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The Balancing Act: Weighing up the opportunities in the Balancing Mechanism
Is the Balancing Mechanism (BM) the next big thing in flexible energy? We believe it is – for the foreseeable future. The most lucrative options shift as the energy landscape changes which means you need to be able to stay ahead of the curve to maximise your revenue. This applies to aggregators like Flexitricity as much as it does to energy users, generators and developers. As Mr Darwin so aptly put it: “It is not the strongest species that survive, nor the most intelligent, but the ones most responsive to change.”
The competition in the reserve and response services is increasing rapidly - take batteries, for example. Full time dynamic Firm Frequency Response (dFFR) is still just about the most lucrative option. However, as more battery storage enters the market and competes for frequency response revenue, the price erosion that many, including us, predicted is now happening. Tender rejections are increasing, people are securing night-only contracts and there is a bit of strategic head-scratching going on to figure out ‘what do we do now?’. Short Term Operating Reserve (STOR) and Capacity Market (CM) present a similar picture.
There are still opportunities in these markets – if you have the right team in your corner – but the key to making a return on these projects is now all about agility and market access. The evidence shows that valuable long-term contracts are fast becoming a thing of the past. So, rather than pigeon holing an asset in a certain market, people are getting their heads around ‘going merchant’ to build a more flexible revenue stack - and trading in the BM is becoming widely recognised as a critical piece in the puzzle.
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