The Balancing Mechanism (BM) is the primary flexibility market in the UK. In 2019 over 2TWh of flexibility was procured through the BM with a value worth over £800m. Batteries are only a recent (and small) participant – the vast majority of flexibility is provided by CCGTs and some through pumped storage such as Dinorwig.
Batteries have had over a year in this market and have steadily seen increases in activity, helped by the introduction of the Distributed Resources Desk, while upcoming Project TERRE could also help non-traditional providers receive dispatches. Hence, while batteries remain a niche player in the BM, compared to the dominant technologies of CCGT and pumped storage, there has been a steady increase in activity.
Figure 1 – Activity by batteries in the Balancing Mechanism has been increasing over the last year
Batteries in the BM – The Basics
The Balancing Mechanism is manually dispatched by the ESO Control Room – providers submit prices and volumes but only deliver (and are paid) when selected. Dispatch decisions are made based on a number of operational criteria, of which volume and price are just two. For example, only certain technologies are able to meet certain needs: thermal plant provide inertia but batteries don’t.
However, battery storage does have its own unique benefits as batteries can respond extremely quickly and accurately in either direction. This quality is being exploited by the Control Room with batteries delivering short bursts of power of mostly under 10 minutes duration (see fig 2). Traditional thermal providers cannot do this, given their ramp rate restrictions.
The most obvious difficulty batteries bring is that they are duration limited, whereas a gas power station could increase its power indefinitely. This means, once a battery has discharged completely, it cannot sell any more energy and so must recharge, either through trading or by waiting to be dispatched in the other direction. Batteries can be dispatched in either direction throughout the day – even if the system is long, batteries may be offered up, and vice versa, so leaving the battery empty (or full) would result in missed dispatches and lost revenue.
Figure 2 – A day of BM actions for a battery, light area showing availability and dark bands are dispatches. Most dispatches are under 10 minutes in duration.
State of charge – The limiting factor?
State of charge (SoC) is, therefore, a massively important consideration for both operators and National Grid alike. However, unlike the physical restrictions of thermal plant (such as minimum output), SoC is not captured in the BM, given it is a novel issue. We can infer when SoC has drifted significantly, though, as batteries adjust their available power (MEL and MIL) to represent 15 minutes of storage. This means that when less than 15 minutes output is available in one direction, the system can only be dispatched at this reduced level.
For a two-hour system this only has a small impact – state of charge can drift significantly in either direction before this limit is hit. However, for a one-hour system the impact is much more significant, as the battery could potentially be offering up reduced availability 50% of the time.
Overall, taking a much more active role in managing SoC is necessary to maximise benefit, especially for more limited duration batteries.
Market optimisation of batteries within the BM takes two forms: integration with other trading strategies, and through much more dynamic provision of bid and offer price. Both of these offer solutions to more actively managing SoC to reduce time spent offering reduced availability.
The most obvious route to managing SoC during the course of the day is through the intraday markets. If one or more offers in a row start to deplete SoC, energy can be bought on the intraday market to recharge the system. However, doing so may not always be the optimal solution – eg if the price is too high, or perhaps it is likely a bid will arrive soon anyway.
An advanced optimisation and forecasting solution combining manual and automated inputs is needed to effectively manage SoC through trading; system warranty is a constant consideration and confidence will be needed that any actions will increase profitability later in time.
For the example below, purchasing just 30 minutes of energy at the time shown would increase total daily returns by 13%.
Figure 3 – A day of BM actions for a battery, with energy purchased through intraday markets around 9am (green), and corresponding increase in availability and dispatches shown in grey
Although operators have no control over whether their assets are dispatched in the BM, they can influence the likelihood of being dispatched in either direction by adjusting their posted prices, or by providing stepped bids and offers.
Increasing bid price in response to low SoC could be provided to increase the chance of dispatch, in order to then capture higher revenues across the whole day. Meanwhile, stepped bids and offers provide the Control Room with two or more prices, which can be paid to access different levels of power output.
However, this route still has a limitation in being dependent upon being dispatched, even if the probability of being so can be influenced.
The BM has long been talked about as the holy grail for battery operation but there is still a lot of uncertainty over when (and indeed whether) that point will be reached as system balancing transitions from CCGTs (with infinite duration headroom and footroom) to fixed duration energy storage.
However, recent activity has provided good signs for batteries to be the principle candidate to take over from CCGTs as the UK moves towards net zero, and we expect to see further design aspects of the BM to be updated in favour of storage assets, to enable NG ESO to meet its target of zero carbon operation by 2025.
Meanwhile, value from the BM continues to increase and challenge frequency response revenues – Open Energi and Erova Energy will be launching our Balancing Mechanism offering in the coming months, so watch this space!
For a free consultation about trading in the Balancing Mechanism, call +44 (0)20 3051 0600