What you (the seller) know today
Until the new connection offer arrives, nobody knows which connection date it will bring. Even after it arrives, much stays uncertain: the connection date can still slip, and the curtailment, the cost of the connection works and battery revenues aren’t known until nearer the build. A buyer bidding today has to allow for all of this. If you wait, you carry the risk until you sell.
Waiting lets you sell once the new connection offer has set the connection date, at a higher price if it brings the date forward to 2028. But waiting costs you more than it costs a buyer. Your cost of money (WACC) is 12% a year in real terms, against buyers’ 8%, so money now is worth more to you than to them. And a larger buyer can keep the project for about £40,000 a quarter, against your £50,000.
- The projectA 50 MW battery with planning consent for up to four hours of storage (200 MWh), and a grid connection agreement for July 2030
- The new connection offerYou expect it to give a connection date of July 2028 (30% chance), July 2030 (50%) or July 2033 (20%)
- When it arrivesYou put the chance it has arrived at 20% within 3 months, 50% within 6, 65% within 9 and 75% within 12
- If it doesn’t comeYour current agreement carries on, with its July 2030 date, which can still slip
- Keeping the projectCosts you £50,000 a quarter. It would cost a larger buyer about £40,000 a quarter
- Walking awayCosts £150,000, the network’s cancellation charge of £3,000 per MW. This example has no commitment fee or deposit.
The reform’s commitment fees aren’t final yet. One, CMP470, is still a proposal that Ofgem is consulting on. The other, the Progression Commitment Fee, hasn’t been triggered. The engine can include either, and the study we run for your project can work out the answer both with and without them.
- SellingAdvisers’ fees of 1.5% of the price plus £50,000 of legal costs, and in any quarter a 1 in 20 chance that no buyer turns up
- Cost of money (WACC)Yours is 12% a year in real terms. Buyers’ is 8%
How the answers are worked out
QueueQuant’s engine answers your questions in five steps. Steps 1 to 3 work out what buyers would pay for the project, whatever date the new connection offer brings. Steps 4 and 5 then compare selling now with waiting, using your own view, as the seller, of the chances and your costs.
Map how the new connection offer could turn out
This step maps when the new connection offer could arrive over the coming year, and which connection date it could bring. Whether to sell now or wait depends on these chances.
The year is split into quarters. In each quarter, the new connection offer either arrives, with one of the three connection dates, or it doesn’t. The engine prices every box where the outcome is known. Each “New connection offer” box holds three cases, one for each connection date. With the “No new connection offer” box at 12 months, that makes 13 cases. The other boxes, where you’re still waiting, are worked out from these in Step 3.
Play out the coming year once to follow one path through the map, or 1,000 times to see the chances at work.
Scroll sideways to see the whole year.
Percentages are chances from today. Each new connection offer brings 2028, 2030 or 2033, with chances of 30%, 50% and 20%.
What to notice. In the example, there’s a 25% chance that no new connection offer comes this year. Then your current agreement carries on, with its July 2030 date. The last of the five bids at the top of the page is for that case.
In a study for your project, these chances are your own judgement, which we help you set. For the timing, we start from Ofgem’s and NESO’s published timetables for your offer’s phase. For the connection dates, we start from the dates published for your area and the date you expect. When your network operator writes to you, for example with a date for your new connection offer, we update both sets of chances to match.
Here, the chance that the new connection offer has arrived is 20% within 3 months, 50% within 6, 65% within 9 and 75% within 12. It brings July 2028, July 2030 or July 2033, with chances of 30%, 50% and 20%.
The chance slider at the top of the page sets the chance for the first 6 months. The second half of the year keeps its own chance. If no new connection offer has come within 6 months, there’s a 50% chance it comes in the next 6. Moving the slider changes your view, not the buyers’: their bids are still worked out with a 50% chance.
How the engine prices one case
This step shows how the engine works out what a buyer would bid in one case. Every bid on this page comes from bids worked out this way.
Take one case from the map: the new connection offer arrives in 3 months, with a 2030 connection date. What would a buyer bid for the project then? Nothing is built yet. So the buyer is bidding for the right to build a battery at this connection, and for the choices that come with it. The engine values those choices by planning the project, as a buyer would, across 4,000 possible futures.
What happens after the sale, and when things become known
The sale
- Known
- The connection date in the new connection offer: 2030.
- Decided
- How many of the 50 MW to keep (here, all 50). Any not kept are handed back to the network.
- Money
- The bid. The buyer takes over the agreement and the deposit lodged with the network.
Holding
- Money
- Connection charge payments as they fall due, deposit top-ups and bank fees, land and advisers.
The build decision
- Known
- Whether the connection date has slipped, the network’s curtailment estimate, the cost of the connection works still to pay, the market outlook and whether another buyer would take the project on and the market outlook.
- Decided
- Build, 2 or 4 hoursSell the project onDrop it
- Money
- The battery is paid for in stages from the order. Dropping the project pays the cancellation charge from the deposit.
Connection
- Known
- A late slip in the connection date, which can leave the battery built but idle, a curtailment surprise, how strong the market turns out, and the Capacity Market price and whether the project wins an agreement.
- Decided
- Nothing. All of this arrives after the battery is ordered.
Operation
- Money
- Trading income and Capacity Market payments, less running costs, network charges, a top-up to keep the battery’s capacity as it ages, and decommissioning.
The engine makes one build decision for each way the connection could go. That decision holds in every market future that follows, because when the buyer decides, the market’s ups and downs are still to come.
The 4,000 futures
The engine plays out 100 ways the connection could go, each bringing different news by the build decision. Each is played against the same 40 market futures, from the weakest market to the strongest. In the chart, each row is one connection outcome and each cell one future. The colour shows what the project is worth to the buyer there, in money at the date of the bid.
Where the engine drops the project or sells it on, the resultloss is the same in every market future, so the whole row is one colour. Click a row, or step through them, to see what the buyer knew there and why the engine chose as it did.
The thin band on the left of each row shows the engine’s choice for that outcome: teal for build, amber for selling on, brown for drop.
From 4,000 results to one bid
Each row ends with one value. It’s 0.75 of the average over the row’s 40 market futures, plus 0.25 of the average of its 2 worst, the worst 1 in 20. At each row, the engine makes the choice that gives the highest value. The 0.25 is the buyers’ weight on the downside, which reflects their risk appetite. Move it below to see how this bid changes. Your own weight, as the seller, comes in Step 4.
The engine then combines the 100 rows the same way: 0.75 of their average, plus 0.25 of the average of the 5 worst. The result is the bid: the most a buyer wanting 8% a year, and weighing the downside this way, would pay.
The ± figure is a 95% band. The engine works out each bid from 100 connection outcomes, not every possible one. The band shows how far the bid could be from the figure it would reach with far more outcomes.
In a study for your project, we also re-check each bid on fresh futures that weren’t used to work it out. If a bid moves by more than its band, we find out why before you get the results.
What to notice. At the buyers’ weight of 0.25, the bid sits well below the average of the outcomes, because the worst outcomes count for more. At that weight, switching to “Build whatever happens” lowers the bid. The right to drop the project where the news is bad is worth money to a buyer.
Why 100 outcomes and 40 futures? With these numbers, the worst 1 in 20 is a whole number: the 5 worst outcomes and the 2 worst futures. In our tests, using more than 40 futures barely moved the bid. The 100 outcomes set how precise the bid is, which its ± band shows. More outcomes would narrow the band, but each run would take longer.
The 100 connection outcomes aren’t picked at random. Each uncertain quantity, such as how late the connection is or how much curtailment to expect, has its range cut into equal-chance slices. Every slice is used once. Each quantity is shuffled on its own, and the outcomes are read off down the columns. Here it is with 10 outcomes instead of 100.
The 40 market futures are placed on purpose too. They run evenly from the weakest market to the strongest. So the 2 weakest are exactly the worst 1 in 20, the slice the weight on the downside looks at. Other surprises, such as an extra delay, use their full range but sit with middling markets. So a weak market and a long delay don’t land on the same future by luck. Compare it with random placement.
That’s one case. The engine prices all 13 cases this way, on the same futures. So the differences between the cases come from the new connection offer, not from luck.
Price every case the same way
This step prices all 13 cases the way Step 2 priced one. They’re the bids you could sell at later: once the new connection offer has come, or at the end of the year without one.
Today’s bid, and the bids while no new connection offer has come, are then built from these.
What buyers would bid in each case
By when the new connection offer arrives and the connection date it brings. The ± figure is each bid’s 95% band (see Step 2).
The shaded cell is the case in Step 2.
What to notice. The connection date makes the biggest difference. If the new connection offer arrives in 3 months, buyers would bid £5.12m for a 2028 date but £2.82m for 2033. For the same connection date, the bids rise each quarter. The project is a quarter nearer, and there’s one less quarter of holding costs to pay. The 2028 bids rise faster still: a later sale means a later battery order, so the battery spends less time built but idle if the connection slips.
Today’s bid is worked back from the end of the year, one quarter at a time. Take 9 months, with no new connection offer yet. In the next quarter, the new connection offer could come with one of the three connection dates, or the year could end without one.
A buyer takes the average of the bids in those cases, using their chances. They weigh it against the average of the worst 1 in 20, with the same weight on the downside, 0.25. They then take off a quarter of holding costs, about £40,000, and allow for a quarter of their 8% a year cost of money. That gives the bid at 9 months.
The engine repeats this for 6 months, 3 months and today. Buyers use a 50% chance of a new connection offer within 6 months throughout, the same as you’ve set.
Compare selling now with waiting
This step answers the question: sell now, or wait? It uses the buyers’ bids from Step 3, and your own view, as the seller, of the chances and your costs.
The tree below has the same boxes as the map in Step 1, one for each point in the year. At each box, the engine compares two things. One is selling at the buyers’ bid, less the selling costs of 1.5% of the price plus £50,000. The other is paying for another quarter and waiting. The selling figure allows for the 1 in 20 chance that no buyer turns up and you have to try again. The engine starts at the end of the year, where you must sell or walk away, and works back to today.
Move the sliders to your own view, and click any box to see the comparison behind its answer.
Selling today, you’d receive £3.306m after costs. Waiting is worth £3.275m to you, so selling comes out £31k ahead.
Below this, you’re better off waiting. After the selling costs, a lower bid would leave you less than the £3.275m waiting is worth to you. Buyers would bid £3.41m.
If you wait, about 96 times in 100 you end up with more than the £3.306m you’d get by selling today, and about 4 times in 100 with less. But when waiting goes wrong, it goes badly wrong: the worst 1 in 20 outcomes leave you with about £2.70m on average. Your weight on the downside (0.25) makes those outcomes count for more, which brings waiting’s worth down to £3.275m, just below the £3.306m from selling today.
The engine works back from the end of the year, one quarter at a time. At each box, it compares selling there with waiting another quarter.
To value waiting, it takes each case the next quarter could bring, and the best you could do in it. It averages those at your chances, and weighs the average against the average of the worst 1 in 20, using your weight on the downside. It then takes off a quarter of your holding costs, and allows for a quarter of your cost of money.
Today’s box gives what waiting is worth to you. Because the weight is applied at each quarter, that figure isn’t the same as weighing waiting’s overall average and worst 1 in 20 once.
Each box shows the best thing to do there, and what buyers would bid. “Hold” means keeping the project another quarter. “Depends” means the answer differs by connection date. Click a box to see the comparison behind it. Scroll sideways to see the whole year.
What to notice. In the example, waiting doesn’t mean waiting all year. The best plan of waiting gives the new connection offer 3 months to arrive. If it hasn’t come by then, you sell. Click that box in the tree to see why.
Find the switch points
This step finds the switch points: the value of each input at which the answer changes between selling now and waiting. They show how sure you need to be about each input before you act on the answer.
Nobody knows these inputs for certain. So a study for your project gives each switch point in plain words, and you judge which side of it your own project is on. With the settings above:
What to notice. Look for the switch point closest to your own setting. The closer it is, the more the answer depends on getting that input right.
For each input, the page tries values across a range, with your other settings held where they are. The ranges are:
- the chance: 0% to 100%;
- the cost of money: 2% to 30% a year;
- the cost of keeping the project: £0 to £400,000 a quarter;
- the weight on the downside: 0 to 1.
Where the answer changes between two neighbouring values, the page halves the gap again and again until the switch point is pinned down. An input can have more than one switch point. In the example, the chance has two: “Why does waiting win at both ends?” at the top of the page explains them.
Each Try button moves that slider to the nearest setting where the answer changes.
The answer depends on where you differ from buyers
Buyers bid today for the chance of a good new connection offer, at the odds they see. If you saw the chances and costs exactly as they do, selling and waiting would come out about level, with waiting £34k ahead. This seller’s money costs 12% a year, against buyers’ 8%. Keeping the project costs £50,000 a quarter, against £40,000. So selling wins, narrowly.
Waiting wins when you differ from buyers in a way that counts. Your letters from the network may tell you more than buyers know about when the new connection offer will come. Or money may cost you less than it costs them. Step 5 shows how far each would have to move.
What we’ll work out for your project
A study for your project uses your own connection offer and letters, the network’s curtailment assessment, your costs and a market forecast. It prices the project for two kinds of buyer, a typical one and a cautious one. So you can see how much the answer depends on who bids.
The lowest bid to accept now
The bid below which you’re better off waiting, allowing for the costs of the sale.
A fair fixed price with an uplift
If you sell now, with an extra payment (an uplift) should a good new connection offer arrive: the fixed price that’s fair to both sides.
What waiting is likely to be worth
The spread of what you could end up with if you wait, with its downside and the chance of ending below a sale today.
How long to wait before giving up
The point after which selling without the new connection offer beats waiting any longer for it.
We will give you a report where every input is listed with its source and the switch points are given in plain words. One re-run after your comments is included. The report is decision support. It isn’t investment advice or a formal valuation.