Market risk for CfD projects mitigated by energy storageMarket risk for CfD projects mitigated by energy storage

The UK’s growing energy storage fleet can reduce market risk for Contracts for Difference (CfD) projects. While a CfD protects renewable generation projects against price volatility, storage can help reduce negative prices, according to AFRY’s John Perkins.

Speaking to Energy-Storage.news, Perkins, senior principal at consultancy AFRY, highlighted that negative prices are a “big risk” for generators and that they could grow to “several hundreds” of hours a year.

But energy storage can help reduce market risks around imbalance costs. Without it, balancing costs for managing forecasting errors would consistently increase.

Perkins explained: “CfD wind receives fixed income per megawatt hour, but it is exposed to market risk on its imbalance costs. Greater storage deployment, and therefore a smoothing of imbalance prices, is a benefit to CfD generators. It helps reduce the costs associated with its forecast error and balancing.”

Danish energy company Ørsted recently took final investment decision (FID) for a BESS to be installed at its Hornsea 3 Offshore Wind Farm. The BESS’s provision of complementary services and revenue profile, alongside its favourable position within the UK electricity system and co-location for efficient construction and operations, support the investment case, Ørsted said.

A total of 56 ground-mounted solar projects won backing in Allocation Round 5 (AR5) in November 2023. Historically, the scheme has primarily awarded contracts to offshore wind projects; AR5 was also the first round to run annually (rather than every two years).

The full version of this article is available with premium access on Energy-Storage.news.