‘Sophisticated strategies’ required as battery storage revenues drop by 71%

Following a 71% decline in average profits for Britain’s battery storage market, a new report by LCP Delta has urged investors to consider more “sophisticated strategies” to increase revenue.

According to the 2023 Battery Investment Landscape report, some revenue streams traditionally adopted by battery storage investors – such as frequency response markets – are becoming more saturated and thus, less profitable.

The energy analytics and consultancy firm largely attributes the 71% decline in average battery market profits from the highs of 2021 and 2022 to this phenomenon. Falling wholesale energy prices and energy trading values were also cited as probable causes for loss of profits in the battery market.

This issue is forecast to worsen as LCP Delta’s STOREtrack platform predicts that energy storage capacity in Britain could exceed 18GW by 2030, including a lot of longer duration storage.

Allocating the majority of battery storage volume into frequency response markets such as Firm Frequency Reserve and Dynamic Containment (DC) services, will no longer achieve the high returns historically enjoyed, stated LCP Delta.

Instead, the organisation suggested strategies such as revenue stacking from wholesale and the balancing market as more lucrative options for battery storage investors, or else riskier options such as Net Imbalance Volume chasing.

LCP Delta also cautioned developers to heighten their due diligence, ensuring project specifics such as duration, technology and location are given the appropriate consideration.

The report revealed that potential market reforms, through REMA, as well as reforms to existing network charges will have a significant impact on battery storage operators.

If, for example, Locational Marginal Pricing (LMP) was implemented, battery energy storage system (BESS) sites located further from demand centres would experience lower margins, whereas BESS in more optimal locations would see an a more positive revenue forecast.

LCP Delta assured that despite market signals being expected to soften in the short-term, the long-term outlook for BEES growth remains positive thanks to increasing system intermittency.

“Despite the fall in profits in 2023, the GB power market remains attractive for investors, and the fundamentals for battery storage remain strong,” said Chris Matson, partner at LCP Delta.

“The high revenues achieved in 2021 and 2022 were never going to be sustainable, and traders, investors and asset owners will need to refamiliarise themselves with the landscape they are now operating within and understand potential challenges.

The battery market has a key role to play in decarbonising our power system, and in the coming years, we still see huge potential for battery storage.  As the durations of assets increase and frequency response markets saturate, sophisticated energy trading and revenue stacking will be crucial.”

Despite a significant decrease in battery storage profits in the past two years, Modo Energy revealed that storage revenues increased by 53% between June and July 2023, which the energy utility company largely attributed to the traditionally used DC market. 

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