Contract capacity for battery energy storage increased significantly in UK auctions this year, with many electricity-scale projects securing long-term contracts. However, the business fundamentals are not equally strong for all retention periods.
About 45% of the auctioned projects consist of two-hour storage systems. About 770 MW came from four-hour BESS projects, 94% of which are owned by Amp.
Electricity-scale BESS projects have increased in Britain in recent years, supporting the UK’s growing reliance on renewable energy sources. The grid stabilization services offered by BESS have also expanded in this unregulated market, improving the bottom line for the project’s stakeholders.
Aurora Energy Research Senior Associate Partner Tom Smout said pv magazine “Battery projects have performed well financially in recent years, benefiting from a high energy price market and increased demands for profitable frequency response services, for which the asset is particularly well suited.”
However, Smout pointed out that in the UK, large battery projects are largely being overlooked.
“Our analysis has shown that durations of around two hours are currently optimal for ROI, but a significant part of this is upfront costs, so larger and longer projects may perform better if they achieve significant cost savings or are positioned to take advantage of local grid constraints,” he said .
According to official documentation showing reduced capacity, 1.29 GW of BESS projects were awarded contracts in the latest procurement process. The reduced capacity is the nameplate capacity multiplied by a reduction factor adjusted for the expected availability of that technology during a system stress event.
T-4 auctions – the UK’s main procurement exercise – are usually held around four years before the delivery date. The auctions offer up to 15-year contracts for new capacity, while existing capacity can only secure one-year contracts.
There were 143 winning battery storage units in February, of which more than 90% were 15-year contracts. However, BESS projects accounted for only 3% of the total capacity, and gas accounted for the lion’s share of the capacity market units at 67.5%.
The T-4 capacity auction was approved at £63 ($71.07)/kW per year, representing the highest settlement price ever. The price was more than double the previous record due to the record low pre-qualifying capacity and the higher capacity sought by the national grid operator.
According to Aurora Energy Research, the auction procured only 600MW more than it could have procured the bare minimum, underscoring the costliness of new projects both in terms of rising absolute costs and growing investor uncertainty.
The latest T-4 auction follows the boom year of 2022, when more than 1 GW of reduced BESS capacity won contracts, while in 2021 BESS capacity was around 250 MW.