Overview Of UK Balancing Services Market and the Potential for Battery Energy Storage

Understanding the New Opportunities in the UK's Electricity Market

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This Frost & Sullivan insight provides a neat overview of the UK’s balancing services, with an astute focus on battery energy storage technology. This insight comprises analysis of the markets that are relevant to it. To begin with, an optimal balance between supply and demand is critical for any electricity grid to function at peak performance. Frequency, voltage, and power are the three key electrical components that indicate the quality of electricity flowing through the system. The balancing market exists to achieve continuous balancing supply and demand by maintaining frequency, voltage, and power within permissible limits. Hence the term balancing markets. While there a number of balancing services that exist currently, frequency response and capacity market fit for battery storage. This is mainly due to battery storage’s discharge capability, which when integrated with renewable generation plants, becomes an ideal solution to address the technology’s intermittency. Frequency response exists to address system frequency changes by injecting immediate generation onto the system, while capacity market exists to provide a back-up capacity to the system to address demand and improve capacity margin. The total commercial frequency response cost to National Grid amounted to £99.53 million for 2016/17, representing 9.25% of the total balancing services cost. This cost excludes transmission constraints. While substantial, this figure is likely to increase further with the introduction of the faster-enhanced frequency response reserve service. The key feature of EFR, being its response time which is less than 1 second. In this segment, battery storage secured 4-year EFR contracts for 201 MW of capacity in the concluded 2016 EFR auction totaling £65.95 million. Likewise, 501 MW of battery storage capacity secured 15-year capacity contracts under new build category in the concluded 2016 four year-ahead capacity auction. This clearly indicates that battery storage is here to stay and function in the UK system. This partnership is likely to witness increased applications of it in the near and far future given the significant battery storage investments made so far in the UK. In addition to balancing services, arbitrage opportunities exist for battery storage owners under the current market structure. Frost & Sullivan’s breakdown of market signals indicates a significant growth period for battery storage with chief revenue streams being Firm Frequency Response, Enhanced Frequency Response, and Capacity Markets. Actionable strategic action points and observations have been derived through data insights and are included in this insight. These points can be leveraged by battery storage companies to understand and enhance their participation in the market to achieve monetary returns.

Table of Contents

Overview Of UK Balancing Services Market and the Potential for Battery Energy StorageDefinition and AbbreviationsDefinition and AbbreviationsCEO’s PerspectiveOverview of System Balancing ServicesBalancing Services Available to the System OperatorReserve Services Reserve Services (continued) Reserve Services (continued) Frequency Response ServicesFrequency Response Services (continued) Balancing Services MarketBalancing Services Market, 2016–2017Balancing Services Market, 2016–2017 (continued)Addressable Markets for Battery StoragePrimary MarketsAddressable Markets for Battery Storage—Frequency Response Services (FFR & EFR)Battery Storage Market PotentialFrequency Response Services Market, 2016Commercial Frequency Response Market, 2010–2017Enhanced Frequency Response Market, 2016—A Perfect fit for Battery StorageAddressable Markets for Battery Storage—Capacity MarketSummary of T-4 Capacity Auctions, 2014–2016 Battery Storage in Capacity Market T-4 Capacity Auctions—New Build Battery Storage Contract AwardeesThe Last WordThe Last Word—3 Big PredictionsGrowth Opportunities and Companies to ActionGrowth Opportunity: Disruptive ApplicationsGrowth Opportunity: Investment/M&AStrategic Imperatives for Battery Storage CompaniesLegal DisclaimerThe Frost & Sullivan StoryThe Frost & Sullivan StoryValue Proposition: Future of Your Company & CareerGlobal PerspectiveIndustry Convergence360º Research PerspectiveImplementation ExcellenceOur Blue Ocean Strategy




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