2 The Rise of Co-Located Renewable Projects
guaranteed revenues that may be available for the battery offtake . There may also be a mechanism in place to allow for price arbitraging using the battery storage asset .
■ The capital costs of contracting for ownership and use of land will be reduced as there will be no need to provide for independent land rights ( e . g . separate leases and easements ) or separate planning consents . Other issues that can arise where two or more corporate entities require shared access to land ( discussed below in respect of Operation & Maintenance ( O & M ) and Engineering , Procurement & Construction ( EPC ) matters ) will be avoided .
■ Grid connection and capacity use can be greatly simplified , with any fees , maintenance costs or other liabilities easily allocable , without the need to apportion responsibility between separate owners .
■ While the construction process may be deemed to create ‘ project-on-project risk ’, whereby a delay in completing one element ( e . g . the solar / wind generation element ) of a project would impact full monetisation of the other element ( e . g . the battery storage asset element ). However , if the co-location project is structured to enable the independent operation of each element , then this risk is reduced and can even be seen as an advantage ( in the previous example , the project would at least generate some revenue through the battery storage asset element while the solar / wind generation element is being completed ). We have seen co-located projects structured and financed on the basis of separate revenue streams for the solar asset ( being a corporate Power Purchase Agreement ( PPA )) and the battery storage asset ( being an optimisation agreement with an energy trader ).
Multiple SPVs
There are plenty of instances in the battery storage market where two or more sister companies holding the co-located assets may be the optimal structural approach .
A separate SolarCo / WindCo ( to hold the solar / wind asset ) and BatteryCo ( to hold the battery storage asset ) might be an appropriate structure if the developer intends ( or wishes to maintain the flexibility ) to sell the assets separately rather than as a package at a future point in time . Similarly , this separation may enable separate financing packages for SolarCo / WindCo and BatteryCo ( noting that this may not be practical given the relatively small size of some of the earlier battery storage projects ).
Furthermore , as competition for assets increases and the investor pool diversifies , we expect to see more complex structures adopted to facilitate disaggregated re-sale and avoid stranded assets ( for example , tri- or bipartite structures where a standalone GridCo offers shared grid connection access to SolarCo / WindCo and BatteryCo ).
Structuring a project in this way is likely to result in greater upfront costs , including in terms of considering and documenting the rights and obligations of SolarCo / WindCo and BatteryCo in respect of shared assets ( including , in particular , the grid connection and access rights ) but may provide more flexibility for future actions . Separate legal entities for the relevant renewable asset may also help future-proof against regulatory developments that might differentiate the requirements for battery and solar assets . Such a structure also offers the benefit of ring-fencing the development risk of each individual asset , potentially offering some downside protection to interested parties if there is a serious loss event .
If considering a multiple SPV project structure , there will be a few key points of interaction to manage , most of which relate to the allocation of costs ( and all of which should be manageable by entry into a form of grid / land sharing agreement ):
■ Any potential liabilities under the grid connection arrangements will need to be allocated between the entities , such as maintenance or minimum capacity usage costs .
■ For shared access routes , pre-agreement of priority rights between EPC and O & M contractors will help avoid unforeseen impediments to project development and / or operation and rights and obligations in respect of shared assets , such as the grid connection .
■ If development of the projects is taking place in close proximity , it may be of value to have in place a mechanism for dispute resolution and apportionment of liability for serious loss events , to the extent the development or operation of one project may result in physical damage to the other . This will be of particular concern where one project is operational and receiving revenue .
Retrofitting an Existing Project
Where a battery storage asset is to be added to a generation asset which is under construction , in pre-commissioning or already in operation , there will be additional considerations , even when using a single SPV structure . The sponsor will need to carry out a detailed review of the existing arrangements to ensure the battery installation will not prejudice the generating asset . Although not a complete list , certain key matters that should be considered are as follows :
■ A key asset for both the generating and battery facilities will be the grid connection rights . The project developer will need to get comfortable that the battery installation and operation will not interfere with the export capacity usage of the generating asset or otherwise jeopardise the grid connection . The technical specifications under the grid connection agreement and any related construction agreement should be closely reviewed .
■ Any existing offtake arrangements for the generating asset ( usually a PPA ) will need to be preserved in order to ensure that the SPV continues to comply with its offtake obligations and , where relevant , continue to repay any financing . If included , the following terms in particular should be considered :
■ planned outages and outage payments : if there are notification or payment obligations that apply in respect of outages , the developer should make appropriate provisions for any interference the battery connection may cause ;
■ delay payments : similar to the above , if there are terms that require payment in respect of any delays to commission of the project , these should be borne in mind when planning the battery connection ; and
■ rights to offtake : PPAs often provide for ( i ) exclusivity of offtake from a specified metering point , and ( ii ) a right to offtake ancillary services the project provides . In both cases , co-located batteries will need to be structured either to avoid the consequences of these terms or to acknowledge them ( for example , by offering the battery offtake to the existing PPA counterparty , or by seeking a waiver of such rights ).
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Renewable Energy 2024