Tolling Agreements in the UK Energy Sector

The first tolling agreement example in the UK emerged recently between Gresham House and Octopus Energy. This collaboration highlights how tolling agreements can help align operational goals and financial incentives, optimising energy dispatch and storage in response to market conditions. As the country strives for a low-carbon future, energy companies, investors, and policymakers are turning to data-driven solutions like tolling agreements to support a more sustainable and resilient energy grid.  

What are tolling agreements? 

In simple terms, a tolling agreement is a contractual arrangement between two parties that grants one entity the right to use another’s asset. In these agreements, the “toller” (often an energy company or investor) can utilise the storage or generation assets owned by another party, usually paying a fixed or variable fee for the service. Unlike traditional power purchase agreements (PPAs), which are based on purchasing electricity at a pre-agreed rate, tolling agreements provide flexibility, allowing tollers to time their energy purchases and storage releases to maximise profitability and respond to market demand. 

Why tolling agreements are on the rise in the UK 

Several factors are contributing to the growing popularity of tolling agreements within the UK energy sector: 

1. Decarbonisation and renewable integration: As the UK transitions toward net-zero, renewable energy sources are becoming more integral to the energy mix. However, renewables come with intermittency challenges, as their output is highly dependent on weather conditions. Tolling agreements offer a flexible way to manage and distribute renewable energy, enabling storage solutions like BESS to provide consistent power during periods of low renewable generation.
2. Grid flexibility and stability: With renewable energy sources creating fluctuating power supply levels, the UK grid requires a high degree of flexibility to prevent disruptions and balance supply with demand. Tolling agreements offer a way for energy providers to store excess energy during low-demand periods and release it during peak times, maintaining grid stability and helping avoid energy shortages or blackouts.
3. Revenue optimisation: Tolling agreements present energy providers and investors with the opportunity to optimise their revenue by aligning energy storage releases with market pricing. By leveraging data and AI-driven insights, companies can strategically store energy during times of low demand and release it when grid prices are highest, maximising profit margins. 

Key benefits of tolling agreements  

Minimising energy waste through smart storage optimisation 

Tolling agreements allow companies to store surplus renewable energy during periods of low demand and release it strategically when demand and pricing peak. This reduces energy waste, supports grid reliability and enables providers to capitalise on stored energy by releasing at the most profitable times. 

Meeting the demand for affordable, reliable energy 

Tolling agreements also play a role in making energy more accessible and affordable. By optimising when energy is stored and released, these agreements can help providers balance supply and demand more effectively. This supports the integration of renewable energy sources, aligning them with consumer needs and reducing the risk of price hikes during high-demand periods. 

In addition, by capitalising on market fluctuations through tolling agreements, providers can pass cost savings on to consumers. This leads to lower energy costs and greater reliability, contributing to making energy more accessible and affordable. 

The role of data and AI in supporting tolling agreements 

Data and AI are at the heart of the tolling agreement model. By incorporating AI-driven insights, energy providers can make better-informed decisions about when to store and release energy. Here’s how AI and data analytics drive the effectiveness of tolling agreements: 

• Load forecasting: Predictive load forecasting allows energy providers to anticipate high-demand periods, enabling them to make enhanced decisions about the most profitable times to both charge and release. 

• Dynamic scheduling: AI-based scheduling tools can analyse market trends and grid requirements in real-time, optimising the timing of energy releases. 

• Risk mitigation: Data analytics help providers and investors reduce exposure to market volatility by identifying stable revenue opportunities and managing energy storage risks. 

Tolling agreements and investor appeal 

The predictable revenue streams offered by tolling agreements make them particularly appealing to investors looking for stability and growth. By enabling energy providers to offer both stable income through contracts and potential upside via market exposure, tolling agreements allow investors to diversify their portfolios and hedge against energy price volatility. 

For investors focused on sustainable assets, tolling agreements also highlight the value of BESS in delivering reliable, renewable energy, aligning with environmental, social and governance (ESG) goals. By attracting capital investment through these agreements, the UK energy sector can continue to build out renewable energy infrastructure and move closer to net-zero. 

The future of tolling agreements in the UK energy market 

Looking ahead, tolling agreements are poised for substantial growth in the UK as the energy market evolves to incorporate more renewables and grid flexibility. Additionally, with growing policy support for low-carbon and renewable energy sources, tolling agreements can provide the financial stability needed to support the long-term growth of BESS and other energy storage solutions. The UK government’s ongoing commitment to reducing carbon emissions and supporting sustainable energy innovation makes tolling agreements an attractive option for energy companies and investors alike. 

If you’re interested in learning more about the innovations shaping the future of energy, and how Hypercube can help both BESS and energy organisations, explore insights from industry leaders on the Hypercube Podcast or contact our team for a no-obligation chat.