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Positive outlook for battery energy storage investment

Energy market volatility: Why now is the time to maximise returns from battery optimisation

As the UK rapidly shifts from fossil fuels to renewable power – bringing greater volatility to energy markets - it's no surprise that Bloomberg has hailed the 2020s as' the decade of energy storage'. 

In its 2021 Global Energy Storage Outlook, BloombergNEF (BNEF) forecasts that this decade will see a twenty-fold global expansion in non-EV battery capacity, with the UK featuring among the top international markets.

Battery energy storage systems (BESS) are critical to supporting the UK's transition to net-zero – enabling greater penetration of variable renewable generation by maintaining grid stability and balancing supply with demand.

Rapid growth in wind and solar output, together with sharply falling battery costs and the recent upward trends in value of revenues from flexibility markets, make BESS a sound investment option – especially at the current time.

Since August 2021, wholesale energy prices have soared – reaching a peak in September. Since then, prices have fallen back, but remain much higher than 2020. In addition to the overarching price increases, volatility also reached unprecedented levels and led to several short-term price spikes – the highest of which saw individual periods reach £2,500/MWh in September and £2,000/MWh in November.

Extreme market volatility and record high energy prices provide the perfect opportunity to use battery storage for peak power avoidance and to capitalise on flexibility revenues from higher balancing costs.

There's a  growing opportunity to earn significant financial rewards from battery optimisation by accessing the revenue opportunities across Ancillary Services, Wholesale and Balancing Markets, Capacity Markets and future services introduced by National Grid from 2022. Behind the Meter sites can also benefit from supply cost optimisation and mitigate the risk of exposure to volatile prices.

Continuing market volatility

While September's energy market prices were unprecedented, extreme market volatility is not unusual. Earlier this year in January 2021 prices hit peaks of £4,000/MWh in the balancing market and £1,065/MWh in the wholesale market. National Grid CEO John Pettigrew has said that winter 2021 power supply and demand margins will be tighter than in recent years and similar to those last seen in 2016.

Most forecasters predict that energy market volatility is here to stay amid the phase-out of nuclear, gas and coal power plants. This stable base load supply will be replaced mainly by variable solar and wind generation to meet the UK's targeted 2035 fossil fuel-free electricity system. Another pressure is a potential doubling of power demand by 2050 due to the electrification of transport and heat sectors.

Building a flexible, agile energy system

Tomorrow's decentralised, renewable energy system and increased demand for electricity will require much greater power flexibility. This will be necessary to maintain grid balance and plug the inevitable supply gaps when there is low wind or the sun doesn't shine.

In its recent Smart Systems and Flexibility Plan, the government sets out how we will transition to a smart, decarbonised, flexible  energy system. BESS are critical to this flexible energy system and there are exciting opportunities for businesses to drive revenue using energy stored in batteries and to aggregate flexibility from a range of assets.  With expert management, businesses can maximise returns and minimise risk.

Putting 'flexibility first' can also bring financial rewards to all energy consumers. The government estimates that this approach could reduce the annual costs of managing UK energy networks by £10bn by 2050.  

Exciting investment opportunity

There has never before been such a favourable window of opportunity to maximise financial revenues and minimise risks from investing in battery storage and aggregating flexibility from a range of assets, as part of a multi asset Virtual Power Plant (VPP).

BESS solutions would ideally be co-located alongside every wind and solar farm, every business site using large-scale onsite generation, and at standalone locations with grid resilience challenges. However, until now, the economic case has not been so convincing.

Drive revenue across multiple markets

Battery storage optimisation is increasingly complex, but there's a big opportunity to fully exploit faster response revenue stream opportunities across multiple markets using multiple decentralised assets. As world leaders in developing and operating Virtual Power Plants (VPP), we use our award-winning AI technology to monetise distributed energy flexibility from the most lucrative markets, which goes way traditional Demand Side Response (DSR).

In the DSR marketplace, a trio of new UK frequency response products are increasing income opportunities for fast-acting energy assets, such as batteries. Following the launch of the new Dynamic Containment frequency response market in September 2020, National Grid Electricity System Operator (ESO) will introduce Dynamic Moderation and Dynamic Regulation services.

The ESO's Dynamic Containment product offers lucrative new opportunities for batteries and aggregated assets that can react faster than 1 second to meet critical grid balancing needs. The two additional new frequency response markets are expected to go live from April 2022

Centrica Business Solutions are major participants in Dynamic Containment - deploying flexibility from our own 49MW Roosecote battery storage facility to support grid frequency.

How to get the best ROI from battery storage

It's critical to choose the right partner with proven technologies and market expertise to navigate the daunting array of revenue options and simplify the process. This can make a huge difference to your return on investment and the uncertainties and complexities you may face.

How Centrica can maximise value from your battery storage project

With our market-leading Artificial Intelligence (AI) technology capabilities and DSR and wholesale trading expertise, Centrica Business Solutions has a proven track record in delivering exceptional financial returns. We can also offer revenue certainty by guaranteeing a level of revenue for new build batteries of the required scale.

Our suite of energy optimisation solutions delivers higher value that minimises the risk and complexity associated with generating revenue in competitive flexible energy markets and adapts to your changing business needs and market dynamics.

We can provide a fully integrated market-leading battery storage solution, bringing proven best practice to: Engineering, Procurement & Construction (EPC), optimisation and Operation and Maintenance (O&M). In this way, we can serve all your battery storage needs and streamline the process of building, installing, optimising, and maintaining your BESS solution.

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