UK energy storage: all eyes set to co-location with solar plants

The Solar Trade Association’s (STA) event titled “Storage: Market Access and Systems Integration” that took place this week in London offered insight into the various forms and usages of energy storage projects, ranging from projects behind-the-meter (e.g. residential batteries), to projects built aiming purely at the ancillary services market (e.g. offering frequency response services) or projects co-located with existed or new renewable energy plants.

The solar PV industry is very keen on this last category, especially after the recent commission of the UK’s first subsidy-free solar PV plant co-located with a battery storage facility.

There are many challenges when retrofitting an energy storage component in to an existing solar power plant though. Luke Hargreaves, head of renewables at Great Britain’s energy regulator Ofgem, told the event that the feed-in tariff (FIT) scheme defines in detail where the generation and export meters of a solar PV installation should be placed, and therefore there is very little room to adjust.

However, Hargreaves added, there is more room to consider changes under the Renewables Obligation (RO) scheme, which is the policy supporting the majority of the large-scale PV plants in the UK. Ofgem is currently in collaboration with renewable energy industry stakeholders to define viable configurations of renewable energy and storage plants. Such configurations need perhaps to be innovative regarding where generation and export meters are placed, but at any case, Hargreaves said, investors need to take into account the RO definitions, so they don’t loose their projects’ RO accreditation.

Paul Barwell, STA’s CEO, commented that investors are not only mindful of not losing their RO accreditation, but also examine how they can add a storage component to their plants while at the same time dealing with the commercial arrangements they have in place (e.g. a power purchase agreement agreement with a customer).

Ofgem’s senior economist Chiara Redaelli told the event that Ofgem will publish a formal guide of co-locating storage with renewable energy projects by the end of the year. Ofgem does have a plan to facilitate energy storage investments, Redaelli said, but we know that business models keep changing and consequently we also need to keep in touch with the business developments and improve our current plans further.

Finance costs

Answering a comment from the floor that finance costs are presently prohibiting many energy storage projects being built, Katherine Vinnicombe, investment manager at Foresight Group, an investment firm with a large portfolio of solar PV plants in the UK, said that the industry will not experience finance costs as low as with solar investments until now because of the merchant risks. We need to wait until revenue streams for building storage projects become clearer, reducing the cost of finance, she added.

Earlier in her presentation, speaking about energy storage projects in general, not specifically for co-location projects, Vinnicombe had argued that bankability of ancillary service revenues is an important factor that can drive investment. Financiers, noted Vinnicombe, want to see a significant amount of a project’s capex paid within the first years. For this reason, regulatory clarity is pivotal.

With regards to co-location projects specifically, most seminar presenters seemed to agree that transparency about profit sharing arrangements (e.g. between the power generator and the storage operator) and certainty in the RO and power purchase agreements also reduce financial risks and lead to bankable projects.

Given the many synergies, such as existing infrastructure, between storage and built renewable power facilities, Vinnicombe suggested that co-location projects will happen quicker than stand-alone storage projects.