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On 5 June, UK energy companies Gresham House and Octopus Energy announced an innovative energy storage battery expropriation agreement, marking a major innovation in the UK energy storage business model and boldly speculating that the UK energy storage market is set to reach new heights!
Unlike the traditional 'profit sharing' model, a tolling agreement is a completely new business model. Under a tolling agreement, the "buyer" provides a fixed income to the battery owner in exchange for full control of the energy storage facility. The purchaser bears all the market risk and receives all the benefits of the transaction. The battery owner is "dry" and receives a steady cash flow.
For a 100MW storage project, for example, at £56,000 per MW per annum, the owner will receive £5.6 million per annum in fixed income. The purchaser will receive a higher return in the market by optimising the operation of the battery. If the revenue from the transaction exceeds the "expropriation fee", the buyer makes a significant profit, but also bears the risk of loss.
The agreement between Gresham House and Octopus Energy covers 568MW/920MWh of energy storage over a two-year period. On this basis, it is estimated that Gresham House will receive in excess of £63 million.
The new expropriation charging model is a significant benefit to the UK energy storage market! It is the complete opposite of the traditional 'profit share' model, where the asset owner bears the full market risk. This is not a problem when market returns are favourable. But with the decline in UK energy storage revenues in 2023, the market is becoming cautious about investing in energy storage. The new model will allow asset owners to 'lie flat', which will accelerate the entry of more capital into the market. Boldly, the UK energy storage market is predicted to reach new highs in 2024!
In addition, this will further improve the overall efficiency of energy storage systems. This is important for driving the UK's energy transition and achieving net-zero targets. Because under the new model, purchasers will only be rewarded if market revenues from transactions exceed the 'levy', they will have a strong incentive to optimise the efficiency of their systems.
On the other hand, it also signals that, despite the decline in revenues in 2023, purchasers are optimistic about the energy storage market in the long term, and that they are confident that they will be able to earn a much higher return on the market than they could through profit sharing. the UK C&I storage market deserves special attention in 2024!
