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What development and valuation for battery storage in France?
In the UK, tens of gigawatts of utility-scale batteries are in the pipeline.
In Germany, it’s residential storage that’s booming, with 1.2 GW of residential batteries installed last year.
This surge in battery storage is directly attributable to the explosion in electricity market volatility. Utility-scale batteries, which are directly connected to the distribution or transmission grid, are now moving beyond frequency regulation and are taking advantage of the massive hourly price differentials in short-term markets. Behind-the-meter batteries, often paired with solar panels, allow individuals and businesses to reduce their electricity bills.
In France, the figures are less impressive, but the trend is present as well. This article explores the emerging battery storage market in France and its revenue sources.
Development of Batteries in France
In the utility-scale segment, according to data from Enedis, 364 MW of battery storage were installed in France by the end of Q2 2023. Additionally, Enedis reports that 268 MW of projects are currently in the connection queue. On top of this, 136 MW of batteries are connected to RTE’s grid.
capture d'écran Enedis Open Data
In the behind-the-meter segment, the data is somewhat less reliable (individuals don’t always report their batteries, and the battery size doesn’t always match the solar installation). However, according to Enedis, 41 MW of solar installations are equipped with batteries. We won't go into detail about the revenue streams for these batteries, as they are quite different from those of utility-scale batteries and deserve a separate article.
capture d'écran Enedis Open Data
Revenue from Batteries
The revenue from French utility-scale battery capacities primarily comes from participation in primary reserve (FCR in English). By participating day after day in frequency regulation of the grid, the batteries are compensated by the grid operator RTE. In 2022, revenues from this reserve significantly increased, driven by rising energy prices and the low availability of production capacities; however, this situation is changing.
Indeed, the FCR only amounts to 540 MW, and its price is determined by a marginal price auction. If you have hundreds of MW of batteries participating by submitting offers at any price, prices will inevitably be driven downward.
The secondary reserve (aFFR) is currently closed to battery participation. It is expected to reopen in 2024, but the exact dates are still somewhat uncertain. This could provide a new source of revenue for batteries, but its capacity is also limited, ranging from 500 MW to 1,180 MW depending on the needs of the grid. Therefore, there is not enough capacity to support a massive expansion of battery storage.
It is necessary for French battery capacities to follow the example of their European counterparts and turn to deeper energy markets. Notably, in France, revenue from reserves and arbitrage is complemented by revenue from the capacity market.
Evolution of Valuation Strategies
The beginning of 2023 clearly illustrates the phenomenon described in the previous paragraph. If we consider a 1 MW/2 MWh battery that conducts very rudimentary market arbitrage (charging at night and discharging during the day) and then participates in rapid reserve (RR - volume of 1 GW), it achieves a higher level of revenue than a battery that only participates in the FCR. Logically, the number of days when it is beneficial to participate in energy markets rather than in the FCR was predominant at the beginning of 2023. This was not the case at all in 2022, where FCR revenues made arbitrage appear rather meager.
Estimation revenus annuels d'une batterie 1MW/1MWh
This trend is even more significant given that our revenue simulation for arbitrage is coarse and underestimates the generated revenue. The revenues from the spot market are not optimized (the battery charges and discharges in a deterministic manner). We also do not incorporate potential revenues from "cross-market" optimization between intraday trading, adjustment mechanisms, and spread prices.
Let's take a concrete example to illustrate "cross-market" arbitrage, as it is a somewhat complex concept. The idea is to capitalize on the intrinsic optionality of the battery. A battery that engages in temporal arbitrage on the spot market buys 1 MWh at hour 3 for 50 euros/MWh and sells it at hour 20 for 150 euros/MWh. It makes a theoretical profit of 100 euros/MWh. In the intraday market, prices fluctuate: hour 3 is at 100 euros/MWh and hour 20 at 125 euros/MWh. The operator of the battery can therefore cancel its previous position and pocket a profit of 75 euros/MWh without running the battery. This is already good, but later they realize that by buying at hour 5 and selling at hour 9, they can gain another differential of 100 euros/MWh. They will then buy and sell on the market again. They can do this throughout the intraday market session, but also in the adjustment mechanism (if they participate in RR, they will indeed be obliged to submit offers) and finally at spread prices (based on a forecast of these prices).
To achieve optimal revenue, a battery in a mature market will practice "revenue-stacking": it will optimally combine different sources of income. The battery will not participate in the FCR at all costs as it does currently; its operator will estimate its revenues in the electricity market and then incorporate this revenue level into its offers. If the FCR auction (which takes place two days before) results in a price that allows it to obtain higher revenue than its forecasted revenue in the electricity markets (obtained one day prior or on the day itself), it will participate in the FCR; otherwise, it will participate in the electricity markets and engage in the logic described in the previous paragraph.
It is important to note, complicating the equation, that the wear and tear of the battery must also be taken into account in this economic optimization calculation. Participation in the FCR generally requires low-amplitude charge/discharge cycles. However, arbitrage necessitates deeper and more frequent cycles to maximize revenue, which reduces the battery's lifespan. Choosing the FCR, even if it is less lucrative, "preserves" the asset better, an advantage that must be considered but is limited by rising interest rates (1 euro of lost revenue now costs more than 1 euro gained later).
Thus, the operator must make a set of complex decisions, some in real-time, and utilize advanced optimization, forecasting, and execution algorithms.
Augmented Energy builds an integrated solution to maximize your storage assets on electricity markets. Do you want to learn more? Contact us at sales@augmented.energy
