Navigant Research Blog

Distributed Energy Storage Deployments Driven by Financing Innovation, Part 1

— February 8, 2017

This blog is the first in a two-part series that will focus on innovative financing instruments that are being applied to deploy new distributed battery energy storage applications.

The growth of solar PV has been fueled in part by lower equipment and project development costs, but also by the development of standardized power purchase agreement (PPA) contracts. Without a standardized PPA contract, each new project looked unique to investors. This type of contractual uncertainty made investors’ ability to evaluate and finance projects at scale next to impossible. The introduction of standardized PPA contracts as part of The National Renewable Energy Laboratory’s multi-stakeholder Solar Access to Public Capital Working Group enhanced investor comfort levels by standardizing key contract terms and the approach to project revenue streams. These efforts resulted in the growth of an at-scale financing asset class that continues to drive solar PV technology deployment today.

Markets for the deployment of behind-the-meter (BTM) stationary battery energy storage systems (BESSs) are beginning to grow. Navigant Research recently explored the development of new BTM energy storage business models and financing instruments in its recent research brief, Financing Advanced Batteries in Stationary Energy Storage. Similar to the financing benefits delivered by a standardized solar PV PPA, several new standardized contracts have emerged enabling BESS financing. One such standardized contract focused on tariff-specific demand charge savings at commercial and industrial (C&I) facilities.

Demand Charge Shared Savings Agreements

A demand charge shared savings agreement (DCSA) mimics the contractual approach employed by energy service companies (ESCOs) to finance energy efficiency projects. An ESCO uses the cost savings from energy conservation measures like lighting or heating, ventilating, and air conditioning system upgrades to repay debt and equity partners. With a DCSA, the host and a third-party energy storage system owner or operator agree contractually on how BESS and load management software will be deployed during peak energy use to reduce demand charges. The financing partners depend on a portion of the cost savings from tariff-specific demand charge reductions to be paid by the host to debt and equity partners.

Advantages and Challenges for DCSAs

Key advantages of financing distributed energy storage technology deployments using demand charge savings agreements include:

  • The deployment of a BESS with no money down by the C&I host, thus eliminating the access to capital challenge.
  • The ability to bundle O&M costs for the BESS into a single transaction, eliminating the need for the C&I host to add staff or resources to manage the system.

Key challenges of financing distributed energy storage technology deployments using demand charge savings agreement include:

  • The ability of the BESS software platform to accurately evaluate historical building load profiles and site-specific tariff requirements relative to future load to generate project revenues.
  • The effect of future changes in building load profiles and tariffs on battery deployment assumptions and project revenues.

Quantifying Complexity, Risks, and Revenue

These contractual hurdles are being addressed today, despite the complexity. Navigant Research points to Green Charge Network’s commitment from Ares Capital in early 2016 for non-recourse project finance based debt funding as an example of where these issues have been sufficiently addressed, resulting in DCSA financing commitments.

Now that the ball is rolling on energy storage financing, the roadblocks facing energy storage projects don’t look so difficult. Navigant Research anticipates that these types of standardized contracts will lead to the financing innovation needed to drive the deployment of stationary energy storage technology.

 

Can Hybrid Projects Usher in the Next Generation of Renewable Energy?

— September 16, 2016

Wind and SolarIndia’s ambitious plans for renewable energy development are faced with a number of challenges. Chief among these challenges is the limited availability of land for wind and solar plants in the densely populated country, as well as the cost and technical challenges of interconnecting projects to the grid. These challenges have driven some developers and equipment manufacturers to explore hybrid renewable energy facilities, combining both wind and solar generation at a single site. This hybrid concept has been explored in other areas with limited land available for new development, most notably in Japan, where a 56 MW hybrid wind and solar project was commissioned in 2014.

Wind and solar development is often limited by the relatively high upfront costs for land acquisition, grid interconnection, and project development. The availability of grid interconnections can prohibit the development of many potential wind and solar sites, and the cost for interconnection often requires developers to build larger-than-ideal facilities. As a result, many of the optimal locations for wind and solar generation have already been developed, particularly in densely populated regions.

Hybrid Wind and Solar

The concept of a hybrid wind and solar project aims to eliminate many of the barriers to development by maximizing the value of a facility to overcome the costs for acquiring land and interconnecting to the grid compared to individual technologies. In the United States and other countries, select areas have already been set aside for renewables development. A hybrid system can allow developers to maximize the megawatts of capacity installed per each acre of available land. In addition to overcoming upfront costs, a hybrid project can take advantage of the complementary generation profiles of wind and solar. Wind is often most productive at night while solar power is naturally only generated during the day. By co-locating these generation sources at a single site, a project can more closely represent a baseload resource on the grid, facilitating easier integration and making the resource more valuable for grid operators. The improved predictability of generation output is further enhanced if an energy storage system is also combined at a single facility. This is exactly the aim of developer Windlab Ltd. for the Kennedy Energy Park it is developing in Queensland Australia. The project, scheduled to come online in 2018, will feature 30 MW of wind, 20 MW of solar PV, and 2 MW of battery energy storage capacity.

This hybrid power plant concept doesn’t stop on land, the Danish company Floating Power Plant is currently testing its hybrid wind and wave power generation platform known as Poseidon in the waters off of Northern Europe. While the concept of hybrid renewable plants holds significant potential, it will have to overcome the existing approach of both developers and utilities to typically work with only a single technology per project. However, as the industry matures and ideal sites become scarcer, the benefits of hybrid projects are likely to increase and these projects may eventually become the norm.

 

Do Water and Electricity Mix?

— July 21, 2016

Plant - WaterThe water-energy nexus is the interaction between energy, water, and all the aspects of generation and distribution that are involved with each. Many times, this nexus is used to describe the amount of energy used to distribute water and wastewater between water treatment facilities and end uses. This energy use is by no means small. In the United States, energy generated for water ranges from around 4% to 19%; California alone consumes 19% of its electricity for water and wastewater. Variations in energy generation are caused by geographic differences; hilly regions need to expend more energy to pump water across variations in altitude, and arid areas pump source water from aquifers deep underground.

Another aspect of the water-energy nexus is the amount of water it takes to produce electricity. Certain generation types (such as hydroelectric) have an obvious liquid component, but others are less apparent. New innovations in renewable energy, while still consuming water, help to preserve the resource by utilizing more region-specific energies.

A Flood of Electricity Generation

In Hawaii, an ocean thermal energy conversion (OTEC) plant recently began operations. This OTEC plant draws in warm surface water from the ocean, vaporizing ammonia and spinning a turbine, which generates electricity. The ammonia is condensed by water extracted from deep in the ocean. Other types of OTEC plants do not use ammonia at all, but utilize vaporized ocean water to power the turbine. This is the first plant of its kind in the world, though it is worth noting that the United States has been researching OTEC technologies since 1974. Makai Ocean Engineering and the Hawaii Natural Energy Institute developed this 100 kW facility as a way to test the OTEC process, and the plant produces enough energy to power 120 Hawaiian homes for a year.

For cities farther from the water, solar power might seem like the way to go. However, to get the most out of solar, many plant operators are turning to auxiliary steam components. For example, the Ivanpah Solar Power Facility in the Mojave Desert of California utilizes heliostat mirrors to focus sunlight on solar power towers. These towers are heated by the solar energy, and steam is created to drive a steam turbine. The combination of steam power and photovoltaics makes this plant one of the largest solar installations at 377 MW capacity. In addition, its air cooling system means that other than the water used to generate energy, the plant uses 90% less water than other solar thermal technologies with wet cooling systems. However, there are drawbacks to solar power at this concentration. On May 19, 2016, one of the solar generating towers at Ivanpah caught fire due to improperly tracking mirrors that focused sunlight on the wrong part of the tower. There have also been reports of effects on wildlife, such as birds and tortoises. The issues in the development of high intensity renewable energy must be ironed out before these types of plants become widespread.

Renewable energy is important, and not just for the conservation of fossil fuels. Well-integrated renewable energy will utilize the natural resources of the region to produce sufficient electricity without wasting scarce ones. Traditional electricity production uses large quantities of water, but renewables (even those designed specifically to utilize water) can help conserve this. Producing energy may be a very water-intensive process, but many innovations in electricity production hold the promise that this market is becoming less thirsty.

 

Solar in the Sahara

— December 7, 2015

Set to become the largest concentrated solar power (CSP) plant in the world, Morocco commissioned the first phase of its Noor-Ouarzazate project in November 2015. This 160 MW installation is just the first of four projects that will constitute the larger 580 MW plant. Located on the edges of the Sahara Desert in Ouarzazate, this project aims to ultimately provide power to up to one million people. Large-scale solar projects such as this can provide an array of benefits to nations across the Middle East & Africa. Along with providing reliable electricity access to developing countries, these types of clean technology projects may help mitigate some of the tension and conflict that persists throughout the region.

Rather than utilizing traditional PV technology, the first three projects will use CSP through parabolic mirrors and a trough system to track the sun across the sky during the day. CSP also comes with the benefit of thermal storage, allowing for the prospect of 24/7 solar energy. This will be supported further by the second phase of the project, Noor 2 (200 MW) and Noor 3 (150 MW), set to come online in 2017. The third phase will consist of a PV power station. This complex will be largest CSP plant in the world upon completion, marking a significant milestone as countries in the region begin to adopt solar into their energy portfolios.

Morocco is taking advantage of any opportunities where the Sahara is concerned. The world’s deserts receive enough solar energy in 6 hours to meet the power demands of humanity for an entire year. How to harness and distribute this energy in a cost-effective manner is a significant challenge. Morocco has been able to pursue this project through a mix of political will and falling solar costs. The Moroccan government is choosing to view climate change as an opportunity and ultimately hopes to use the Noor complex as a means to export electricity across the Middle East and Europe. This path toward energy independence is critical in a region where climate security is expected to pose a major problem in the future. Should this project prove successful, it can provide a template for surrounding nations as they begin their forays into solar. According to the University of Oxford Middle East energy expert Justin Dargin, large-scale integration of renewable energy could significantly reduce the budgetary outlays of countries in the Middle East & Africa, allowing increased funding for social services, infrastructure, and more. This reallocation of funds could be used to address some of the socioeconomic demands highlighted during the Arab Spring.

Morocco has set an ambitious target of generating 42% of its electricity using clean energy sources by 2020. Whether fellow countries in the region will follow suit with similar environmental initiatives is yet to be seen, but the Noor complex is a significant step in advancing large-scale solar integration across the region.

 

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