To expand their flexibility portfolio beyond Great Britain, our client is exploring battery investment opportunities in key European markets. They engaged LCP Delta to conduct market research and analysis of battery revenue margins and benchmark across selected markets for years 2022-2023. To do this, LCP Delta used a method called “backcasting”, this meant using historical prices and traded volumes for our in-house modelling framework to estimate the energy margins captured by modelled battery assets at an hourly resolution for previous years, allowing a detailed comparison of the selected markets and how battery assets would perform in them.
Background
The client is a leading developer of flexible, grid-scale energy solutions in the UK, specialising in battery storage, pumped storage hydro, hydrogen production and peaking generation.
What the client needed and their key question(s)
The client required a comprehensive market analysis to evaluate opportunities for their diverse portfolio of future flexible assets across key European power markets, including Germany, Benelux, Italy, Iberia and Poland.
They sought an advisor to identify revenue drivers and provide insights into current and future flexibility needs in Europe. This included conducting a backcasting revenue analysis for modelled grid-scale battery assets in various configurations across the specified countries.
Our solution
To help or client explore battery investment opportunities in Europe, we took a 3-step process:
- We combined a bottom-up approach to simulating how a grid scale battery would participate in these markets using our Battery Optimisation Model to backcast how much revenue they can capture across each of the market covering the core revenue streams (i.e. day-ahead, intraday, ancillary market, etc.). Using the backcasting we were then able to compare the battery revenue potential across each market. We were able to benchmark the battery revenues of these markets against GB, which already has a mature battery buildout.
- We carried out several sensitivities, such as impact of high gas prices, increasing negative price periods, and market interventions like the Iberian gas price cap, to assess their impact on the battery revenues. We also looked at the depth of the intraday and ancillary markets by running several sensitivities regarding the level of volumes being traded.
- We collaborated with our Storage team to analyse the regulatory landscape for battery storage and identify key risks and opportunities. For instance, we investigated key subsidy schemes that may be get introduced in these markets and how it may impact the battery investment landscape.
Our impact
Based on our expert modelling and analysis of power market fundamentals and battery trading, our client was able to identify which markets show the most revenue potential for these assets. They were also able to get insight into which market fundamental drivers will have the biggest impact on capturable battery revenues in the near-term.
