According to Cornwall Insight, degradation is a key issue for batteries competing in the Capacity Market (CM). Due to degradation over time, it is currently not possible for batteries to have long-term agreements and be paid for their total capacity in the CM without risking significant fines.
Current options available to batteries
Option 1 – ‘Overbuild’ and have a higher battery capacity than the “Connection Capacity” such that it will still be able to deliver 95% of the total stated in its CM agreement for the entire duration stated in its CM agreement.
Option 2 – Enter a 15-year agreement with a lower capacity/duration that the asset would always be able to achieve.
Option 3 – Take rolling 1-year contracts rather than a 15-year contract and enter the capacity/duration that the battery can achieve at that point in time.
James Cunningham, Consultant at Cornwall Insight, said:
“Batteries are exposed to unique risks when providing security of supply because of the degradation of the cells as they are cycled. Furthermore, the contribution towards security of supply is non-negotiable as falling duration would mean capacity has to be re-procured, in all likelihood at higher prices.
“Therefore, the cost of managing this risk is a key consideration for the future of the CM, and the transition to net zero as batteries (especially lithium-ion) are likely to be a keystone technology in our future electricity system. As part of the Call for Evidence on aligning the CM with net zero, it is worth considering other ways to manage the anticipated duration of battery technologies over their lifetime.”