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How to generate revenue from battery energy storage with grid services

Many of our customers are using battery energy storage systems to generate revenue through providing grid services.

24/08/2023

Many of our customers use battery energy storage systems to generate revenue through grid services.

But how easy is it and what does it all mean? Frazer Wagg, Head of Data Services at Connected Energy, explains…

What is an energy aggregator?

An energy aggregator is the provider of a route to market for energy trading and flexibility markets. They can enter into contracts with National Grid Electricity System Operator to provide energy balancing services or use fluctuations in energy wholesale markets to maximise value for generation and storage. Energy aggregators work with a range of assets including large energy users who can shut off production (known as demand side response), generators to turn up or down their production, or batteries that can charge and discharge.

By combining assets for a coordinated operation, they can access a broader range of markets that typically require minimum power levels of 1 MW. As asset owners may not have enough power or energy in a local area, the aggregator provides the service of both building and dispatching a portfolio.

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How does an energy aggregator work with a battery energy storage system?

“A battery energy storage system (BESS) can be used to help balance the grid, by storing and discharging energy when it’s needed, improving our energy resilience. As we move towards increasing the number of renewables in our power generation mix, the ability to balance this with flexibility elsewhere in the power system will become increasingly important.

Providing grid balancing service is therefore of value and can be a revenue stream as the National Grid ESO will pay for it.

National Grid buys energy in large blocks, typically by the megawatt (MW). If your BESS provides less than 1MW, it can’t individually supply the grid. An aggregator is a way for several smaller assets in the same area to group together to sell grid balancing solutions.

The energy aggregator is the interface to National Grid ESO and your route to market. They also calculate how much revenue is paid to the owners of each asset. In this way, energy aggregation also provides a degree of security to National Grid ESO – if there is an issue with one of the assets in your group, other assets can step up and provide that energy, ensuring there is no disruption of service. After all, there is strength in numbers.”

How long am I signed up for?

“Different energy aggregators offer different deals, a bit like mortgages. So, you might sign up for a fixed term and a fixed rate or go for a variable rate which will change depending on energy prices. Two-year contracts are typical, but we have seen 10-year contracts before. At Connected Energy, we would recommend considering the contract term and working out what suits you. At the moment, there are some beneficial terms on offer.

Either way, you are not locked into one energy aggregator forever. Each aggregator has their own control software or hardware that is attached to Connected Energy’s BESS, but they can be swapped out if you decide to pivot from one energy aggregator to another in the future. Connected Energy designs its BESS to be energy aggregator-agnostic, making it relatively easy to swap if required.”

How do I get paid from an energy aggregator?

Each month an energy aggregator will calculate the amount of service you provided for energy trading and grid balancing services. Some services like frequency response have a value for the act of being available, whilst others are directly linked to the value of the energy traded in and out of a BESS at different times. A typical agreement with an energy aggregator would see a revenue share as their payment as this encourages them to make the most value from the assets.

What are the benefits of this?

Frazer says: “The simple answer is the revenue gained from this model.

“At the moment, this revenue can help you to cover the cost of the system itself in anything between five and seven years. Over the last year, as energy prices have increased and the energy market has become more volatile, we have seen more opportunity to gain revenue through this model.”

How can Connected Energy help?

“At Connected Energy we can put you in touch with several energy aggregators. One partner of ours, GridBeyond, specialises in working with battery energy storage systems to leverage them to help balance the grid. By intelligently dispatching energy flexibly, into the right market, at the right time, GridBeyond helps asset owners can unlock new revenues while supporting our broader transition to a Net Zero future.”

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