UK energy storage funds feel the squeeze

‘Weak revenue environment’ means UK storage funds are diversifying into overseas markets


February 15, 2024

  • Battery storage revenue for UK Balancing Mechanism assets hit record lows
  • Largest storage funds trading at ‘significant discounts’
  • Funds offsetting declines in UK battery revenues by diversifying into overseas markets

The first weeks of 2024 proved to be an extremely challenging period for UK energy storage funds. Data from Modo Energy showed that average battery energy storage revenue for Balancing Mechanism registered assets in December fell 16% to £2.5k/MW, the lowest since Modo Energy began tracking revenue in 2020 (see chart below).

As Gore Street Capital highlighted last week, even the largest funds are “trading at significant discounts”. In a statement, the fund said that, despite efforts to increase bulk dispatch of batteries into the Balancing Mechanism, in-merit systems remain largely untapped while “wholesale trading has yet to fill the gaps left in declining revenue stacks”.

But funds have been preparing for such an eventuality by focussing on diversification. To this end, Gore Street Capital now manages three operational systems connected to the grid in Ireland, and has also expanded into Europe, with assets in Germany. In addition, the fund has bolstered its presence in the US with assets in Texas and California.

Irish revenues outstripping UK

UK revenues are certainly in a slump. Gore Street Capital pointed out that the Great Britain market delivered average estimated revenue of £6.1/MW/hr in the three months to the end of December 2023. Contrast this with the £15.1/MW/hr generated by the Gore Street Capital’s entire portfolio. A star perfomer for the fund has been the Irish portfolio – which generated an estimated £25.8/MW/hr during Q3 2023, for example.

The tough climate in the UK market is probably best illustrated by the fact that Gore Street has sought to stress that the build-out of new capacity in Texas and California will take its US assets under management to 55 per cent of total operational MWh “while GB will represent less than 30 per cent”.

In a similar vein, Gresham House Energy Storage Fund issued a trading update at the beginning of this month in which it said that it “continues to be impacted by the weak revenue environment”. Like Gore Street, Gresham lamented issues with the Balancing Mechanism, which it said was under-utilising battery storage systems, with the result that skip rates remained high despite the launch of ESO’s Open Balancing Platform, which National Grid ESO claimed would “unlock new levels of precision for the ESO control room”.

In addition, Gresham said revenues were weak in part due to the slower than expected pace of commissioning of new projects to date “due to elongated grid connection times”. John Leggate, chair of Gresham House Energy Storage Fund plc, commented: “The rollout of ESO’s BP must remain on track and enable improved utilisation of BESS [battery energy storage systems], which has yet to manifest in a material way. Proper utilisation of BESS will also result in lower energy bills for consumers and will accelerate the decarbonisation of our power system.”