Aurora Energy Research has published a flexibility market report showing a significant improvement in market conditions in France for grid-scale battery projects

The report predicts an increase of more than 2% in the internal rate of return (IRR) for investment scenarios, driven by high aFRR capacity prices in the short term and greater energy trading opportunities. In particular, Aurora highlights that investment scenarios based on the preliminary network tariff rates of TURPE 7 offer significant advantages in high-production areas.

On June 19, 2024, France adopted a pay-as-you-go mechanism for its aFRR capacity market, which has significantly boosted short-term revenues.

Aurora expects high prices in the aFRR market to persist until 2028, stabilizing in 2030. Along with an increase in the price differentials in the spot market, driven by higher gas prices, these factors have resulted in an increase of more than 2% in the IRR for battery projects with a commercial operation date in 2025.

Impact of the TURPE 7 tariff and new investment opportunities

The French Energy Regulatory Commission (CRE) will release the new TURPE 7 tariff structure in January 2025, covering the period through 2028. Aurora has modeled several investment scenarios for batteries, considering this new tariff structure. One of the key features of TURPE 7 is an optional network tariff for batteries, which will apply different rates depending on whether an asset consumes in a high-production area or generates in a high-consumption area.

Aurora estimates an additional 2% increase in IRR above the reference case, driven by consumption during peak production periods. However, batteries located in high-consumption areas are not expected to experience significant benefits, as higher import tariffs would offset revenues during peak hours.

In August 2024, RTE, the French transmission system operator, released the specifications for the Appel d'Offres Flexibilités Décarbonées tender, which offers financial incentives for demand response and storage assets with durations exceeding four hours. This tender includes a fixed premium added to capacity market revenues but restricts participation in ancillary services (FCR and aFRR), which could affect investment scenarios. France and Germany together represented 72% of the FCR needs in 2023.

If the proposed TURPE 7 tariff, currently in public consultation, is implemented, it could create significant opportunities for batteries in high-production areas. As this tariff is optional, understanding the different tariff structures available in various locations will be key for battery investors seeking to optimize returns. While ancillary service revenues currently play a vital role in the battery business, increased market competition may saturate these opportunities over time, making long-term strategic planning essential for success.