Shortly after Foresight Group made its first battery storage acquisition Solar Power Portal caught up with Dan Wells, partner at the investment group, to discuss the domestic storage market’s prospects and how Foresight views the nascent sector.
The Port of Tyne project is one of eight that received EFR support, and of an even smaller number which received both that and a Capacity Market contract. To that extent is the current UK storage market limited in your view point?
It's limited in terms of assets of this exact nature, but we have a very active pipeline of further lithium ion storage projects, and we're very keen to speak to developers who have pipelines both in terms of grid-scale, looking at behind the meter C&I application, co-location with renewables. It's just that it does require a somewhat different mindset because these will be mostly assets with a lower contractual coverage, and it will be that we'll be looking at other frequency regulation revenues. Our view on life is just to be somewhat conservative over the size of the frequency regulation market, and cognisant of the fact it may become saturated in the not too distant future, and therefore our downside scenarios are around looking at where the revenue streams come from in those cases.
On the C&I front, do you feel there's potential then for aggregated portfolios of C&I - maybe even residential - assets, very much in a similar way to how the UK solar market has gone?
Yes, definitely. Our mindset is that as an investment manager our job is to put large amounts of institutional and retail capital to work. But, the way the energy space is going is that you have to be able to look at decentralised, programmatic-type investments as well as chunky, single-site type assets. That's just how it's evolving. We have already acquired two rooftop solar portfolios, we're working with developers on potential C&I solar-plus-storage programmes in the coming years. It does just require, again, a different mindset and crucially us having the right kind of partners to work with.
This acquisition was paid for using Foresight’s Inheritance Tax Solution, in the future if this is going to become a more prominent part of your business would you look to set up a dedicated storage fund?
In future, our primary fund for making these kind of acquisitions will be our energy infrastructure fund which we're currently raising, which has an appetite for storage as part of that wider flexibility set, but as part of a component in the wider portfolio across the three baskets I mentioned, and building those portfolios in a quantitative way - 60% generation, 20% flexibility, 20% connectivity. We have deliberately not come to market with a storage-specific fund because we don't want to be boxed in by that.
This is your first storage play, you have a considerable background in solar, is it the case that you'll take some of the learnings from this project into possibly retrofitting storage on those solar assets?
We are actively evaluating the possibility of putting storage onto our solar sites. This deal is a good kind of milestone in itself. It's not necessarily a like-for-like example of how we'd go about a co-location deal because they're quite different in terms of characteristics, but it's definitely a step forward for us in terms of understanding of working with storage.
Other asset owners have said that storage is viewed as a 'free hit', and that as soon as it's viable it would be rolled out across solar sites quickly - do you agree with that?
I would say we're a little bit more circumspect than that. Obviously, practically and technologically speaking it is easy and quick to install storage on sites with minimal disruption but there are other barriers - making sure it doesn't create any issues with your subsidy accreditation, particularly within the economic profile. We're open minded to it, we're exploring it, but it's not just a complete shoe-in.
What would you regard as the key barriers to that retrofit market? Is it purely a cost basis, or a mixture of that with regulatory or something else?
I think that there are regulatory boxes need to be ticked, just to make sure it doesn't impact the ROC accreditation. From a technology standpoint we're fairly comfortable that you can put the right kind of warranty packages in place that can appropriately match the profile and lifespan of the asset and how you might want to price it. From an income point of view I think we need further visibility on how that revenue stack will play out, there's isn't for instance an economic case for installing a battery based on arbitrage alone at the minute in the UK. Obviously everything just gets easier as costs come down, but I think we'll be looking for a further evolution of the economic context to batteries before we actually install our first one.