Statkraft and SSE complete industry-first swap transaction on Modo Energy battery revenue index

Statkraft, a leading provider of market access and optimisation services, has completed an industry-first financial swap with SSE, a leading generator and optimiser of renewables and flexible energy in the GB and Ireland markets, based on Modo Energy’s ME BESS GB (2H) Index.

The Modo Energy BESS GB (2H) Index provides a measure of the revenue performance of operational two-hour utility-scale battery energy storage systems (BESS) in Great Britain. It is the first FCA-regulated battery energy storage revenue index of its kind.

Under the transaction, Statkraft bought the index and SSE sold it.  The swap is a transaction based on the ISDA framework. Statkraft pays SSE if the index value is below the agreed strike level, and SSE pays Statkraft if the index value is above the agreed strike level.

This transaction secures a fixed revenue stream for a portion of the battery capacity for SSE, while enabling Statkraft to gain additional battery exposure for its portfolio.  As experienced trading counterparties, both parties are comfortable participating on either side of this type of transaction.

In the current market there are several deal types which attempt to replicate the wholesale market trading operations of a physical battery, such as TBx (Top-Bottom) spreads and Virtual Batteries. However, these do not capture other key revenue streams of a battery such as ancillary services, balancing mechanism, and capacity market. 

This deal is different, as the Modo Energy Index targets the full revenue stack, and therefore the profitability of physical BESS, with a stronger correlation to the actual revenue of the physical battery assets in Great Britain.

This is the first swap completed on any Modo Energy index, and is another example of the market innovation in support of the energy transition which Statkraft is known for. 

Duncan Dale, Statkraft’s Head of Origination for UK and Ireland, said: “As the UK’s leading energy transition trader, Statkraft is at the forefront of what can be achieved on behalf of our customers. These types of deals enable asset owners to effectively risk manage their assets by locking in a percentage of the output when prices are considered to be high. 

“That’s why we’re pleased to have completed the first battery index deal with SSE, which we see as the first of many. Statkraft is highly active in the energy transition trading space and intends to be a key player, trading around its 9,000 MW portfolio.”

Gordon Bell, Managing Director of SSE Energy Markets, said: “As one of the UK's leading energy traders and route-to-market providers, SSE Energy Markets is committed to developing innovative solutions that help participants manage risk and unlock investment in flexible energy infrastructure. 

“This transaction demonstrates the growing maturity of battery storage as an asset class and provides a new way to manage exposure to battery revenues. We're delighted to partner with Statkraft on this first-of-its-kind transaction, which we see as an important step in the development of deeper and more liquid battery revenue markets.”

Quentin Scrimshire, CEO & Co-Founder of Modo Energy, said: “This swap - the first of its kind, executed on our FCA-regulated ME BESS GB (2H) Index - is a clear signal that the global battery energy storage market has matured. We have long expected batteries would be hedged, traded and valued using the types of deals and instruments we see across established financial markets. After helping developers and asset owners finance billions of pounds worth of new assets, we’re proud to see this key energy transition infrastructure given further long-term revenue certainty, critical for making them investable at scale.

“We are proud and excited that Statkraft and SSE, both long-term users of Modo Energy’s benchmarks and forecasts, have taken this step forward - and we expect to see more of the market follow suit quickly. These types of deals give renewable and battery offtakers another way to manage portfolio risk. Because our indices capture a battery's full revenue stack - not just wholesale spreads - they roughly halve the basis risk of hedging against a day-ahead spread, letting an asset owner lock in a fixed revenue stream for battery capacity with a hedge that genuinely tracks their assets."