United States

United States

Viewpoint: Hybrid projects unlock new revenue streams

The rapidly declining cost of solar and battery-storage is changing the nature of what the renewable-energy sector can deliver.

By combining wind farms with solar and/or storage, the industry is more enabled than ever to offer firmer energy and more ancillary services to utilities and system operators.

Investors and lenders are gaining experience in understanding the revenue streams from these hybrid projects and how they fare in commercial and technical terms.

In most cases, incremental revenue is derived from smoothing and firming the power output, limiting ramp rates, or participating in markets for ancillary services.

In some cases, smoothing ramp rates may help cut interconnection and renewables integration costs.

Solar-plus-storage projects are more prevalent in the US than wind-plus-storage because of tax-equity structuring constraints.

The track record of solar-plus-storage facilities in jurisdictions such as Hawaii and California has demonstrated the ability to effectively load-shift, delivering energy when demand is higher and increasing the project’s revenue potential.

The successful track record to date sets the industry up for further expansion.

Some utilities and independent system operators (ISO) are adapting to the new services being available by changing their procurement requirements.

Utilities in Hawaii and Puerto Rico have already set interconnection conditions that essentially require solar and wind projects to add storage in order to be compliant.

In Hawaii’s last procurement tender, the Hawaiian Electric Company selected seven new solar-plus-storage contracts that will add a total of around 262MW of solar and 1,048MWh of storage capacity if approved by the regulator.

The simple average contract price is $94/MWh — 14% lower than the 2017 procurement and 40% below 2016 prices. This downward trend for storage projects in Hawaii demonstrates the ongoing developments in storage technology, control systems and project designs.

DNV GL fully expects that more utilities and offtake agreements will require storage to be added to wind and solar projects as a result of the many examples where the technology is able to compete on the lowest levelised cost of energy, the value of firming and the greater resiliency brought to the grid.

FERC Order 841 requires that all power markets across the US create new rules to enable and value the participation of energy storage on a nondiscriminatory basis, whether storage is connected to the transmission system, distribution system or behind the meter.

ISOs and regional transmission organisations (RTOs) have until the end of 2019 to implement a participatory model.

Over the next year, there will still be uncertainty over how grid operators decide how to implement the changes and what final revenue streams will be created.

Despite the regional differences on its implementation and uptake, FERC Order 841 is expected to further accelerate the deployment of hybrid projects.

Figures speak for themselves

Even without strict power quality and interconnection requirements being set by a utility, a growing percentage of projects being submitted and contracted in the US via competitive procurements include storage.

In its 2017 all-source solicitation, Xcel Energy received 430 proposals, of which 358 were for wind and/or solar.

Of those 358, about 30% — 110 projects — were hybrid sites combining wind, solar and storage in different scenarios.

The bids included 11 wind-plus-storage projects, at a median price of $21/MWh, and seven wind-plus-solar-plus-storage sites, with a median price of $30.60/MWh.

Hybrid projects are also being proposed offshore, such as Ørsted’s Revolution project.

The feasibility of capturing additional revenue streams from hybrid projects is studied in the context of future market projections.

The additional revenue may then be realised through a negotiated premium on a power purchase agreement, arbitrage, or participation in markets for ancillary services.

The type of extra revenue streams available will affect the selection of the technology and the design of the hybrid system, particularly the control systems.

The way the system is used will also impact the degradation rate and planned replacement costs, which must be factored into the analysis.

In short, the technology, dispatch strategy and revenue streams are inexorably linked.

The cost-curve projections for both storage and solar show continued falling costs, particularly for storage.

As costs continue to decrease, the penetration rates of renewables will increase, and storage ancillary services will gain greater value in the market, strengthening the case for using storage both in standalone and hybrid projects.

For wind and solar projects, incorporating storage will become the norm in the next five years.

Marion Hill is business line director, renewables advisory, North America at DNV GL. With thanks to co-authors Michael Kleinberg, Fleming Ray and Ken Elser

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