‘Batteries beyond ancillaries’: meet the Timera team
Battery investors in the GB market have harvested extraordinary returns across 2021-22. However as we enter 2023 the GB battery revenue stack is undergoing a structural transition with value rapidly shifting from ancillary services to energy arbitrage.
The transition to energy arbitrage has important implication for BESS risk / return dynamics, monetisation strategy and financing. Today we explore what the BESS investment case looks like ‘beyond ancillaries’ with a video recording & slide pack from our recent webinar, enabling you you to meet some of the Timera power team members.
Links to the show
Click here for the ‘Beyond ancillaries’ slide pack from the webinar.
Click here to watch the ‘Beyond ancillaries’ webinar video recording.
A teaser of some of the content
We look at an energy arbitrage focused backtest of just how much GB BESS asset returns across the last 2 years versus the tougher period across 2018-19, see Chart 1. We then discuss key value drivers of the BESS revenue stack as ancillary services saturate across 2023 and energy arbitrage dominates value going forward.
Chart 1: Back-tested battery revenues (2 hr duration BESS)
Source: Timera Energy, National Grid ESO, Nordpool, BMRS
We also consider the key risks that confront GB BESS asset investors, summarised in Table 1.
|1. DC Saturation||- BESS capacity is projected to exceed requirements for ancillary services across 2023.|
- Dynamic Containment returns already fallen 50% from Summer 22 peak.
|2. Market easing||- Current market returns supported by tight supply margins in GB and Europe & gas market volatility.|
- Pace of market easing across 2023-2026 will impact front year BESS returns.
|3. Supply chain crunch||- Global demand for BESS and stretched supply chains slowing deployment of BESS and boosting CAPEX.|
|4. BESS pipeline||- Over 4.7GW of new BESS supported across GB capacity auctions 2023-2025.|
- Risk of BESS deployment outpacing capacity requirements & RES deployment.
|5. REMA & policy review||- Potential changes in locational & capacity price signals.|
Our discussion concludes with a focus on 5 key takeaways for GB BESS investors set out in Table 2, followed by a set of questions from the audience.
|1. Crisis driving up BESS returns||Surge in energy arbitrage revenues underpinning BESS revenue stack.||(+) Value support|
|2. Market signalling flex shortage||GB market pricing signalling structural shortage of flexible capacity i.e. more BESS required.||(+) Value support|
|3. DC revenues high but eroding||DC revenues have been strong, but emerging signs of erosion & transition to energy arbitrage.||(-) Value risk|
|4. BM returns rising||Strong rise in BM price volatility; BM importance to rise as DC revenues erode.||(+) Value support|
|5. BESS pipeline, capex & REMA||Strong BESS growth in 2025, caveat supply chain & capex issues; evolving impact of REMA review.||(-) Value risk|