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‘We will maximise value of the assets’: Octopus Energy on Gresham House BESS toll deal

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Octopus Energy’s head of flexibility discussed its tolling deal with Gresham House for nearly 1GWh of BESS projects, including how they will fit into its VPP portfolio and whether their energy market activity could change under its control.

The UK utility entered into a tolling arrangement for a 14-project, 568MW/920MWh UK battery energy storage system (BESS) portfolio from Gresham House Energy Storage Fund (which trades as GRID) at the start of June.

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The deal is a significant departure from how BESS are typically monetised in the UK, and the dynamics leading up to it were explored in our coverage at the time.

Kieron Stopforth, Octopus’ head of flexibility, discussed how the BESS portfolio will be a complement to its existing flexibility assets, helping lower prices for consumers, and the company’s strategy for maximising their value, starting with the primary rationale for the deal.

Batteries are an ‘at-scale’ form of flexibility

“Low-carbon flexibility is absolutely critical for the system of the future, to manage and bring down system costs, bring down bills and reduce curtailment. We are focusing on increasing that in all forms and sources, and batteries are a good source for doing that at scale,” Stopforth said.

The portfolio will go alongside a round of flexibility assets that Octopus Energy already has in its virtual power plant (VPP), but has some advantages compared to those assets. That VPP includes home electric vehicles (EVs), heat pumps, small-scale solar and storage adding up to around 1GW of intelligent demand that can be shifted around, on top of demand-side response programmes like the Demand Flexibility Service (DFS).

Stopforth: “The profile and shape of flexibility is different from technology to technology. When you are optimising EVs, you need to make sure they are charged when they need to be, for example. BESS is less distributed, larger scale and not as constrainted in that way, so it’s a really good source of flexibility.”

“The domestic fleet is about minimising costs for consumers. BESS do that in aggregate, but the jobs are different.”

The BESS will connect to Octopus’ KrakenFlex Energy Flexibility Management Platform.

The toll deal

We asked Stopforth how the projects for the deal, covering 70-80% of GRID’s operational portfolio, were chosen. For example, does it cover any operational project without a live optimisation contract?

“In terms of asset selection and choice, we approached it looking at a range of different sizes, geographical distribution, duration; basically a number of things to get diversity across the portfolio,” Stopforth said.

He said the toll is not usage-based, with a price per MW giving Octopus dispatch and revenue rights over the assets.

Gresham House said that the deal, plus separate Capacity Market (CM) obligations the BESS projects have to fulfil, is worth £43 million (US$55 million) a year over its two-year lifetime. The tolling deal will almost certainly be the majority of that, with Gresham House in the past saying the CM would be 5-15% of BESS revenues in the long term.

How Octopus will manage the BESS’ activity

Stopforth explained that the BESS will be managed by a combination of Octopus’s Kraken platform and Octopus’s in-house energy trading team. The dispatch and controls piece will be more on the Kraken side, and the energy trading expertise will be primarily in the Octopus team. “It’s a very integrated and relationship-driven system.”

One big question is whether BESS’s market activity might change under Octopus’ management. In the UK, BESS generally gets a majority of revenues from participating in electricity market operator National Grid ESO’s various ancillary services, plus some energy trading and the Balancing Mechanism (BM), though there is a shift to more of the latter.

“It’s our job to try and get the most value from these batteries and assets and, to that, end fulfilling the flexibility function, reducing system costs and reducing curtailment. Within that specific strategy and the specific markets, we are fairly indifferent to which markets we bid into. We are trying to maximise value for the projects,” Stopforth said.

“What we’ve seen recently is a shift in value to more wholesale applications. The BM has dispatched a bit more, for example. In terms of individual revenue streams, we have quite a flexible strategy.”

We then asked if utilities have an advantage over third-party optimisation firms when it comes to the more energy trading-intensive activities like the BM.

“The key difference for utilities is having a retail book and trading and hedging on that. Batteries can be helpful and can play a role helping some of the risks there. But everyone is trying to do the right thing and maximise value. How that looks in practice might not be that different. But the composition and internal synergies, that logic is slightly different for utilities.”

Utilities being more involved in BESS a net gain for the energy storage market?

Energy storage industry sources tell Energy-Storage.news that a big challenge in all geographies is having the technology’s value adequately recognised and accommodated in electricity systems, with storage still a very new type of resource.

As a final question, we asked Stopforth if utilities like Octopus becoming the BESS operators might help this process along. Presumably, Octopus has both a better understanding of the whole system and better access to dialogue with the key decision makers behind it, compared to optimisation startups, which have to date been the main entities managing BESS activity in the UK.

“These are very big conversations and the decisions that we make now are going to influence the way the energy system is designed over the next 10, 20 years. It’s critical we get it right,” he said.

“As a tech-focused utility, we are able to take a very broad view of how the system should work, how you run it, but most critically, we can work as an advocate for customers in doing things that will help us meet low carbon without increasing customers bills. As Octopus, we see that big picture through a very integrated operation.”

“When we talk to ESO and other stakeholders we are coming from that point of view, but critically that customers are at the heart of it, making sure we keep bills down while enabling this low carbon future.”

Alongside being the UK’s largest utility with around seven million customers, Octopus Energy also has a generation arm which is active in clean energy project development and operation internationally. That includes BESS projects in Italy and Australia, as well as solar PV in Germany, Iberia and elsewhere, the latter covered by our colleagues at PV Tech.

12 November 2024
San Diego, USA
As we see more storage projects become operational, the big question is “how to maximize your assets?” This event will prepare the industry for the road ahead, looking at the core fundamentals of asset management, understanding operational challenges, along with the latest optimization and software development. You can expect to meet and network with all the key industry players from major US asset owners, operators, RTOs and ISOs, optimizers, software and analytics providers, technical consultancies, O&M technology providers and more.

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