The Rise of Co-Located Renewable Projects
Chapter 1 1
The Rise of Co-Located Renewable Projects
Oliver Irwin
Ro Lazarovitch
Bracewell ( UK ) LLP Nicholas Neuberger
Global grid constraints , grid connection security and significant delays to new grid connections are forcing sponsors across multiple jurisdictions to look at maximising existing grid connections via the co-location of battery storage and renewables projects .
The large majority of the world ’ s economy continues to strive to achieve its ( arguably ambitious ) net-zero targets . However , somewhat paradoxically , due to an increase in the number of renewable energy developers participating in the market and , in many countries , network constraints , the electricity generation market is facing significant challenges with respect to ( i ) a shortage of grid connections , and ( ii ) delays for new grid connections . As a consequence of these challenges and other factors ( including inflated electricity prices and the need to balance intermittent generation ), sponsors and network operators are looking for ways to maximise the value of their existing grid connections and ensure new renewable energy projects are future-proofed .
The co-location of a utility scale battery energy storage system alongside a renewables project is one solution to these issues that is currently receiving much market interest . Below , we take a brief look at the current state of the co-location market and the corporate structuring solutions being adopted , as well as certain bankability considerations .
Battery Storage Co-Location
The battery storage market is still at a relatively early stage , despite recent rapid developments . The global deployment of global battery storage reportedly grew by about 50 % in 2022 . By way of example , Fitch Solutions reports that the United Kingdom had a total of 65 battery storage projects in the pipeline in the first quarter of 2023 compared with five projects in the first quarter of 2021 . This growth is expected to continue to rise exponentially , reflecting what we and others are seeing in the battery storage market as a wider pool of lenders and project developers accelerate their interest and involvement . This growing interest in the battery storage market has , predictably , lead to an increased focus on maximising the output of existing renewable assets .
Battery storage assets can be co-located with any form of electricity generation ( solar , wind , gas , etc .) but the most common format involves a solar-battery combination . These projects are driven by a multitude of efficiencies and benefits that can be realised through co-locating the energy and storage assets , as land use is maximised , infrastructure costs are shared , generation intermittency may be balanced , and grid connection capacity is utilised in full . In addition , only having to obtain one interconnection agreement is often a significant benefit for project developers .
That said , some battery storage developers do not consider the added costs of incorporating renewable energy generation as sufficiently remunerative and consider it simpler and faster to obtain planning permission for , and implement battery-only energy storage projects . Many battery storage projects are therefore “ battery only ” projects . However , renewables projects are increasingly being developed on a co-located basis and owners of existing generating assets , especially solar assets , are actively looking to add co-located battery storage assets so as to leverage their existing grid connection ( s ) and benefit from the efficiencies mentioned above .
Project Structuring – Single or Multiple Special Purpose Vehicles ( SPVs )?
Single SPV – new , integrated projects
There are a variety of factors that can influence which corporate structure best suits a given co-located project . The preferred structure will be influenced by national regulatory requirements or local laws . However , in jurisdictions where such structuring constraints are not applicable , the most straightforward approach is to have a single SPV holding both the renewable asset and the battery storage asset , as well as the grid connection rights . If it is a new , entirely integrated project , this will be the simplest project structure , allowing the sponsor to benefit from all the efficiencies of co-location , in particular :
■ Revenue streams from both assets are easily and justifiably aggregated , which can increase the attractiveness of the project from the perspective of investors and lenders . There will be a de-risking of the revenue inputs from both assets with a quasi-offset of ( i ) the intermittency and underutilisation of renewable generation , and ( ii ) the lower
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