Batteries, the Capacity Market and the challenge of Extended Performance – Part 2

In a previous blog published on Monday 25 October, we discussed the issue of Extended Performance Tests within the GB Capacity Market (CM). In summary, due to degradation overtime it is currently not possible for batteries to be paid for their full capacity in the CM without risking significant fines. In this follow up blog, we put forward some potential solutions to this issue.

What are the options?

With the Extended Performance test in mind, what can potential new-build storage CMUs do to ensure they balance CM revenues against risk? In my mind there are three high level options:

  • 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 capacity stated in its CM agreement for the full 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 is able to achieve at that point in time.

Option 1 would likely require building a battery that has a greater capacity (in MW) than its grid connection would allow it to export. It would allow the CMU to meet the Extended Performance test in later years, although this will obviously be highly dependent on actual degradation compared to forecasts. The main negative of this approach is it would require significant additional capex to build enough additional capacity to meet the Extended Performance test, which may outweigh the benefit of the higher CM payments achievable. This is also dependent on the CM clearing price achieved.

Option 2 is a low-risk approach as the CMU would essentially be entered with the minimum capacity/duration it will reach during the 15-year period covered by the agreement. This means the site will always be able to meet the Extended Performance test, but it will mean lower overall revenues achieved from the CM, particularly in the earlier years of the agreement.

Option 3 would essentially sacrifice the long-term revenue certainty of a single 15-year agreement in favour of trying to maximise CM payments and minimise the risk of agreement termination. It would do this by entering the maximum capacity/duration possible for each delivery year, with this falling year-on-year as the asset degrades. This is a higher risk strategy as prices in the future will vary and risks undermining the typical purpose of the CM in storage business models as a bankable revenue stream. It would also require additional administration time to enter the CMU into the auction for every year.


Batteries are exposed to unique risks when providing security of supply because of the degradation of the cells as they are cycled. It is likely 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. It is worth considering, as part of the Call for Evidence on aligning the CM with net zero, if there are other ways to manage the anticipated duration of battery technologies over their lifetime.

For example, a battery project could provide the Electricity Market Reform (EMR) Delivery Body with their expected duration curve for the life of the 15 year agreement, and they only have to prove their duration against that, their payments would decrease over time if their duration, and de-rated capacity as a result fell, but the consumer would be protected against unexpected changes in capacity, and the battery developer would be able to concentrate on designing an optimal system.

One of the key factors in determining the best approach for battery developers is the expected CM clearing price, and Cornwall Insight will shortly be publishing our latest forecast for the upcoming T-1 and T-4 auctions. If you would like to discuss this subscription or any of the points raised in this blog please feel free to get in touch.

You may also be interested in…

Consultancy | Energy storage and flexibility

We are at the forefront of the energy storage and flexibility sector, helping customers successfully deploy battery storage, flexible power generation and demand-side response. In addition, we provide strategy and business case development, revenue forecasting and commercial and regulatory investment due diligence.

Insight Paper | Reaching net zero: the value of flexibility

With battery storage and demand-side response (DSR) set to play a significant role in supporting the delivery of greater amounts of renewable power and managing electricity networks, we consider revenue streams for related flexibility services across Great Britain (GB), Ireland, and Australia.

Related thinking

Energy storage and flexibility

Off-peak electricity use and home generation could cut billions off energy costs

New analysis from Cornwall Insight and Smart Energy GB has revealed the substantial cost-saving potential of household flexible electricity initiatives such as time-of-use tariffs, smart meters, solar PV, and batteries. The has data revealed national wholesale and system electricity costs could be cut by an annual £4.6bn in 2030 and...

Regulation and policy

Capacity Market: Rule changes for upcoming auctions

The latest round of Capacity Market auctions is underway following the publication of the auction parameters on 18 July, with the prequalification window subsequently opening on 26 July. In this blog, we explore some of the changes made to the rules and regulations of the scheme ahead of this year’s...

Energy Market Design

How does REMA impact energy generation, flexibility and consumers?

The Review of Electricity Market Arrangements (REMA) is the largest review programme of GB electricity market arrangements for a generation. It comes at a time when European energy markets are suffering extreme turmoil. Depending on the outcome there could be significant implications for generators, flexibility providers, and, indirectly, consumers. REMA...

Energy Market Design

REMA: electricity market design choices

Electricity markets will serve as the foundation for the future GB energy system.  This article examines some of the market design decisions that will be considered by the Review of Electricity Market Arrangements (REMA). Market design goals At its most simple, a well-functioning market will attract enough potential “buyers” and...

Commercial and market outlook

Capacity, reform, and unlawful strategies: 5 things that happened yesterday

Capacity, reform, and unlawful strategies: yesterday was a busy day for energy geekery. The developments encapsulate the shorter and longer term challenges and uncertainties present in the energy market presently: Read the full article here

Commercial and market outlook

Two thirds of energy industry professionals think the market needs to be drastically reformed

A survey conducted of over one hundred leading energy market professionals from across the investment and advisory community, by Cornwall Insight, from the attendees of its Financing Net Zero forum, has shown nearly two thirds (63%) of people working in the energy industry1 believe the UK market needs to be...

Business supply and services

Re-balancing the balancing costs –BSUoS charges to be levied solely on suppliers from April 2023

Balancing the electricity system costs money. National Grid in its role as Electricity System Operator (ESO) takes actions in every half hour to achieve the remarkable feat of keeping supply and demand finely balanced on our national electricity system – maintaining a system which runs between 49.8 and 50.2Hz with...

Low carbon generation

Reform in haste, repent at leisure: squaring electricity market reform with investor confidence

The review of electricity market arrangements (REMA) signalled by the energy security strategy could impact wholesale & balancing markets, & there could be a need to examine the capacity market rules & CFD contracts. It is too early to know what options will ultimately be adopted or when changes would...