Battery storage to push frequency response revenues down STOR path?

Greater volumes of fast responding assets, such as batteries, may start to erode frequency response prices. The question is by how much and how soon. The Energyst asked market participants.

“Our modeling shows storage has a major role to play – and if battery costs keep coming down then you will have an oversupply of frequency response services,” says Restore’s Louis Burford.

“But National Grid’s challenge remains – inertia is continuing to come off the system – and the challenge around rate of change of frequency (RoCoF) will increase as that happens,” he says.

“So the demand for frequency response will increase, but [prices] will depend on the volumes of assets able to quickly help control frequency.”

However, Burford believes there will have to be a floor price for frequency response.

“Otherwise you would start to see the mandatory frequency response providers, large power stations, finding it is not commercially viable for them,” he says.

Engie’s head of demand response services, Mark Cavill, agrees. He says the fact Engie is reinvesting in pumped storage assets illustrates its belief that frequency response offers a long-term revenue stream.

“Due to RoCoF, or a lack of inertia in the system, frequency response is inherently required by the market to manage events. So I think frequency response will [continue to] be a high value service,” says Cavill.

“What will become more important to Grid is the dynamic nature of that response and also the closeness to real time in terms of managing system frequency.”

Cavill therefore thinks static frequency prices will continue to erode as the premium passes to faster responding dynamic frequency.

However, Baringa Partner’s Eamonn Boland suggests falls for even the most technically capable frequency response could be significant.

“There is a material drop in frequency response revenues in our projections,” he says.

“A public reference point is last summer’s Enhanced Frequency Response prices clearing at an average of £8/MWh for a response within one second and that compares to the similar provision in the commercial market of £18-£22/MWh.”

Boland points out that STOR revenues have settled at around a quarter of their peak rates seven years ago.

“We forecast in our modeling a similar downward pressure on frequency response pricing.”