Throughput vs. Revenues: Making the most from battery storage

The energy landscape is undergoing an unprecedented change, which is accelerating as market barriers to distributed energy are dismantled. The last 12 months have seen standalone energy trading models emerge, access to the Balancing Mechanism widened and new platforms are promising to create new value streams from localised energy services.

There is now a huge variety of distributed energy assets capable of providing flexible capacity to the system – from energy storage, CHPs, electrolysers and electric vehicles, to more traditional demand-side response assets such as industrial pumps, boilers and chillers. What all these assets have in common is they need careful managing to deliver the most benefit with the least disruption.

For a battery storage system, the cost-benefit of every action has to be weighed in terms of battery degradation and lifetime, whilst continuously managing the state of charge to ensure system availability.

With multiple value streams to stack and optimise across timeframes – from day-ahead to real-time – getting the maximum price per hour of operation requires market insight, automated response, an understanding of the constraints of the battery and the site on which it sits, and an appreciation of the risks involved – with buy-in from all parties.

The limiting constraint on value is typically the number of cycles allowed by the warranty – usually around 400 cycles per year for a lithium ion system. This means that the battery can be completely charged up, and then discharged, just over once per day. Therefore, it is important to make this discharge at the right time to reap the largest rewards. It may, for instance, be more profitable to do two cycles on one day and none on another. Accurate forecasting and regular monitoring ensure the best £/kWh of throughput is achieved.

The necessity to stack multiple revenue streams to achieve an ROI that investors are comfortable with means considering these throughput limitations, akin to strike price setting, in a rapidly changing environment. Some revenue streams introduce a reasonably low utilisation, like Static Frequency Response. Meanwhile, others require higher utilisation. For example, throughput whilst tracking frequency in Dynamic Firm Frequency Response (FFR) accounts for around 1.3 cycles per day for a one-hour system.

As more of the UK’s ageing thermal fleet retire and renewable generation increases, wholesale and imbalance markets are also expected to become more volatile, particularly when the grid is under stress. If a battery storage system is locked into a dynamic FFR contract during an extreme weather event, it may be unable to benefit from profitable price arbitrage opportunities. Balancing the seasonal risk of this against the reward of assured revenue from FFR needs to be decided between the asset manager, investor, and aggregator.