Is it a gamble to add storage to a renewable energy site? Louise Dalton, senior associate in the energy at law firm CMS, considers the legal position

 

The co-location of storage and renewables can offer fantastic benefits to existing projects. However, installing storage with existing projects results in a number of project elements needing to be reopened.
The risk of loss of renewable benefits is likely to be a major hurdle to overcome. As a result, the question remains: does the risk versus return stack up? We expect co-location of storage with existing renewables projects will, in the short term, principally occur where there are commercial drivers and benefits that outweigh risks such as grid constraints.
The co-location of storage and renewables is a logical step. The potential benefits for a renewables developer of co-locating a storage device alongside its generating station include:

• Maximising generation output and existing revenue streams such as Triads, particularly if the project is affected by grid constraints;
• Access to price arbitrage, especially for projects whose output is restricted to specified times, such as solar and tidal;
• Access to additional revenue streams, such as frequency response.
• The term ‘co-location’ covers a wide range of ­project configurations, including:
• Truly integrated solutions constructed and commissioned simultaneously;
• The retrospective addition of storage to an ­existing generating station;
• Stand-alone generation and storage projects ­utilising shared land or grid infrastructure.

Within these projects there are various metering options available, which can give rise to different issues. The ownership and operation of the storage device will also influence interface issues, particularly if the storage and generation owners and operators are different.
Given the recent shifts in government policy on renewable benefits, much of the focus has been on whether larger-scale developers can optimise their existing projects by installing energy storage. However, there are a variety of legal issues to consider.

Renewables Obligation Certificates
To date there have been no co-located Renewables Obligation Certificate (ROC) projects commissioned, although a number (with both integrated and retrospective applications) are being considered. The impact of co-locating storage with a ROC project is not currently clear from the legislation or guidance. Metering will be key, particularly ensuring there is adequate import metering to demonstrate that no ROCs will be issued in respect of imported ‘brown’ power.
There are two main issues. First, any ­modification to an existing ROC generating station requires an amendment to the accreditation. While Ofgem is considering an amendment, no ROCs will be issued and, consistent with current practice, Ofgem will not ‘pre-approve’ any amendments to the accreditation before the storage device is installed.

The risk of losing ROC accreditation due to the installation of a storage device presents a significant project risk for developers

Second, if the storage device is considered part of the generating station, ROCs are issued only on the basis of metered export. That means ROCs are not maximised, as they factor in the losses of the storage device.
The risk of losing ROC accreditation due to the subsequent installation of a storage device presents a significant project risk for developers and is probably the key barrier in developing this sector.

Contracts for Difference
The current Contract for Difference (CfD) terms do not expressly provide for storage.
The former Department of Energy and Climate Change (Decc) is consulting on proposals that co-located projects including storage should be separate ­Balancing Market units. This would mean that CfD payments in relation to the renewable output would be calculated at the time of generation, not the time of subsequent export from the storage device. It would ensure that CfD support is not given for any electricity imported into it. There are some in the industry who view this as “overly restrictive”, with the suggestion that the focus should be on the ­specific metering arrangements.
Adding storage opens up the possibility of the ­project providing ancillary services and ­securing additional revenue streams. Whether this is ­appropriate for a specific project will be influenced by a number of ­factors. That includes whether the project is ­willing or able to import electricity from the ­network to ensure that it is capable of fulfilling its obligations under such ancillary ­services contracts, and the approach of the ­existing offtaker to providing such services.

Power purchase agreement
Prior to the installation of storage, the project’s existing power purchase arrangements (PPAs) will require review and may need to be renegotiated.
The issues under review are likely to include:

• Requirements regarding maximising the amount of electricity exported (which may not be fulfilled given storage is not 100% efficient);
• Provisions in relation to forecasting and access to generation and export data, particularly in relation to solar projects, whose export profile may shift significantly;
• Restrictions on providing ancillary services without the offtaker’s consent;
• Provisions requiring the revenue sharing of any ‘new benefits’ with the offtaker.

The offtaker may seek to share any uplift in the project’s revenues, such as ancillary services. Conversely, the generator may be able to obtain more favourable PPA pricing by reducing the discount to market price as a result of being able to manage its own imbalance risk more effectively.
If the co-location project structure requires electricity import, the PPA may be amended to provide for such supply of electricity. Alternatively, separate electricity supply arrangements will be required.

Grid connection
The approach to the grid connection for the installation of storage on an existing renewable project will depend on the existing connection arrangements that are in place, and on the approach to ancillary services and therefore the requirement to import electricity and the firmness of connection required. For example, National Grid asked for double circuit connections in the current Enhanced Frequency Reserve tender, although New Power understands that requirement has been softened.
In all co-location scenarios, the grid connection arrangements must be reviewed – and that includes engaging with the relevant network operator.
Renewables developers who subsequently want to install storage must also consider property rights. Provisions relating to the permitted use of the land will have to be scrutinised if the storage facility is to be located within the current leasehold land. Rental payments on leases for renewables projects are sometimes linked to the output of the generating station. The use of a storage device can have an impact on the amount of electricity exported and the timing of that export. Again, a dialogue with the landlord and review of the existing arrangements is required.
The impact that the installation of energy ­storage may have on the existing consents depends on the nature of the consent required. That depends on the scale of the project and whether it pushes the total project over an applicable planning capa­city threshold; and on the conditions applied to the existing consent.
Co-location may require the developer to seek to amend the existing consent. More likely (and perhaps more easily), the developer may apply for a separate consent to cover the storage aspects. That must not cause the project to be in breach of any other arrangements, such as the financing documents or the PPA.
There will be various construction and O&M issues to think through. Will the EPC and O&M activity for the generation and storage elements of the project be undertaken by the same entity? There will be significant interface issues to consider if this is not the case. Is there an EPC wrap offered in relation to the whole project or just the storage elements? What is the impact on warranties for the generation project, particularly if these are contracted separately?

Finance
Where a project has finance in place, the documents will place numerous restrictions on the borrower’s special purpose vehicle. That includes on the acquisition and installation of assets at the ­relevant site. Lender consent is probably required.
Lenders will be keen to understand revenue stream risks. ROCs are likely to be a key area of concern. They will also have to understand interface risks, particularly in relation to construction and installation of storage assets, and any third party involvement. Technical risks, particularly relating to the technology and the impact on grid connection and metering, are also key risks.
In addition to consent, lenders may require security by way of assignment over the storage asset and any other revenue stream contracts in place.

First published in the August 2016 issue of New Power.

Further reading:

Battery storage the big winner in sub-second response tender

Storage: legal and regulatory barriers to overcome

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