify their revenue streams for long-term profitability.
As the energy sector undergoes significant changes, investors in battery storage must remain agile and ready to adapt to the challenges posed by the transition to a greener, more flexible energy system.
AleaSoft Energy Forecasting’s insights
AleaSoft Energy Forecasting offers insights through its AleaStorage division, specializing in the optimization and management of energy storage systems. This division provides tailored revenue forecasts and reports for battery projects, encompassing various configurations, including standalone projects and hybrid systems that integrate wind and solar energy with batteries, AleaSoft reports.
