Batteries need intelligent technology to support system stability in GB's increasingly complex power markets
Recent changes to National Grid ESO’s (NGESO) Dynamic Containment service and record day-ahead wholesale prices are the latest examples of the increasing complexity in GB’s power markets. Our Head of Commercial, Dan Hodges, explains why real-time, intelligent trading and automation technology is the key to optimising today’s battery assets.
First published 15th September 2021
The growing importance of battery storage
As the penetration of solar and wind generation increases, utility-scale batteries play a critical role in ensuring energy gets to where it’s most needed and provide a grid stabilisation role, responding rapidly to frequency variations driven by fluctuations in wind and solar output – variations that without such stabilisation could otherwise cause interruptions to supply. The Climate Change Committee’s Sixth Carbon Budget (Nov 2020) forecasts that 18GW of battery storage is needed by 2035 in order to achieve our Zero Carbon targets. According to National Grid, this will save the UK energy system an estimated £40bn by 2050.
Investors in these battery systems want to be confident they’re making the best available returns. As the risks and opportunities presented by increasingly volatile power markets continue to grow, the opportunities available in short-term power markets need to be continuously assessed. As market changes take hold, there’s a need for much higher volume of short-term trading decisions. Traders are increasingly looking for purpose-built software to help them with decision making and automation of repetitive tasks. We’re starting to see the role of the trader focus increasingly on the development of trading strategies (potentially algorithm-based) and then overseeing, adjusting and managing the performance of these strategies.
Markets are getting too complex for humans to manage alone
With recent market changes, traders of battery systems need to make highly complex decisions at a pace that renders traditional spreadsheet-based tools and manual processes too time-consuming and cumbersome to be effective. Specialist applications, integrated by design, are needed to transform trading processes and to support traders with analytics and decision-making.
In markets where there is a high penetration of renewable generation - such as Germany, The Nordics and the UK – more of the traded value is shifting closer to delivery, and a higher proportion of traded volume is being executed via APIs, indicating a shift in the market towards more automation.
Market evolution: changes to Dynamic Containment
Flexibility service markets are continuously evolving. Take NGESO’s Dynamic Containment(DC) service as an example – the hottest value pool for batteries in the past year.
Battery optimisation before DC
Prior to the launch of DC last year, most batteries in GB were participating in frequency response markets, such as EFR and DFFR. These had primarily been awarded as yearly, 6-monthly, monthly and then weekly delivery contracts. Many battery operators in this period relied almost wholly on manual processes for auction participation and dispatch scheduling.
At the beginning of 2021, Origami entered Gore Street’s Port of Tilbury battery into DC – at the time many battery operators were struggling with the challenges of entering a battery into DC. These were largely technical challenges around the highly stringent speed and latency requirements for control and operational metering. But there were also commercial challenges, with some inflexible control solutions proving costly for battery owners to upgrade. However, once registered in DC, most batteries were participating every day, and have enjoyed revenues that were set by the NGESO price cap of £17/MW/h (equivalent to £150k/MW/yr).
How do markets look today?
Fast forward six months and the outlook is changing. The proliferation of battery projects in development in the UK means that the participation of battery assets able to access flexibility markets such as DC will soar over the next two years. For relatively shallow markets, such as DC, this should drive prices down as the market saturates, until prices reach the level set by the alternative value of participation in other deeper markets, such as wholesale trading.
Alongside the increasing competition, DC has now become a significantly more dynamic market, being procured by 4-hour blocks (EFA blocks). This provides the potential for large price variations throughout the day. Origami is supporting our customers to ride these market changes.
Despite the procurement changes, NGESO have advised they will for the time being continue to maintain the monthly target procured volumes, which are still well above the available supply. The first EFA block auction on 15th September gave a familiar result as shown in the diagram, where all blocks achieved a market price of £17/MW/h, reported to be the implied price cap set by NGESO.
What will future look like?
NGESO have indicated that they expect to give at least a month’s notice before moving to an EFA block requirement when procuring volumes. Once that happens, we’re likely to see market saturation of DC. Competition between providers and increasing volatility in wholesale markets is likely to result in more short-term variability of DC prices. However, this week’s record £2,500 Nordpool D+1 auction price, along with further market tightness indicate more interesting opportunities are likely to be seen this coming winter for batteries.
In addition, NGESO will introduce new services Dynamic Moderation (DM) and Dynamic Regulation (DR). It’s not yet clear how the Dynamic Containment, Moderation and Regulation services will run alongside each other but it’s likely that these new services will provide interesting opportunities, as well as another layer of complexity to trading strategies and asset scheduling.
Traders need real-time data and intelligent tools to inform and execute their battery trading strategies.
In all this complexity, one thing is certain: optimising the returns of batteries in today’s power markets is a task too fast-paced and multifaceted to manage with legacy spreadsheet-driven processes. Take the recent volatility in the wholesale market with prices reaching dizzy heights – the ability to seamlessly move between revenue streams is key.
Battery traders need to consider many factors, including wholesale and ancillary price forecasts, managing the battery state of charge, and when to enter ancillary markets. It’s also vital to consider other aspects, such as the physical characteristics of the battery, its duration, as well as the optimal cycling strategy and warranty conditions.
The ever-increasing complexity of the markets, shorter procurement windows and the number of markets to participate in are driving the need for sophisticated tools powered by real-time data.
Origami has a suite of trading and automation software solutions to help, with integrated real-time energy data to inform an agile trading strategy. Our tools offer automated control and visibility of asset participation across ancillary services, wholesale markets and the BM.
Our modular, flexible solutions can be configured to meet a diverse range of customer use cases; from fully automated 24/7 end-to-end optimisation, through to full customer control.