Co-location, Co-location, Co-location | Page 4

• Any activities in connection with the BESS installation will need to be in compliance with any covenant terms of the existing project ’ s financing arrangements .
• Insurance policies covering the existing project should be reviewed to confirm the new development will not automatically void any coverage .
• Both EPC and O & M contractors for the generation asset and the BESS should be engaged with from an early stage to consider the practicalities of working on the site and how that is to be managed . For example , if there is a single accessway , how are access schedules to be managed and will one or other project require priority at certain times .
Licensing
For the development of any co-located assets in the UK ( including if pursuant to a retrofitting ), it will be necessary to determine at the outset whether a generation licence will be required under the UK Electricity Act 1989 . BESS assets are considered generating stations for the purposes of the Act and it may therefore be possible , subject to the applicability of any class or individual exemptions , that either or both of the renewable generating asset and the BESS require a generation licence to operate .
Financing and bankability
As referenced above , there are distinct benefits from a finance perspective to having the asset revenues aggregated . Nonetheless , it should first be established that the two projects are independently viable or , if the BESS is intended to balance the offtake of the generation asset , that it provides a net revenue benefit . A lender will not wish to invest in a project where the value is impaired by the addition or inclusion of a BESS . This is likely to become less of an issue over time as the concept is proved in the market but remains a point of consideration for the time being as certain BESS offtakers remain less established ( for example , some of the start-up optimisation service providers ).
Other than establishing that the project will provide returns of a sufficient magnitude , there is little about the project structure that will influence a lender ’ s decision as to whether a co-location asset is ‘ bankable ’. The key will be to demonstrate , regardless of the nature of asset interaction ( i . e . whether the BESS is load sharing / arbitraging with the generation or is entirely independent and providing grid services ), that the revenue streams and the project characteristics that safeguard them , namely the PPA and grid connection agreement terms , will not be compromised by the BESS , as discussed above . In addition , a lender may consider a co-location project to be more complicated from a construction perspective due to the perceived ‘ project-on-project risk ’ of having two separate elements . However , as mentioned above , this risk can be mitigated if both elements can work independently .
The single versus multiple SPV structuring question is largely insignificant when compared with the issue of revenue security . Whilst it can be argued that a single SPV with stacked revenues is simpler from a security and enforcement perspective , a multiple SPV structure will afford each project a degree of insulation from losses that may affect the other . This latter potential benefit may be a determining factor for project structuring where there are to be multiple lenders , simplifying enforcement , payment flows and other matters that would need to be managed by way of intercreditor arrangement .
Conclusion
Whilst the technology remains somewhat unproven on a national scale , we have seen that BESS colocation is an effective method of optimising renewable generation and maximising grid connection value on a project-by-project basis .
BESS has swiftly moved from an emerging technology to a major investment focus for developers and financiers . The growth of co-located BESS is assumedly assured as intermittent generation assets constitute an expanding proportion of the increasingly crowded global energy matrix . However , it remains important for sponsors to look closely at their contracting and permitting arrangements to ensure there is adequate workability for the inclusion of BESS , particularly for retrofitting an existing generating asset with the BESS technology .
This article appeared in www . proximoinfra . com on 13 January 2023