Swedish energy firm and wind developer Vattenfall has pulled off a tricky wind and battery co-location project in the UK, gaining experience that could benefit renewables asset owners.
In an overcrowded market, replete with regulatory uncertainty, changing revenue streams and merchant risk revenues all making it tough to obtain project financing, Vattenfall wants to cultivate renewables co-location opportunities leveraging experience from its Pen y Cymoedd wind farm and battery, which goes live this month.
In the UK, there is growing interest among owners of wind and solar plants to develop battery projects on the same site to capture more revenues. Putting together profitable business cases for energy storage investments, however, can be a headache to undertake.
Vattenfall sees itself as the ideal partner to help realise these ambitions using practical project experience from developing the 22MW battery by its 228MW Pen y Cymoedd wind farm. The wind farm has been operational since spring 2017.
Weighing up co-location options
Initially, the site was developed with spare land and a spare grid connection as Vattenfall had plans to develop more than just a wind farm at the site and has been exploring benefits of siting wind and solar generation together.
Pen y Cymoedd complements Vattenfall’s Parc Cynog site, where the company has sought to demonstrate the benefits of co-locating a 5MW solar array with a wind farm. Co-locating solar was also on the table as an option for Pen y Cymoedd.
By co-locating wind and solar projects capital expenditure (CapEx) costs can be reduced through sharing infrastructure such as substation, switchgear. The offtake profile can benefit too.
Wind and solar generation complement each other as solar generation is highest in summer while wind generation is highest in autumn and winter. Australia has led the way in terms of building these types of hybrid renewables projects, showing that CapEx costs can reduced by 12-13% and operational expenditure costs by over 15%.
However, the National Grid’s 200MW enhanced frequency response (EFR) tender provided a potential revenue stream to ensure a profitable battery project at Pen y Cymoedd.
In addition to reduced grid costs, due to having existing spare grid capacity, the battery project also benefitted from being able to use the same wind farm contractors already at the site.
Vattenfall was also able to procure the lithium ion batteries at competitive prices as part of a bigger framework agreement with BMW for other grid battery projects that Vattenfall is developing in Europe. The energy storage integrator is Belectric, now owned by Innogy. Favourable land lease costs were also negotiated with the existing land owner.
These factors combined meant Vattenfall was able to submit one of the most competitive bids under the EFR tender, securing a contract with the National Grid.
EFR enables the National Grid to maintain system frequency within a narrow band either side of the target value of 50Hz, by offering a sub-second response for a maximum duration of 15 minutes.
Operating independently from the wind farm, the battery will provide EFR and Capacity Market reserves for the first four years, after which the system will provide firm frequency response (FFR) services, another type of grid balancing service. Capacity Market contracts run for 15 years.
According to Jake Dunn, business development manager within Vattenfall’s innovation team, speaking at the Energy Storage & Connected Systems event in London in February, one of the project’s challenges has been proving to the regulator, Ofgem, that the metering configuration does not allow for cross contamination between power imported from the grid to charge the battery and power exported from the wind farm site that qualifies for the Renewables Obligation (RO) subsidy.
The removal of subsidies has encouraged renewable energy developers to enter the battery storage project market. Often business cases are based on a combination of revenues from Capacity Market and frequency response services.
But without any long-term government subsidies or contracts, projects based on short-term grid service tenders, like FFR, are not guaranteed success and the de rating factor along with declining prices in the Capacity Market has resulted in negligible revenue streams for batteries.
Balancing mechanism or arbitrage are possibilities but these present merchant risk and are based on hindsight trading and make project financing difficult, or costly, to obtain.
These factors place pressure on battery projects to push down costs, making co-location, either through a spare grid connection or the same grid capacity, an attractive proposition. Grid costs are reduced, land costs are reduced and planning is smoother, shortening project times, given the existing land owner relationship.
A lower cost battery can afford to submit lower bids for frequency response contracts and Capacity Market tenders as well as take lower arbitrage opportunities and balancing mechanism actions.
In short, according to Vattenfall, in an oversupplied market with competitive tenders only the lowest cost battery projects will be built or have a chance of being profitable.
Though Ofgem has given guidance on co-location there is still a risk of losing the RO support to the renewable asset. For instance maintaining RO accreditation plus any change to the metering set up will trigger a suspension of RO certificate issuance until agreed by the regulator.
Even if the metering solution addresses Ofgem’s co-mingling concern as there is no pre-accreditation process there is no certainty until it is built.
According to Dunn these types of risks make it difficult to attract funding from financiers and parties that have an interest or stake in the power purchase agreement (PPA) to the renewable asset so can be reluctant to allow battery development due to RO accreditation risks.