Co-located solar and storage – a multi-gigawatt market takes off

Multi-gigawatt market takes off

That is the conclusion of this week’s Energy Storage Virtual Summit, featuring Solar & Storage Colocation, organized by Solar Media. A survey of attendees hosted by Bloomberg New Energy Finance (BNEF) found that 76% considered there would be a multi-gigawatt co-location market in less than five years, indicating that co-located projects are economically feasible in the short-term. Subsidies are no longer required for solar, storage or co-located solar-storage projects with prices as they are. The projects can be incentivized sufficiently through market design.

However, there also remains some skepticism over the economic, legal and technical feasibility. The three main challenges for co-located projects fall into either system design, details of the site in question – and more specifically the availability of a symmetric grid connection allowing both import and export of power – and its optimization, with generating revenue from a battery continuing to be a complex operation compared to the relatively simple matter of operating a solar or other renewable generation asset.

Low hanging fruit and market development

Storage assets are capable of generating revenues from a multitude of different streams, but these are continually moving pieces that require careful management, with prices constantly varying. In particular the UK market saw battery storage developers rush to complete projects on the back of particularly strong prices in Firm Frequency Response (FFR) markets, only to see those prices fall by 75% in two months after the market was flooded with competition.

Ancillary services revenues remain popular, but not especially attractive in most markets. Those are the “low hanging fruit” of the battery storage realm, with the majority of markets worldwide remaining shallow due to the fact that countries only need a certain amount of reserve power.

This has led many operators and aggregators to flock to balancing mechanisms and other markets, but these continue to undervalue battery storage assets in particular as a result of outdated and slow-moving regulatory frameworks. While batteries can respond to signals in seconds, the regulatory envelope e.g. in UK still only allows for half-hourly settlement periods and projects are paid the market price for that half hour.

The COVID-19 pandemic and market evolution

The COVID-19 pandemic did, however, brings up a number of factors for co-located projects, most notably through the volatility caused both in system prices for power and in flexibility markets. Operating assets during the initial months of the pandemic resembled a “rollercoaster”, with numerous instances of negative pricing seen both negative for generators, but positive for battery storage assets capable of charging during these periods and discharging later. The uncertainty created by COVID-19 illustrates the need to build robust business models.

In summary, a multi-gigawatt co-location market seems set to take off within the next five years, however uncertainty over system design, the requirement for costly symmetric grid connections and outdated regulatory frameworks risk still hinder the markets growth.