Battery storage: Do your due diligence or take the pain

Palmer: Understand risk to ensure reward from battery storage

Done correctly, behind the meter battery storage can cut costs and provide income. Done badly and businesses risk being stuck with an expensive box of chemicals that costs them money.

There is a lot of heat in the market – and buyers would be foolhardy to take marketing claims by aggregators and suppliers at face value, says Tom Palmer, principal consultant at Cornwall Insight.

“When people offer £100k per flexible megawatt, you must do your due diligence,” he told The Energyst’s Battery Storage conference.

“You have to understand the risks and caveats attached to that sales headline. I look at firm frequency response (FFR) projects, some are losing money.”

Declining FFR prices are well publicised. More batteries bidding for contracts exerts downward pressure as asset owners and operators take what they can get.

Irrational behaviour

But some behaviour is less than rational, Palmer suggested, pointing to the static FFR market by way of example.

“Everyone sees the lowest price – £1.50/MW/hr – and thinks ‘we better bid that to secure a contract’.” However, Palmer suggested a distribution network operator with a large battery left over from an innovation trial was behind such low bids.

“Actually, [the DNO] only has about 30MW” and the static requirement is often much larger “so you don’t need to match that [bid],” said Palmer.


Dynamic FFR prices, while down significantly, can still hit double figures. But even when good prices are secured, costs may wipe out gains, Palmer warned.

“Someone we work with earned £20k of FFR revenue in a month, but they actually only made £2k. When all the costs are included, consumption levies, network costs etc., it can be difficult [to turn a profit].”

While some levies will “disappear” over the next few years, those considering storage must get to grips with all cost aspects to develop an informed business case, said Palmer.

Contractual arrangements

Given that almost every aspect of the market is under review, “you must be prepared to move [with the market] and be a bit more flexible”, said Palmer.

That requires appropriate contract structures with suppliers and aggregators – who may have competing agendas and who may not be the counterparty for the life of the battery.

As well as transparency on revenue shares for different services, contracts need sufficient leeway to allow batteries to perform new services as they materialise, said Palmer.

If the battery storage contract locks assets into specific services, such as the Balancing Mechanism or wholesale market arbitrage, for example, “I would be very worried,” he said. “You should ensure [the ability to provide] distribution network operator (DNO) services are also in that contract.”

DNO services

While few people are currently selling flexibility to DNOs, several networks have outlined significant procurement plans. Palmer suggested DNOs will become “another opportunity” for storage, but that market makers and regulators had perhaps curbed development by failing to think cohesively.

“If the market was designed correctly, it would probably have looked at changes to [DUoS] red rates and designed DNO services to follow nicely after – because the two are linked,” said Palmer. “But there is a lot of ongoing change and the whole system is not necessarily considered by all parties.”

Risk and reward

That compounds the challenge faced by those building storage business cases – revenue and regulatory uncertainty were the key challenges cited by The Energyst’s survey of 50 public and private sector organisations considering storage.

Yet despite market-wide flux, Palmer said battery storage remains a viable proposition for those that fully understand the risks.

“There are opportunities for storage, but you have to be aware of all the variables and market fundamentals. Every revenue stream is a tradeoff. You need to understand those tradeoffs and ensure you consider costs as well as revenues.

“Due diligence needs to be proportional to the project, but there are different risks and you need to fully understand your risk strategy.”

Tom Palmer was one of a number of contributors to The Energyst’s 2018 Battery Storage report and conference. Sponsored by National Grid ESO, Eon, Flexitricity, GridBeyond and Npower, the report contains their views on storage opportunities as well as a survey of 50 public and private organisations mulling storage deployment.

Download the free report here.

Related stories:

Free report: How businesses plan to deploy battery storage

Can the Balancing Mechanism offset FFR price erosion?

Battery storage makes unsubsidised solar stack up for Kingfisher

BTM storage: resilience trumps grid revenues?

Revenue and regulatory risk remain key challenges for BTM battery storage

I&C energy storage: firms banking on FFR are “gambling”

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