The Future Will Not Be Average!
The Future Will Not Be Average
Many BESS (Battery Energy Storage System) operators view revenue forecasts as a neat, single line in excel, based on expected forward market prices. But the reality? That average will almost never match the actual outcome. All your expensive forecasts will turn out to be wrong! (Maybe, just maybe, except one!) And that’s not a problem—it’s an opportunity.
The Power of Real Options
Market prices will always deviate from forecasts, and this variability is precisely what makes BESS more valuable than many developers realize. Every day, BESS operators can make thousands of decisions: charge or discharge, buy or sell. Each of these is a *real option*—a right, but not an obligation.
Consider the sheer number of real options a BESS has each trading day:
- Six bidding periods of FCR (Frequency Containment Reserve) market.
- Six bidding periods in the aFRR (Automatic Frequency Restoration Reserve) market, positive and negative
- 24 hourly contracts in the day-ahead auction
- Hundreds, if not thousands, of opportunities in intraday auction and the intraday continuous market.
With all these options, a BESS has many ways to make money, and very few ways not to!
Volatility Drives Value
Here’s the key insight many BESS developers miss: the value of an option increases with the price volatility of the underlying commodity. As markets become more dynamic, the flexibility of BESS becomes increasingly lucrative, even beyond the value captured by todays prices, apparent from e.g. an index or deterministic backtest. The extrinsic option value of the BESS increases with the expectation of future price volatility.
For many BESS project developers, this is a new perspective. Unlike solar PV assets, the value of their BESS asset isn’t about a stable, predictable, expected price for electricity. Instead, it’s about offering the optionality to profit from variability and unlocking value in every decision point.
As with solar project development, BESS project development is still about progressively de-risking a project for all stakeholders, but, when it comes to the revenue of the project, this time it’s about de-risking revenue through operational flexibility instead of through contracted stability.
The Future Is Opportunity
The future will not be average. It will be dynamic, unpredictable, and full of potential. For BESS operators and developers, success lies in understanding and embracing this variability and leveraging the flexibility of real options to thrive in increasingly volatile power markets.