Merchant energy storage has become an investable asset class in the UK, a provider of battery optimisation services has said, with the market moving away from an emphasis on contracted revenue streams for supplying grid services.
Dr Ben Irons, co-founder at Habitat Energy, said that “three years or so ago, firm frequency response (FFR) contracts were where 100% of the action was for battery storage in the UK,” as battery storage became eligible to provide the grid-balancing service to transmission system operator (TSO) National Grid.
However, according to Irons, the idea of a contracted revenue stream “gave a false sense of security,” with contracts generally only two years long for FFR, and even the longer contracts award through the UK’s landmark 200MW tender for enhanced frequency response (EFR) were four years and were “quickly snapped up”.
Speaking to Energy-Storage.news following his appearance at last week’s online Energy Storage Digital Series conference – at which he explained instead that merchant opportunities including arbitrage have matured to provide decent revenues for Habitat’s clients – Ben Irons said that those two or even four years contracts were not “nearly enough to cover the investment horizon or reach a payback on capex, without coming back for a series of further contracts later”.
“The problem was there was no guarantee on the price for those subsequent contracts, as many early battery investors learned to their cost when the FFR price dropped from 19 to 5 £/MW/hr in the space of a couple of months,” Ben Irons said.
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