ESO fears still holding back batteries in Balancing Mechanism

The acceptance of batteries in the Balancing Mechanism is still being held back by the Electricity System Operator’s (ESO) fears over their sustained availability across consecutive settlement periods.  

William Stephenson, a senior associate at Aurora Energy Research, said the issue may not be resolved until the year after next meaning he is “sceptical” that the ESO will achieve its target of being able to operate the power grid without any fossil fuel generation by 2025.  

Speaking to Utility Week, Stephenson said more than 96% of in-merit bids and offers from batteries by volume were skipped over by the ESO’s control room in 2023.  

He said the ESO is taking “meaningful measures” to improve the acceptance of batteries, most notably launching its Open Balancing Platform, which will eventually replace the Balancing Mechanism, in December last year. At the heart of the platform is a ‘bulk dispatch optimiser’ that was initially applied to two ‘zones’ – one for batteries and one for other small generation assets.  

Stephenson said the results of the launch were “mixed”. The optimisation algorithm experienced some “teething issues,” namely the unwarranted acceptance of some “extreme prices”, although these now seem to be resolved. Volumes and acceptance rates for batteries have improved, but the average acceptance size is smaller and “the skip rate is still really quite high”.  

The ESO also extended its 15-minute rule for batteries, which meant the control room was only able to dispatch them for 15 minutes at a time, to 30 minutes. This has further increased volumes and “reversed the trend of acceptance sizes decreasing.” 

And it is additionally implementing ‘fast dispatch’ – a change which should allow for quicker bulk dispatch of batteries, in particular for frequency response. 

But Stephenson said these actions will not be enough to resolve the fundamental problem for batteries in the Balancing Mechanism: “I do think what’s become apparent is that there are many necessary but insufficient steps required to get a fair Balancing Mechanism acceptance for a technology as complex as battery storage.

“One of the things we’re seeing at the moment is that assets are not being accepted unless as a bit of a last resort.”  

He said this is because the control room is concerned about batteries either running out of charge or becoming fully charged, meaning in subsequent periods they won’t be able to use them again: “By accepting them, you can make balancing the system more difficult.” 

“The problem is that if you accept them now, you don’t know what they can do in the future.” 

Stephenson said the ESO is seeking to resolve this issue through the Grid Code modification GC0166 which will enable it to collect information on batteries’ state of charge when operators submit their bids and offers.  

The ESO is hoping for the modification to take effect by the end of 2024, but Stephenson said it may take another year to incorporate the collected charge data into its optimisation algorithm and resolve any more teething issues that emerge.  

He is therefore “sceptical” that the ESO will be able to achieve its target of being able to operate the power grid without any fossil fuel generation by 2025, which will require the full participation of batteries in the Balancing Mechanism: “I’m not saying it won’t happen, but I certainly wouldn’t assume that it will.”  

Nevertheless, Stephenson is “bullish” about the prospects for batteries once the ESO has placed this “final piece of the puzzle,” which should also allow it to get rid of its now 30-minute rule.  

He said the ESO is also opening up other markets to batteries, for example, through the launch of its new Balancing Reserve service in March. The ESO has historically procured this ‘regulating reserve’ in close to real time by accepting bids and offers in the Balancing Mechanism to create headroom and footroom on generation units. Typically, this has meant combined-cycle gas turbines (CCGTs), for which this has been a “lucrative” gig.  

Stephenson said the launch of day-ahead auctions to secure this capability has brought the market “out into the open” and reduced the amount of procurement that needs to be done “behind closed doors.”  

He said the negative service has so far seen pretty low prices of around £1.50 per megawatt per hour due to the ability of generators providing downwards balancing to save on fuel costs.  

However, prices have been higher for the positive service, which has been “dominated” in roughly equal measure by batteries and gas engines, with CCGTs coming in a distant third.  

The ESO is additionally due to launch a new Quick Reserve service later this year that will replace its current Fast Reserve service. Stephenson said this is also likely to be dominated by batteries, as well as pumped hydro storage, owing to the required response times, which may be too short for gas engines.  

As with the frequency response market that previously drove much of the investment into batteries and has also undergone significant reforms in recent years, Stephenson said these ancillary services markets will inevitably become saturated due to their relatively small size.  

But he said the Balancing Mechanism, which requires much greater volumes of “actual energy throughput”, is much deeper and much more valuable: “The size of the market means that it opens up this huge amount of road to run for batteries.”  

In response, an ESO spokesperson said: “Great Britain is making excellent progress in decarbonising the electricity system. We are committed to operating a zero-carbon electricity system for short periods of time in 2025, and have already seen periods where the market has delivered a safe mix of over 90% zero carbon power. This is a significant engineering achievement, and a culmination of a huge amount of effort over a number of years.

“Batteries are playing a key role now, and into the future, for delivering a zero carbon energy system. Through a variety of initiatives, the average daily volume of batteries instructed by our control room increased over 220% between April 2023 and March 2024. We continue to work with and engage with the storage industry to further enhance the role they play in the Balancing Mechanism.”

Stephenson was speaking to Utility Week after Aurora released its latest forecast for power prices over the coming years. The market intelligence firm said it expects baseload power prices to average £74/MWh from 2024 to 2028 – a reduction of £19/MWh, or 20%, when compared to the beginning of this year. He said the reduction is expected due to a combination of factors, including high levels of gas storage in Europe following several mild winters and reduced demand for both gas and electricity.