Building bankable utility-scale solar+storage projects


In a pv magazine webinar last month, powered by Sterling & Wilson, we discussed the bankability of utility-scale solar PV + energy storage projects and identified the key strengths and weaknesses of various business models.

Specifically, Vikas Bansal, Head, Business Development – International Solar at Sterling and Wilson, discussed the key components responsible for building bankable solar+storage projects, and went through a SWOT analysis from the perspective of developers and lenders.

Following on, Munich Re’s Marc Bednarz, Head of Green Tech Solutions APAC and Ronald Sastrawan, Director Green Tech Solutions shared their perspectives on the conditions required to make such projects insurable.

Due to the high level of audience participation, many questions could not be posed during the webinar. They have now been answered below.

Q: Which factors make combined solar PV+storage profitable?

Sterling & Wilson: Profitability is a subjective phenomenon, however below are some important factors one should consider when assessing the commercial viability of a solar PV+storage project:

  • The clarity and predictability of the use case of storage
  • The scale of deployment and number of backup hours
  • The value of the stored energy (displacement of diesel/KWh or offsetting the costly energy in peak times)
  • The quantification and allocation of each risk to the right party

Please also refer to slide 4 of the PPT (above) in this regard.

What is the cost of utility-scale solar PV+storage in terms of $/MW?

The cost of PV can be assessed in terms of $ per MW, but the cost of storage must be measured in $/MWh. It also depends upon the use case identified and the factors mentioned in Q1. Please refer to slide 6 of the PPT (below).

How can you simulate the differential revenue streams obtained from storage systems (other than time shifting)?

 There are some simulation and revenue stacking tools available in the market. But they are not widely used. Since there is no standardized and unified simulation tool available, seasoned EPCs like Sterling & Wilson have developed their own to simulate differential revenue streams obtained from storage systems for variety of use cases. Please refer to slide 5 (below) and 6 of the PPT.

At what tariff will PV+storage projects be viable for C&I customers?

 The viability of such PV+ storage projects for C&I consumers depends on various factors like:

  • The use case of the storage
  • The cost of the charging energy (utility/solar/gas)
  • The diesel price (if the application is diesel displacement)
  • The duration of the back up by the storage system

Depending on the above factors, the LCOE changes for PV+storage plants. Please refer to slide 6 of the PPT.

For projects in unsubsidized/merchant markets, does storage improve a solar project’s chances of being financed under these schemes?

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Project bankability or its chances of being able to get finance depend upon two factors: (i) how reliable the technology is; and (ii) how secure the revenue is. See slide 4 of the PPT. If there are additional revenue streams available, then adding storage to a solar project makes it financially more attractive. The fear of exposure towards technology risk can be negated through deploying projects with seasoned players with strong balance sheets like Sterling & Wilson, and rightly quantifying and addressing the risks associated.

What kind of business model is suitable for a regulated utility?

The suitability of a business model depends upon the appetite of the utility in terms of managing risks and reaping benefits associated with that model, as explained in slides 3 (below), 4 & 5 of the PPT. The transmission and distribution deferral, and congestion management will be the drivers for a regulated utility.

IPPs are your customers. When will batteries become attractive for them?

The additional revenue streams through energy storage and the preferential feed-in tariff for the solar plants with dispatchable stored energy will make batteries attractive for our customers. IPP’s will be more comfortable when they are able to quantify the technology risk and revenue realization. From an IPP perspective, opportunities are huge. And it’s only a matter of time, which depends upon appetite of the entity in terms of managing risks and reaping benefits, as explained in slides 4 and 5 of the PPT.

In future, should battery energy storage systems (BESS) be coupled with the RE generating station or coupled with transmission at the pooling station?

BESS can be used for number of applications and whether BESS be coupled with an RE generating station or at the transmission/distribution pooling station, depends upon the BESS application. Ideally there should be a mix of additions in generation, transmission and distribution.

To integrate RE plants into a fragile grid, and to have dispatchable renewable electricity, BESS must be coupled with RE generating stations. Countries like Japan, Chile and Mexico have begun requiring new RE plants to be co-located with ESS. And in days to come, developers may be required to provide more precise generation forecasts and network operators may ask to export energy at a given time of day citing grid stability.

To make a deferral in T&D capacities, BESS should be added in the substations. Countries like South Africa have proposed huge BESS addition for T&D deferral.

With a project life of 25 years, how often are you assuming to replace the battery?

For modeling purposes, we have taken one replacement in the 25 years of a project’s life (if there is one cycle usage per day). Otherwise, battery replacement depends upon variety of factors associated with BESS, such as shell life, cycle life, number of cycles per day, depth of discharge, OEM warranties, etc., which vary with change in use cases.

In 0 hr back up (slide 6), why it was 25%, 50% and 75% BESS shown? Doesn't 0 hr back refer to an on-grid system?

Zero-hour back-up means a stand-alone grid connected solar PV plant, not connected with ESS, exporting intermittent solar energy into the grid during sunny hours only i.e pure solar PV plant with no energy storage.

What are the key barriers to the large-scale entry of solar PV + energy storage projects into Sub-Saharan Africa? Just cost?

The high cost of BESS is not the sole entry barrier. Other factors like access to affordable finance, a lack of technical expertise, socio-political Instability in regions, particularly in those having rare earth minerals required in LIB manufacturing, are also reasons.

What is the best practice solar plus storage policy at the moment in your opinion?

The additional revenue streams through energy storage and the preferential feed-in tariff for the solar plants with dispatchable stored energy will make solar plus storage more attractive. Governments in some countries are promoting manufacturing as well as the deployment of battery energy storage, e.g. in South Korea, PV projects paired with ESS benefit from a higher REC multiplier and C&I ESS receive more than triple the level of discounts on electricity retail rates. Likewise in the USA, MACRS benefits depends on the level of energy charged by PV relative to grid and ITC benefits vary with a fraction of electricity that is charged from co-located PV plant. Countries like Japan, Chile and Mexico, meanwhile, have begun requiring new RE plants to be co-located with ESS.

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