Widespread adoption of domestic batteries now looks like a question of when and not if. Cheaper batteries mean that the payback period has almost halved, and households can now expect a payback in less than 5 years (Greg Jackson of Octopus suggested 2-3 years in his recent battery launch). It’s possible that the installed base will be 30% higher by the end of the year than last year.
The pace of this change could take energy markets by surprise.
The effect on the traditional physical consumption profile is already well documented, what is less well explored is the impact on the electricity markets world’s highest-cost energy system – the UK.
Batteries could act collectively in the Balancing Mechanism (BM) to drive system imbalances; this doesn’t have to be deliberate or malicious to have a significant impact on prices. They could rapidly switch between the BM and other markets like local Flexibility markets changing the dynamics of both.
30-minute market periods and a national BM price may lack the resolution required to control this market - it’s highly likely that participants will be trading and controlling assets much closer to real time.
Penalties for non-compliance with market rules will also need to be re-examined. Precisely defining what is meant by today’s market rule of rational economic behaviour will be much harder in the future. Repeated suspicions of non-compliance may result in an Ofgem investigation which could lead to a fine. The participant may choose to take the money today despite the risk of an indeterminate fine in a few years’ time. Even with penalties that are given out more like parking tickets some may choose to deduct the fine from their profit.
It’s time to urgently bump this issue to the top of the market design team’s to-do list.
