There are several challenges that must be dealt with when considering retrofitting or co-locating battery storage at existing renewable facilities, writes Ross Fairley
Co-locating battery storage and renewables is not a simple proposition
Credit: National Grid
In August the UK’s National Grid announced which companies had been successful in its first tender for Enhanced Frequency Response (EFR) – a service that achieves 100 per cent active power output at one second (or less) of registering a frequency deviation.
Everyone knew the tender was likely to be competitive with a host of new entrants, utilities and different schemes bidding, but very few expected the winning bids to put forward prices ranging from £7-12 ($9-15)/MWh.
The low pricing resulting from the tender will be heralded by National Grid as a huge success and must surely prompt it to run further tenders in the near future to take account of the competitiveness of the sector. Let’s face it, there are a whole variety of “ready to go” storage projects that did not receive EFR contracts and many will be tempted to bid again. Of the projects that were successful and those that failed in the first auction, there are a number that are due to be co-located on existing renewable energy sites.
The logic of locating battery storage on these existing renewables sites is fairly obvious. The purpose of the EFR tender itself, according to National Grid, was to help balance and manage the system, partly as a result of the increased intermittent generation that it has developed into the UK energy mix over many, many years.
If battery storage can help manage that intermittency and can be co-located with renewables projects, it can only help the project developers, National Grid and the wider growth of future renewables projects in the UK. One of the criticisms consistently levelled against the renewables sector, and often overplayed by its opponents and objectors, is the intermittency factor. Anything which combats that intermittency will be useful from a PR and a political perspective, as well as contributing to the economics of projects.
That said, co-locating battery storage on existing renewable energy sites is not the simple proposition that it first seems. Experienced renewable energy generators and those within the energy market who understand energy trading will appreciate that there are a number of factors that need to be considered. All of these factors can be managed, leading to very successful storage sites and renewables projects with enhanced revenue streams.
To start with the basics, most renewable energy sites are leased from a landowner. Indeed, landowners have previously profited considerably from the location of solar and onshore wind projects for many years.
There are a variety of renewables sites that have leases in place and the terms of those will vary in complexity and foresight, often dependent on when they were first drafted. It is very easy to overlook what are relatively small battery storage facilities and consider that they can just be added to a site quite easily.
However, land rights are crucial and the leaseholder or renewables developer will need to think very carefully about whether the existing lease allows for the addition of battery storage on the site. That, of course, is assuming that it is the existing renewables developer with the lease that is adding the energy storage facility, and that that storage facility will not be operated by a separate entity. If a separate entity is requiring a lease, that’s a whole new negotiation.
Either way, it is likely that the landowner will need to be approached, either for variation to the existing lease or a brand new property right allowing for battery storage. It is very important to assess the bandwidth of the lease that a developer holds over the site.
Once the real estate rights have been sorted out, we then need to turn to the issue of whether the site has consent for battery storage. It is possible that the existing planning permission for the renewables development will be wide enough to include battery storage, but it is unlikely. Therefore, alterations to the existing planning permission will probably need to be made or a separate planning permission applied for.
One would hope that these variations or a new application altogether would not be controversial, but in these days of very strict grace period qualifications under the Renewables Obligation and its closure to solar and onshore wind projects, the renewables developer has to be very careful that there are not unwanted consequences triggered by such an application or variation. Battery storage is still classed by the regulators, rightly or wrongly, as generation.
Renewable power may find its way to the grid via a battery storage system
Credit: National Grid
In fact, this is one of the areas where the regulation needs to be re-examined, and this is currently underway. Whilst it is treated as generation, there is the possibility that an application for planning permission for battery storage could be viewed as an extension to the generating facility on-site.
It is probably fair to say that it is better that the storage solution is treated as a separate installation with separate planning permission required, but that in turn requires separate applications in a timescale that doesn’t necessarily fit with the requirements of the battery storage business and developer in reacting quickly to take advantage of National Grid ancillary service tenders, or in building out to the milestones under any awarded contract.
Experienced renewable energy developers will understand this, and will have devised a consenting strategy which will not hinder the existing installation and will make the planning process as slick as it possibly can be for the battery storage project.
Before going any further, it is probably worth pointing out that for projects that have been bank-financed, there may be a considerable hurdle to overcome before the installation of battery storage on the site can commence. Developers that have had the luxury of being able to develop the projects on balance sheet without external project finance are in a really strong position here. Imagine a solar or onshore wind project that has been project financed and is making healthy returns and repaying debt as scheduled under the loan agreement. The big question to ask in those circumstances is why would a funder want, or be encouraged to, change the project or alter it in any way?
Even if the battery storage itself was treated as a separate installation, there may well be impacts on the renewables site in terms of downtime for connections or problems over leasing and land arrangements with the landowner, which would all point to potential complications for the existing project and for the funder who is quite happy with the renewables project as it stands. Doing anything to the existing project is almost certainly going to require the funder’s consent, so there is probably an element of persuasion needed in order to fit the battery storage to the site.
One of the key advantages of co-locating battery storage units at existing renewables sites is the ability to maximize the use of the grid capacity at the site which, invariably, the renewables project will not be fully utilizing. As most of the renewables sector will tell you, the prospect of opening up existing grid capacity by installing storage is a tempting prospect and, in some cases, is being looked at very carefully by the Distribution Network Operators (DNOs) themselves to overcome constraints and the cost of upgrades to the system.
Former UK Energy Secretary Amber Rudd visits an energy storage facility
Credit: UK Power Networks
Grid connection is a highly technical area and is not necessarily one for the lawyers, but what we can say is that there are detailed grid connection requirements pursuant to many of the ancillary service contracts. These need to be very carefully considered to see whether the grid connection is fit for purpose for battery storage as well as the renewables project.
If the battery storage project is going to be viewed as a separate project within a separate company, there will also need to be consideration as to how the grid connection at the site can be separated out with different design and metering solutions. Where the project companies are different, there ought to be some thought as to what contracts need to be in place between the two companies in terms of shared grid arrangements.
What if the battery storage company does something to hinder the grid connection of the renewables project at the site? What compensation is payable and how is that managed? Shared grid connection arrangements are not simple beasts and, having worked on a number of these for neighbouring solar and wind projects over the years, they need to be carefully thought through. The consequences of one of the shared projects going bust while holding the grid connection – or affecting the other project – needs to be properly evaluated, particularly if funders are involved in either of the two facilities.
Incentives and support mechanisms are, as we know, a crucial part of historic renewables projects. Whilst the subsidy regimes for on-shore wind and solar have been restricted down and, in some cases withdrawn in recent years, many of the existing renewables sites will still be accredited under the feed-in tariff or Renewables Obligation, and that will be crucial to the income that the project and the landowner are obtaining, as well as the repayment of funder’s debt.
We have already looked at the issues surrounding debt-funded projects and the concerns that lenders would have of any prejudice to the existing project they have lent to, but if there is any prospect at all of a battery storage unit prejudicing the revenues to be received from the existing renewables projects, then a solution for all needs to be found.
As well as the classification of battery storage being open to debate, National Grid and UK energy regulator Ofgem are aware of the concerns surrounding loss of incentives for generation which is used to charge batteries on-site.
What will be crucial for the further development of storage, renewables and the UK energy mix in years to come is a sensible approach that gives all parties clarity that renewable generation remains classed as renewable, notwithstanding that it may find its way into battery storage and to the grid via the battery.
The existing renewables project will almost certainly have a power purchase agreement (PPA) in place. The PPA offtaker will have entered that contract modelling the generation and the associated Renewables Obligation Certificates it would obtain from that generation. If there is any prospect or intention that renewables generation is filtered away from the renewable energy generating station into battery storage, the PPA provider will probably be concerned.
The PPA will almost certainly contain provisions that constrain the implementation of battery storage on a site, probably not expressly but through various consequential clauses. If there is going to be a link between the renewable generating facility and the battery storage unit, there will probably need to be discussions with the power offtaker of the facility to understand its perspective on whether amendments need to be made to the PPA. On a financed project, all roads for variations of any contract lead back to the funder and any amendments to the PPA will need to be approved by them as well.
Ultimately, with storage in its infancy and the technology developing fast, batteries pose a real opportunity for the UK energy market and should be here to stay. We will see more EFR and ancillary service tenders being run by National Grid, but they are not the be-all and end-all for battery storage developers.
The revenues that can be derived from battery storage units are wide-ranging, and it is key to any battery storage investor and operator to understand how those revenues stack up and which ones are mutually exclusive. For those, however, looking at installing storage on existing renewables sites, the above will hopefully provide a useful checklist. A number of projects have already addressed these concerns and have come out the other side, so the future for storage is exciting.
Ross Fairley is a partner in the Energy, Power and Utilities team at independent UK law firm Burges Salmon LLP