Financing battery storage+renewable energy

November 22, 2017 10:18 am Published by Leave your thoughts

Horizon Power is leading the delivery of renewable energy solutions in remote and regional Western Australia, with installation of the first utility-standard Stand-alone Power System (SPS) in Western Australia’s north.

2017 saw a raft of state-run tenders launched in Australia for utility-scale storage development, driven by the rapidly falling costs of batteries, high wholesale gas prices and blackouts in South Australia.  This has led to many developers, governments and utilities to view battery storage, combined with wind and/or solar, as cheaper than alternative forms of generation.

Given the country’s rich solar resource, hybrid-solar photovoltaic (PV) + storage projects are a natural progression for a number of developments in the pipeline. Norton Rose Fulbright advised on the Lakeland solar PV and storage project, located at the fringe of Ergon’s grid in Northern Queensland, which is an example of this hybrid approach. It has an installed capacity of 10.8MW combined with a 5.3MWh battery storage system.  The project has received both a funding grant from the Australian Renewable Energy Agency and debt financing from NordLB.

As energy storage gains importance in the electricity mix, the question of how to finance energy storage installations increases in importance.  Here, we briefly consider some of the key issues for financing hybrid storage projects.

At any scale, financing storage assets will require getting comfortable with technology risk. Mitigants include creditworthy suppliers standing behind extended contractual warranties, together with a robust operation and maintenance agreement from a reputable provider. We are seeing firms such as AES Energy Storage, Stem, Renewable Energy Systems, Advanced Microgrid Solutions enter the market.

When combined ‘behind the meter’ with renewable generation, the addition of storage may allow variable output to be smoothed, imbalance costs to be reduced and new revenue sources to be accessed (although this will depend on the relevant electricity market, technology performance parameters and project size). Investors will want the flexibility to stack revenues, perhaps relying on different income sources at different times of day or year, whilst financiers will wish to see a longer-term base contracted revenue-stream to under-pin the debt repayment.

The interface of the storage revenues with those of the renewable generating asset will need to be considered early-on. Will the storage system sell its power together with the renewable generating unit or will the storage unit buy power at arm’s length from the renewable generator and the grid, and sell power on its own account? How will any applicable renewable power support regime be affected? Will the generation project lose entitlement to any material green benefits?

Ownership structures should also be determined upfront. The battery array may be owned by the same special purpose vehicle as the generation project, or may be established under its own vehicle with separate contractual arrangements and its own independent revenue sources (albeit purchasing power from the renewable generator). The Lakeland solar and battery assets are owned by the same vehicle, which reduced the number of interfaces and ensured the debt financing process went smoothly. Even a discrete storage project on the same site will necessarily be co-dependent with the generation project, sharing land rights, permits, grid connection arrangements, and perhaps also metering and operation and maintenance agreements.

The co-location of storage + renewable generation is still in its infancy, with business models under development and financing terms yet to crystalise into standard market practices. One of the features of the Lakeland project is a Knowledge Sharing Plan (KSP) which involves all of the key stakeholders. The outputs of the KSP will be made public with the intention of sharing lessons learned and helping the market develop new business models for solar+storage projects. The accumulation of learning, combined with the falling costs of renewables and batteries, and the imperative of balancing the electricity system, means that the opportunities for hybrid sites in Australia will gr