revenues from battery storage discussed at RER ’24

“Variability is Variability”

A big topic of discussion on the panel, as with many recent industry events, was falling UK BESS revenues in 2023, after several years of better-than-expected returns.

Alan Smallwood, director of BESS fund manager Gore Street Capital, said returns from BESS by their nature would not be consistent.

“Yes, this year may not be such a good year. Battery owners make money on volatility and what I tell my investment committee is: volatility is volatile. You will have some good years and some bad years. Therefore, we should not base our business case only on the last 12 months. You have to develop a set of beliefs,” Smallwood said.

“Do we believe that more renewable energy sources will come on the grid, which will cause variability? In that case, that defines our business case.”

National Grid has done a lot of good

Some in the industry have criticized electricity market operator National Grid ESO for not moving quickly enough to reform the balancing mechanism (BM) to enable greater BESS participation, an area that many had hoped would offset declining revenues from ancillary services.

However, to the general agreement of other panelists, Masdar Arlington Energy’s director of commercial operations, Paul Soskin, said people forget how much the operator has done for the BESS market.

“There has been a lot of criticism of National Grid, saying that BM is not good enough, we need to improve and we need more action on BM. National Grid has done a tremendous job bringing BESS online across the UK. It’s not their fault that we have such an overwhelming amount of BESS online, it’s because they have been so open and provided so much functionality for BESS. They did an extraordinary job,” Soskin said.

Optimization is not commoditization as expected

Virtually all BESS projects in the UK use an external optimization company to bring it into the electricity markets and maximize revenues. Optimizer penetration is lower but expected to grow in other parts of Europe and the US.

Field’s Alexa Strobel said the old belief that optimization could lead to commoditization has not proven true.

“The interesting thing is that regardless of who is doing it, if you look at the optimizers and what they are optimizing, there are many different trading strategies being used, even changing for the same asset from month to month. There was a time when we thought optimizers would become a commodity, everyone would do the same thing and revenue would bottom out, but we see a huge range of strategies,” Strobel said.

Agreeing, Masdar’s Soskin added: “I love the fact that two batteries can be in the same place, but if they have different optimizers, they will have completely different load profiles and revenue stacks.”

Italian MACSE auction “led by the biggest players”

The BM issue was further discussed later when Apricum’s Charles Lesser asked the panel about the BESS industry’s relationship with the regulatory environment, with a common theme among the panelists being access to markets.

In her response, Amanda Niklaus, BKW’s Head of PPA for Renewables, made an interesting comment related to the upcoming MACSE auction in Italy, which will provide BESS with a certain level of guaranteed revenue under long-term contracts (with the help of some EU funds).

“Getting support for the merger and being able to participate in all available revenue streams is more important than providing consistent revenue for 15 years, which I think actually distorts the market,” Niklaus said.

“Especially in Italy where I think it is run by some of the big players, which may be a bit skewed in their opinion and may not be suitable for relatively smaller players. So it is the connection and market access that (should be encouraged) rather than the impact on revenue itself.”

Data centers as competition for BESS?

Digital Resources Holdings founder and managing director Lukas Pfeiffer pointed out that data centers can be seen as competition to BESS because they also provide network flexibility by being able to quickly increase and decrease electricity consumption; electricity consumption, which is significant. In Ireland, for example, data centers consume approximately 20% of electricity.

“But these are also complementary elements. Of course, we cannot provide as much power as a BESS, and in our setup it is usually advantageous to have the BESS in one location so that it is 100% flexible for each megawatt, but there is also a need for secondary or backup power. The batteries can also turn on faster than we can,” Pfeiffer added.

The event, which took place on May 21-23 last week, was the third edition of the Summit bringing together consumers, producers, asset owners and financiers in the clean energy market. More information can be found on the website.