This month, GCube has launched its latest claims report for its broker and insured community. Cell, Interrupted looks in detail at the challenge of balancing risk and reward in global solar PV development and operations. The following interview with Andy Oliver, Global Head of Energy Storage, RES, is taken directly from the report and analyses how this balance can be struck when it comes to integrating storage into utility-scale solar assets.
Who are RES and what services do you provide?
RES is a global wind, solar, transmission and energy storage company that was founded in 1982. Over the last three decades RES has developed and/or constructed 10GW of renewable energy and energy storage capacity worldwide, while also building over 1,000 miles of transmission lines.
In energy storage RES has constructed and/or contracted over 100MW to date and was responsible for about a third of all capacity installed in the US in 2015. Our service offerings include project development, engineering and construction and asset management. About the only thing we are not is an equipment manufacturer.
In a world where the provision of energy services is becoming more prevalent, our ability to offer our customers any combination of technologies and services all controlled, optimized and dispatched with our RESolve software and control platform is a clear advantage. Our customers only have to deal with one partner, which equates to no contractual gaps or overlap and a more economic price point.
What were the motivating factors behind timing and the entry of RES into the storage sector?
Energy storage had long been on my mind as a technology to watch and around 2008/9, the timing seemed right to take a deeper look. In 2008 gasoline prices were very high, and people were starting to pay more attention to electric vehicles, which clearly boded well for battery technology.
Then in 2009 the American Recovery and Reinvestment Act funded a smart grid program where energy storage was explicitly addressed. We learned enough to hire our first full-time storage employee later that year. At the time we felt that energy storage would be a strong complement to our renewable offering (energy shifting and curtailment) and we spent about a year doing very deep dives on long duration storage technologies such as compressed air and flow batteries.
Ultimately, though, frequency services have been the dominant early market and batteries are clearly the leading technology at the moment.
To what extent has battery storage technology developed over the past 5 years? How close is the technology to widespread commercial deployment?
Cost is probably the most obvious change, with the prices of cell modules having fallen by at least a factor of three in the last few years. This has predominantly been driven by high-volume manufacturing in cells for electric vehicles. A secondary cost benefit has been realized through improved energy density. Many battery vendors are now packing in more than twice as much energy per container than they were a few years ago, and that has had positive implications for Balance of Plant costs. As an EPC contractor, we are continuously refining and improving our offering.
Another crucial development is that energy storage is now investor-approved. RES has been through three major due diligence exercises with Exelon, Sumitomo Corporation and Prudential Capital and in the case of the latter we delivered what we believe was the first non-recourse debt financed storage project in North America. Similarly, distribution utilities have begun to utilize storage and we have projects with Western Power Distribution in the UK and Puget Sound Energy and Consolidated Edison in the US. Grid operators are also seeing the benefits for ancillary services.
Many are familiar with PJM’s frequency regulation service in the US, but we have also worked with the Ontario grid operator IESO to deliver Canada’s first frequency regulation project and have recently signed a contract with National Grid to deliver a very fast-acting Frequency Response service in the UK. I think all of these types of project lay the groundwork for widespread deployment at a larger scale.
We will certainly see much larger projects getting built as Transmission Operators begin to understand how storage can defer or complement large capital investments and as large generation providers start to see energy storage as a real alternative or complement to traditional thermal generation.
What are the major benefits of integrating storage into solar PV sites? Can you provide an example of a project or region where it has been successfully deployed?
For grid-connected PV, there are a number of benefits involved in co-locating with energy storage, but to date most projects have been associated with mitigating the impact of a highly variable resource on weak grids. This has primarily been a solution deployed in island markets, where some companies have focused the majority of their efforts. For example, voltage regulation, voltage flicker and ramp rate are all things that storage can solve.
However, from a pure returns perspective, the economics of co-location are still challenging for grid-connected projects. That said, it should be noted that it is possible to obtain an Investment Tax Credit (ITC) for the storage component when coupled with PV in the United States.
More interesting, at least to RES and its “Distributed” division, is combining storage with solar PV behind the commercial and industrial customer meter. The combination of the two can make sense in many markets today, for example in Australia and the United States, where it is able to offer the customer a saving on their electric bill through demand charge reduction and energy shifting.
What barriers and risks remain in integrating storage systems into utility-scale solar specifically?
One barrier is that, in some jurisdictions, storage output may be considered as an addition to the solar output of a PV plant by the connecting utility. For example, if a developer wants to connect 20MW of PV and 10MW of energy storage, this is quite often modelled as 30MW by the interconnecting utility, even though the intent may be never to export more than 20MW in total.
In this example, the cost to interconnect may actually increase, even though the storage may be there to enhance the quality of power through ramp rate control, or by shifting energy to times of day when it is more valued by the grid. The import connection also needs to be considered when adding storage, particularly for existing PV plants, where there may not be any import capacity available.
In terms of risks, my personal view is that they should be very limited. One factor to consider, however, is how the solar and storage plants physically interact and communicate with one another. You need to be sure that, as an owner, you have no gaps in your warranties and don’t end up in a position where the storage and PV installers are pointing fingers at each other. If designed incorrectly, these two assets may not be compatible electrically, so it needs to be clear who is taking on this responsibility.
There is also a growing realization outside of the storage community that energy storage has never been about arbitrage – the economics generally don’t pencil in the buy low, sell high model. Instead, more and more classes of end user are finding that storage can help their operations in many different ways, from demand charge reduction, to diesel fuel savings, to asset deferral and so on.
While the industry itself has made major advances in areas such as contracting, warranties, professionalism and, most importantly, safety, the regulatory side has been lagging behind. This may end up being the biggest barrier to widespread deployment if regulators don’t tackle issues head on.
For example, paying retail prices to charge, and yet only receiving wholesale prices when discharging is naturally not very attractive. Often energy storage just isn’t considered in the market rules. We also find that things like property tax rates or depreciation schedules are just not defined for this asset class, making investment returns more uncertain.
How can the risks of integrating storage be mitigated?
Regulatory bodies in the various countries could provide guidance to network planners on the double counting issue, in order to support the view of energy storage as a tool to support reliability. For example, the ability to define appropriate control schemes could be implemented.
In terms of contracting and technical risks, this is where a contractor like RES comes in: we understand both technologies extremely well and know how to design them to exist harmoniously.