How to make energy storage projects bankable?
Semih Oztreves, Business Development Manager at Greensmith Energy will also be speaking at the Energy Storage World Forum 2018. Read on for Semih’s blog discussing the key to bankable energy storage projects.
1. How to make energy storage projects bankable?
We’ve found that the key to bankable energy storage projects involves addressing two primary risks. The first involves a lack of uniformity of best practices in battery management, and therefore a concern over system performance. At Greensmith, we believe that this risk can be mitigated by selecting a tier 1 technology vendor, an EPC company with a strong balance sheet and successful track record in the grid scale energy sector, as well as comprehensive and dependable software.
Greensmith has distinguished itself in terms of reliability and delivery with the 20MW/80MWh record-breaking Pomona Energy Storage Facility project, which was designed, built, and made operational in under four months. Our systems are controlled using Greensmith’s Energy Management Software (GEMS), which is tightly integrated with the BMS in order to leverage Greensmith’s battery optimization algorithms. Our system controls are designed for future-proofed solutions that can easily adapt to market changes and new opportunities, backed by our superior performance guarantees.
The second risk is the uncertain market revenues from Energy Storage projects. Whereas wind and solar assets traditionally generate revenues for investors via long-term power purchase agreements, ESS projects often generate revenues via ancillary services and capacity markets, which do not always offer long-term contracts. The market value and procurement mechanism for these market services will change in unknown ways over the life of the ESS asset. To address this risk, energy storage projects should ideally have a contracted anchor revenue stream provided by an off-taker with strong credit, or alternatively, a merchant business case with a good IRR.
Selecting an EMS partner with experience in changing market environments is also vital. For example, from 2012 to 2016, over 250 MW of ESS capacity was installed in PJM, the equivalent of a capital investment of approximately $200 million. As more ESS capacity entered the market, PJM encountered some operational and market design challenges. In January 2017, PJM unilaterally changed the Reg D signal characteristics. The new signal targeted energy neutrality over a 30-minute period and required an incremental energy throughput of greater than 50% that of the previous Reg D signal, adversely impacting all ESS projects in PJM. In contrast to other EMS partners, Greensmith made the software and physical site changes needed to maintain high system availability, and to keep the rated capacity of our systems greater than 50%. While future-proofing saved Greensmith customers millions of dollars in PJM, other PJM systems faced tremendous losses. This experience and thoughtful system design has allowed Greensmith to deliver bankable energy storage projects.
2. How to enable revenue stacking?
This begins with energy markets making complementary revenue streams available for energy storage assets, as well as sizing and optimizing projects correctly for multiple applications. The aforementioned 20MW/80MWh energy storage project that Greensmith completed for Altagas is a great example of successful revenue stacking. The system was primarily designed to support resource adequacy, but when it is not being called upon for that purpose, it is also able to participate in energy arbitrage and frequency regulation. Revenue stacking allows markets and system owners to capitalize on the versatility of their energy storage assets.
An intelligent software platform is also critical in enabling Energy storage assets to provide multiple revenue streams. Intelligent software provides the necessary insights of market data, asset status, and decision support information, which allow a storage system to meet commercial obligations while maintaining the health of its physical assets. The management system must also be future- proof, and have the adaptability to integrate future equipment and new uses in the face of changing technology and changing market requirements.
Lastly, revenue stacking requires that equipment manufacturers offer flexible warranties, with real time asset utilization tracking, since revenue stacking increases duty cycles and has an impact on an asset’s effective lifetime. Energy management systems must have features to provide insights into the operation and health of the physical systems when they operate in support of multiple use cases.
3. How to unlock new geographic markets for energy storage?
Emergent markets are often not robust enough to build a business case for energy storage projects, but by providing contracted revenue streams for the various uses of energy storage, the industry can begin to build precedent in new geographic markets. For new areas hoping to develop such projects, ensuring the maturity of their regulatory framework will also be imperative. Similarly, on a global scale, the growth and evolution of energy storage technology will require putting in place unified standards.
As a Wartsila company, we have the experience of having installed over 67 GW of power plant capacity in 177 countries around the world. We are uniquely familiar with global energy markets, which positions Greensmith as an ideal candidate to deliver energy storage projects and hybrid solutions to new geographic markets.
4. Can you please share the most recent interesting and challenging project that you have worked on?
Greensmith was awarded the exciting opportunity to develop the Graciosa Hybrid Renewable Power Plant, located on the island of Graciosa in the northern part of the Azores. The project, which will become fully operational in mid-2018, will use our industry-leading GEMS software to power Graciolica LDA’s microgrid.
When completed, the Power Plant will enable 1 MW of solar and 4.5 MW of wind power to be supplied to the local grid, reducing the islands’ reliance on imported fossil fuels and significantly reducing greenhouse gas (GHG) emissions. GEMS will balance the Graciosa power system to accommodate the inevitably stochastic output that is inherent to renewable sources, such as solar and wind.
Island systems, or microgrids, can operate with or without a connection to the grid. As renewable energy penetration increases, balancing these systems becomes increasingly complex, because microgrids that would typically be operated ‘manually’ then require the insights provided by renewable generation forecasts for optimized operation. GEMS embodies intelligent energy applications that focus on monitoring and operating hybrid power plants comprising energy storage, thermal generation, wind and solar. GEMS will balance the Graciosa power system to accommodate the inevitable fluctuations in output that are inherent to energy supplied from renewable sources, such as solar and wind.
The batteries will operate in a virtual synchronous generator mode. This enables the customer to turn off all of the diesel generators and sustain the grid with only the renewable resources and the battery system for a large portion of the year. When the forecasts indicate that the wind and solar will be insufficient, the most economic configuration of diesel generators will be selected for dispatch, seamlessly transferring between generation sources. With islanding and storage combined, microgrids can safely lift limits on renewable penetration, bringing a substantial benefit in places where electricity prices exceed the cost of electricity for renewables. Faster response times also mean a greater chance of avoiding power outages.
These hybrid systems represent a huge step in the fight against human induced climate change. The island of Graciosa is relatively small, with only approximately 4,000 residents. However, the complexity of what we are doing from a controls, optimization, and power systems engineering perspective, packaged in a scalable solution, has implications for every island grid in the world. This project represents the future direction of the global energy sector with an integrated power system combining renewables and energy storage.
If you want to know more about this and other topics directly from end users of energy storage technologies join us at one of these annual events: The Energy Storage World Forum (Grid Scale Applications), or The Residential Energy Storage Forum, or one of our Training Courses.