In this article, Jamie Storry, business development manager at Enel X, explains the benefits and challenges of taking this innovative approach.
Behind the Meter (BtM) hybrid solar and storage power facilities are gaining popularity in the UK and Ireland energy markets. They provide enormous scope for businesses to maximise their utility bill savings, increase energy resilience and meet sustainability targets, but they can be costly. Innovative financing options, including hybrid power purchase agreements, help make them a reality.
There has been significant growth in hybrid renewables projects across the world. Co-locating generation from wind or solar with battery energy storage systems (BESS) simply makes sense, but at present it is relatively rare, with less than 10% of the UK’s operational BESS co-located with wind or solar. There are signs that this is changing, however, with over 300 co-located battery storage projects representing 7.2GW of storage currently in the development pipeline.
For organisations looking for innovative ways to reduce soaring energy bills, on-site renewables generation for self-consumption is an attractive proposition. BtM solar and storage solutions are invaluable for companies seeking to lower their utility costs, grid dependency and environmental impact. Hybrid renewables projects can often conjure up images of utility scale developments of BESS co-located with renewable energy generation. But BtM projects have no real upper or lower limit, as long as the system is connected to the site’s electricity network behind the meter. In practice, BtM projects can range between 1MWp and 20MWp.
Behind the meter, hybrid generation and storage is an opportunity for businesses to address the ‘energy trilemma’: meeting the joint challenges of energy security, energy equity and sustainability. In short – access to reliable, affordable, greener energy. The most reliable, cheapest and greenest way to secure energy for your business is to generate it for your own consumption.
An increasing number of organisations are already using BtM solar generation to reduce grid dependency and protect operations from brownouts (reliability), reduce utility bills (affordability) and increase renewable energy usage to lower their scope 2 emissions and environmental impact. Adding storage to solar generation takes this to a new level. Businesses that adopt on-site solar photovoltaic (PV) technology experience a decrease in their overall energy costs relative to what they were paying to a utility provider. Adding battery storage to a solar system creates a greater margin of savings.
There are grid implications involved in creating a new PV and BESS site, despite it being behind the meter. The site will still require a G99 connection to the grid even though it is producing power for self-consumption. Grid operators have understandable concerns. Adding 1MWp solar to a network has the potential to generate in the region of 1,000,000kWh/1GWh, which can displace generation already on the grid and create pressure elsewhere in the network. Co-located battery storage alleviates this pressure as placing a DC-coupled 200kW BESS behind the converter can control output to release a maximum of 200kW to the grid.
Adding battery storage to solar generation isn’t cheap. Depending on financing options, it can potentially double the capital outlay required and may not show a ROI for some years. Many energy projects are now judged on more than just price. Organisations that are committed to ESG may prefer to choose projects that aren’t the lowest priced option if they integrate environmental stewardship into the way they are built and run, or support the economic and social development of communities where they operate.
Commercially intelligent solutions
Combining solar and storage presents a more efficient solution by reducing energy losses and enabling maximum value from PV generation. It’s also a commercially intelligent approach as it enables a business to participate in the capacity market – charging or discharging capacity to respond to grid events and getting paid for it. In turn, this prevents the battery becoming a ‘stranded asset’ outside of the shoulder months of the year when less solar is generated.
In many cases, the major barrier to overcome is the initial outlay. Different financing options exist for BtM hybrid solar plus storage projects; direct purchase, power purchase agreements (PPAs) and a third option of a hybrid PPA (HPPA). Each has pros and cons, and businesses need to weigh these options carefully after they have sized the combined system required.
With direct purchase, the organisation funds the project from available capital. Outright purchase means the organisation receives the full financial benefit of solar plus storage directly. The additional pressure of maintaining the solution and maximising the potential return available from the full stack of power market mechanisms should not be overlooked. These can have a significant impact on the overall cost-benefit of the system.
Third-party ownership through a traditional all-in PPAs cover the solar plus storage solution through a straightforward payment structure. This gives a business access to the benefits of solar plus storage with no upfront capital expenditure requirements — and no debt. Agreement terms vary, but generally businesses can expect to receive payments for the combined system based on how much value it provides. The third-party then has an incentive to maximise the system’s value, and make sure it is operating as efficiently as possible. Third-party agreements may offer less long-term value for the customer compared to a direct purchase, but many are comfortable trading a lower return for much lower risk.
HPPAs differ from traditional PPAs that have a single payment rate based on the solar plus storage system. A hybrid PPA involves paying a lower rate for solar power than that offered by a utility, while agreeing to a benefit-share payment structure with the third-party for the storage component.
Benefits of HPPA
Careful selection of an HPPA partner can see the third-party managing the entire project from start to finish, including design and construction services. It is in the third-party’s interest to maximise utility bill savings, while also taking advantage of key market incentives and grid service programmes such as demand response by using advanced machine learning algorithms.
Among the benefits to a business are:
- Low Solar PPA Rate: as an alternative to high-cost utility rates, the business pays a lower flat rate for the energy generated from its solar panels.
- Shared Storage Savings: the HPPA partner and the business share the benefits unlocked by the storage system, creating a lower ‘net effective PPA rate’ and aligning incentives to maximise performance.
- Reduced Risk: the HPPA provider finances the entire system, so there is no upfront cost to the business and savings are realised from day one.
In order to overcome these challenges and take advantage of the benefits that hybrid solar and storage BtM PPAs deliver, organisations are turning to experienced, established players to support both the delivery and financing of such projects. With so much to be gained, it pays to find the fastest and safest route to generating, using and storing your own renewable energy. For customers contemplating storage, especially for onsite solar projects, there is an entire industry of experts to consult and advise. You shouldn’t feel like you have to figure this out on your own.