Poland’s Capacity Market Rule Change Could Deal a Major Blow to Battery Storage Systems
2024-07-03 17:37

The Polish government recently announced a reduction of the derating factor for battery energy storage systems to 57% in the country’s upcoming capacity market auction. This announcement has sparked significant concern in the industry, with one energy storage system developer warning that this change could deliver a "fatal blow" to storage systems with 2-hour and 4-hour durations.

According to the procurement regulation draft released by the Polish government on May 28, from 2029 onwards, the derating factor for energy storage technologies such as battery storage systems, flywheel systems, and supercapacitors will be reduced to 57.58%. The derating factor determines the capacity agreement level that a clean energy technology can secure in the capacity market (CM), based on its expected reliability when needed. If the proposed derating factor takes effect, a 100 MW battery energy storage system would only secure a 57 MW capacity agreement, resulting in a lower price for providing power services.

This policy is part of the Polish Ministry of Climate and Environment's efforts to promote energy transition and sustainable development. However, for the battery storage industry, it represents a significant challenge.

In contrast, the derating factor for pumped hydroelectric storage (PHES) facilities is 96%, and for natural gas power plants and nuclear facilities, it is around 93-95%.

Michał Maćkowiak, General Manager of Harmony Energy's Polish branch, stated, “After analyzing the capacity market regulations, the results indicate that this policy could deliver a fatal blow to Poland's battery storage market, regardless of whether the battery storage system has a 4-hour or 2-hour duration. Capacity market (CM) revenues are related to the installed capacity of storage systems. Setting the derating factor at 57% means a revenue reduction of over 40% for storage systems. We need to consult with industry manufacturers and the government to avoid such adverse factors.”

Poland conducts annual capacity market auctions every December to secure capacity for the next five years, meaning that projects awarded in December 2024 will begin delivery from 2029. For example, energy storage system developer and independent power producer (IPP) Greenvolt won 1.7 GW of battery storage systems in 2023, while only 165 MW of battery storage systems were awarded in 2022.

The regulation also sets separate derating factors for the "extra auctions" to be held in 2025 for delivery in 2026. These auctions feature relatively high derating factors across all technologies, especially for battery storage systems. For these extra auctions, the derating factor for battery storage systems, flywheel systems, and supercapacitors is 96.11%.

The derating factor for storage systems has also been a topic of discussion in the UK recently. Battery storage system developers and operators have indicated that the UK grid operator, National Grid ESO, is reevaluating the derating factors for storage systems. However, the main difference between the derating factors in Poland and the UK is that Poland does not consider discharge duration, whereas National Grid ESO specifies that the derating factor increases with the duration of the storage system.


Tags:battery , energy storage