Batteries being overcompensated in capacity market

Batteries are being overcompensated in the capacity market because of a failure to properly take account of their reliability, Aurora Energy Research has told Utility Week.

The current de-rating factor for batteries is “phenomenally high” given concerns over how long they can provide power, whether they are charged at the right times and the ‘stacking’ of services, said Aurora.

“Batteries have a lot of fantastic applications and can be a real asset to the system if managed well,” commented the firm’s executive director Ben Irons. “It’s great that batteries are being incentivised but there are a lot of complicated issues here that just need a slightly more refined approach.”

“A fifteen-minute battery is very different from a four-hour battery in terms of its reliability,” he added. “Even if you’ve got a four-hour battery it may well be that its flat at the time when it’s called upon because it’s been providing other services.”

He told Utility Week most battery developers will be looking to ‘stack’ revenue streams, for example by taking an Enhanced Frequency Response (EFR) contract and then entering the capacity market as well. “If they’re really looking to do frequency, or arbitrage, or any other ancillary service,” he questioned, “is it really right that in addition they can take a capacity market payment?”.

To take account of reliability, different de-rating factors are applied to capacity market units depending on what type of technology they use. For batteries, the de-rating factor is 96 per cent, meaning that if a developer enters 100MW of actual capacity into the auction they will only be eligible to secure a contract for 96MW. Irons said this de-rating factor is “phenomenally high when you consider that’s even higher than a CCGT [combined-cycle gas turbine]”, and may therefore need to be adjusted.

Around 500MW of batteries secured contracts in the most recent four-year-ahead (T-4) auction in December. They included roughly 200MW which secured Enhanced Frequency Response (EFR) contracts in August.