Ancillary Service pricing

Ancillary markets for storage (DC, DR, DM) are now fully saturated, and we expect this to be true going forward. The price is set, therefore, by the opportunity cost of not being in other markets: namely, the wholesale market.

So, we forecast DC, DR, and DM prices using the wholesale prices we forecast.

Dynamic Containment and Moderation are priced the same

There should be no significant difference between DC and DM prices: the same assets participate in both, both are fully saturated and have the same response times. While Dynamic Moderation requires 30 mins of storage (rather than 15) and greater cycling, neither is prohibitive. These price projections are set by the opportunity of charging and discharging across different EFA blocks.

When wholesale prices are very high, the Dynamic Frequency Response price will also be high. So, we cap these prices at £200/MWh.

Dynamic Regulation is priced at £0 (high) or the wholesale price equivalent (low)

DRH is now clearing consistently at £0/MW/h as it is used as a good way to charge up a battery for free (claiming back energy costs via ABSVD payments).

Negative DRH prices are allowed in the Enduring Auction Capability reforms to the frequency response services. However, changes to performance penalties should disincentivise negative bid pricing

DRL prices are given by the wholesale price multiplied by the expected cycling in DRL, for each EFA block.

Why do we expect frequency markets to be saturated going forward?

The latest analysis from Modo shows that there are now more than double the capacity (MW) of batteries eligible to participate in Dynamic Containment than National Grid ESO is procuring. And, there is over 100MW of storage coming online each month.

While we model increases in requirements in line with new 'largest loss' generators coming online, and general decreasing inertia requiring more batteries to prop the grid up, the requirement will never be enough to 'unsaturate' the market so saturation is here to stay.