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Interest in energy storage is growing, but projects face a thicket of legal questions

The energy storage project pipeline is looking healthy, but as Maria Connolly and Stuart Urquhart explain co-locating renewables and energy storage systems is not as simple as it sounds. 

Interest in the potential development of new storage installations, particularly battery storage, has seen a huge upturn over the last 12 months.

A number of different models are being looked at including domestic scale installations; storage installed 'behind the meter' for industrial and commercial consumers of electricity; and 'stand-alone' utility scale systems designed to provide capacity and/or balancing services to grid operators.

However, there is a fourth model, which this article will focus on. This is when energy storage is located with an existing or planned renewable energy project and electrically connected to the renewable energy facility.

This particular form of 'co-location' differs from what is effectively a 'stand-alone' storage project where a battery may be located on or near to the site of a renewables facility, but there is no electrical connection between the two projects.

What's the benefit?

Depending on the characteristics of a particular renewables project, there may be several obvious benefits to co-locating storage with renewables.

Where a project operates in an area with grid constraints, the ability to shift and smooth peaks of generation to other times of the day when sufficient capacity is available, may increase the total amount of electricity that can be generated.

For solar parks in particular, the ability to shift power generated during the brightest daylight hours to later periods of the day also allows the operator to secure higher prices for electricity. This could potentially access certain valuable embedded benefits, such as triad avoidance benefits, which are usually restricted to other types of generation that are capable of operating at periods of peak demand.

But in the current market these benefits alone may be insufficient to build a robust business case for investing in the additional cost of the storage. To improve the likely return on investment it may also be necessary to exploit the opportunity for the storage to provide other services that a stand-alone project is able to provide. This means seeking to obtain, either directly or via an aggregator, revenue from a grid operator for frequency response or other grid support services.

This approach will require very careful modelling of the different 'layers' or 'stacks' of revenue in order to identify the services that will create most value at different times of the day or different times of the year.

This in turn may affect the choice of battery or other storage technology as consideration will need to be given to:

  • its maximum capacity;
  • the maximum duration over which it can operate at that capacity; and
  • the likely level of degradation depending on the number of charging cycles it is required to perform over a given period.

It may also be necessary to consider the costs associated with charging the storage from the grid at certain times, rather than from the renewables facility. Under the current regulatory regime the full range of grid charges and subsidy costs that make-up the usual 'delivered' price of grid electricity will be payable on the full amount of electricity taken by the storage from the grid; not just the amount lost as part of the 'round trip' prior to being re-exported.

What are the legal issues?

Even where the economics of a potential model do appear to work, there are a number of legal issues that need to be taken into account. There are those that may be applicable to any co-located project, and those that only apply where the storage and the renewables are structured legally to be owned and operated by separate companies.

Property rights - where the relevant lease, or option agreement, was put in place in anticipation of a renewables project only; is the use permitted by the lease terms broad enough to allow for the installation and operation of storage as well? Will a variation need to be agreed with the landlord?

Will the area that is demised to the developer for their exclusive possession be large enough to also accommodate the storage facility or will a separate lease be required? Has the existing installation been mortgaged to a lender - if so, their consent will be required? If separate developers operate the existing and new installations then it may also be the case that the developer's consent is required.

Planning - will any existing planning permission cover the installation and operation of the storage? Or will an application need to be made for varied or new consent?

Grid connection - is the connection of storage permitted under the terms of the existing grid connection offer or grid connection agreement? Will an application need to be made to the DNO for an increased level of import and/or export capacity to accommodate the likely operating pattern of the storage alongside the renewables?

FIT/RO accreditation - what is the proposed metering configuration for the storage, relative to the renewables facility? How will this enable any electricity imported from the grid to the storage to be identified and disregarded for the purposes of any claim for FIT payments or ROCs when re-exported?

On RO projects in particular, the lack of certainty around how Ofgem would treat any particular co-located project is a cause for concern. It may be a particular challenge when seeking to retrofit storage to any existing, third party financed renewables project.

PPA - what changes will need to be made to any proposed or existing PPA to allow for the storage? PPA providers will be used to predicting output from projects for their own balancing purposes by reference to weather forecasts and notifications from the project company as to any planned or unplanned outages affecting the renewables project. But the introduction of storage means a different forecasting and/or pricing model may have to be applied.

Revenue sharing - on what basis will the total 'pot' of value be shared between the storage project and the renewables project? Some of the value, arising from shifting of generation to other times of the day, will accrue to the renewables company via its PPA arrangements. The value associated with provision of balancing or other grid services will likely accrue to the storage company.

How each company will account to the other for any agreed share of a particular value stream, and what commitments each will make to the other as to these value streams, will need careful thought.

Grid sharing - as the storage project will likely be making use of the grid connection 'owned' by the renewables project, how will potential risks and liabilities arising from shared use of the connection be allocated between the two companies, to the satisfaction of their respective funders?

Each project company will want to ensure that use of the shared connection by the other does not result in interference to its own operations. Many of the issues encountered in other grid sharing contexts, such as private wire PPA arrangements, will have to be worked through.

First published by Business Green on 6 October 2016.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at October 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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