LIBOR transition to risk-free rates and aviation finance
On July 27, 2017, the FCA announced that they would no longer compel or persuade banks to make submissions to LIBOR as from the end of 2021.
Increasing integration of storage into electricity networks is inevitable. This was the view of our expert panel at the 29th annual global energy and finance conference held at Lake George in New York in June. Batteries in particular, thanks to sub-second response rates, have a number of applications. In many markets, business models focused on frequency response services and ancillary services first, before moving into peaking capacity and then to deferral of grid reinforcement works. Coupling solar with storage will also be a key enabler to the transition to renewable energy.
Commercial and industrial customers are looking to use storage to save on demand charges, to capture peak wholesale prices, and to earn revenue from the provision of grid services. Coupled with the right software package, storage can help customers maximise value.
Reliability drives demand in many markets. There is also demand where grids are constrained, and will be further constrained by electric vehicle charging. California is seen as one of the key markets, with the regulator driving growth; storage will be needed to integrate the new target of 50 per cent renewables and to achieve local carbon reduction initiatives. But on the whole, regulatory barriers are still seen as significant hurdles for storage to overcome, as network rules were written without storage functionality in mind.
A full transcript of the panel event is available here. The panelists are Tom Buttgenbach, president of 8minutenergy Renewables, John Carrington, CEO of Stem, Ed Fenster, executive chairman of Sunrun, and John Zahurancik, former CEO of AES Storage and now COO of Fluence, a storage joint venture between AES and Siemens. The moderator is Caileen Kateri Gamache with Norton Rose Fulbright in Washington.
“Accelerating Battery Storage for Development” is a new, first-of-its-kind global program to accelerate the deployment of battery storage for energy systems in developing and middle-income countries. The WBG is committing US$1 billion in financing for the program. It also aims to fundraise US$1 billion in concessional climate funds, through channels such as the Climate Investment Funds’ Clean Technology Fund, and mobilize at least another US$3 billion from the public and private sectors. The goal is to finance 17.5 GWh of battery storage by 2025 – more than triple the 4-5 GWh currently installed in all developing countries.
According to the New Energy Outlook (NEO) 2018 published by Bloomberg NEF, by 2050 50 per cent of the world’s electricity generation will come from wind and solar, enabled by reductions in cost of battery storage, allowing electricity to be stored and discharged to meet shifts in demand and supply. Falling battery prices are partly responsible for the change in the electricity mix over the coming decades, by making it possible to finesse the delivery of electricity from wind and solar. The NEO forecasts US$548 billion being invested in battery capacity by 2050, two thirds of that at the grid level and one third installed behind-the-meter by households and businesses.
In September 2018, IRENA released their technology outlook which focuses on hydrogen’s role in the energy transition. The report recognises the potential of hydrogen as a source of storage for renewable electricity, facilitating the integration of high levels of variable renewable energy into power systems. The focus of the report is on a so called power-to-hydrogen model rather than a power-to-electricity model, noting the benefits of the former. A key advantage of the hydrogen model is that it can be stored on a large scale, enabling the system to cope with large swings in demand and allows for inter-seasonal storage.
Energy storage devices are transforming the energy system and investment into battery start-ups rose to US$1.5 billion in the first half of the year, almost twice the level in 2017. About US$16.7 billion has already been spent to install conventional battery factories around the world, and another US$42 billion of facilities are expected to be operational by 2022. However, the development of new technologies may mean investments into current lithium-ion technologies prove uneconomical. The International Energy Agency predicts that after 2025 new technologies are likely to enter the market and lithium-ion technologies may fall out of favour as a result. Until then however lithium-ion is forecast to remain the market’s dominant source.
Korean carmaker Hyundai has partnered with storage integrator and software specialist Greensmith to develop second life battery products. Together they hope to build “a continuous, global supply chain” spanning battery manufacturing, EV sales, stationary storage deployment and end-of-life recycling. The companies are creating a 1 MW/h storage system composed of second-life batteries from the Hyundai Ioniq Electric and Kia Soul Electric cars.
A number of large scale projects have been announced this year in South Korea, the UK, Australia, Germany and the USA. Projects include LSIS and Macquarie Capital Korea’s 175 MWh battery storage system spanning five sites in Korea, and Vistra Energy’s 300 MW/1,200 MWh Moss Landing Energy Storage project in the USA. Whilst the majority of projects will use traditional lithium-ion batteries, EWE Gasspeicher’s 120 MW/700 MWh project in Germany plans to fill 100,000 cubic meters of salt caverns with brine to create a massive redox flow battery.
The joint venture between Lightsource BP (a PV developer) and HA Utilities (subsidiary of Hassan Allam Holding) will offer solar and energy storage solutions in Egypt. The projects will service both residential as well as commercial customers. Egypt has set renewable targets of 20 per cent of the country’s energy mix by 2020, providing opportunities for storage solutions.
Dubai Electricity and Water Authority (DEWA) has launched a pilot project to install and test a 1.2 MW/7.2 MWh Sodium Sulphur Battery Energy Storage System (NaS BESS) at the largest single-site solar park in the world. In support of the Dubai Clean Energy Strategy 2050, DEWA are developing a business model to become the world’s first digital utility, using autonomous systems for renewable-energy and storage, increasing the use of AI, and delivering digital services.
ZOLA Energy (previously Off Grid Electric) leases and sells solar home kits to individual households in Tanzania, Rwanda, Ghana and the Ivory Coast. ZOLA Energy has made the decision to use lithium-ion batteries in its business model for Africa. The company has secured US$20 million in debt financing which will allow ZOLA to expand its solar-plus-storage pay-as-you-go solutions into an additional four African countries, to improve overall energy access and health outcomes.
SENER and ACCIONA Industrial have initiated the salt melting process at Kathu Solar Park Concentrated Solar Power (CSP) plant in South Africa. The molten salt storage system will enable 4.5 hours of thermal energy storage. The use of molten salt as thermal energy storage system will allow the CSP plant to operate cost-effectively to satisfy peak demand.
Chinese technology company Contemporary Amperex Technology Co. Ltd (CATL) has become the most valuable company on China’s ChiNext stock exchange upon listing in June this year. The IPO, backed by Goldman Sachs, saw the lithium battery maker raise almost US$1 billion for expansion in battery manufacturing capacity. CATL is the world’s largest electric-vehicle battery maker, holding strategic agreements with automakers Yutong and Geely, owner of the Volvo and Lotus brands, and supply agreements with the likes of BMW, Honda and Toyota.
Energy storage projects under construction across four provinces of China during the first half of this year will, when completed, almost double the total cumulative capacity of the nation’s operational energy storage systems, according to a new report commissioned by not-for-profit China Energy Storage Alliance (CNESA). The report suggests that projects in Jiangsu, Henan, Qinghai and Guangdong provinces alone will bring an additional 340.5 MW of battery storage capacity to the country.
Renewable energy developer CWP Renewables has revealed that it has received planning approval from the New South Wales state government for a 200 MW solar and storage add-on initiative to the 270 MW Sapphire wind farm in northern NSW, Australia. The ambitious expansion will extend the state’s largest wind farm into a fully operational wind, solar and battery hybrid project. Construction of the solar farm and battery infrastructure is expected to commence in early 2019 and, once completed, will create one of Australia’s biggest renewable energy hubs.
Bharat Energy Storage Technology Private Limited (BEST) has announced the development of a thermal battery manufacturing plant in the southern Indian state of Andhra Pradesh, as a means of producing high energy density storage devices. The plant, which is expected to become operational by May 2019, will initially only have an annual capacity of 1,000 MW but will quickly expand to 10 GW within the next decade. The project is just the latest push by the private sector to support the federal government’s goal of reaching 175 GW of capacity from renewable sources by 2022.
The United States Trade and Development Agency (USTDA), an independent body established to advance economic development in developing and middle income countries, has provided a funding grant for a 41 MW hybrid solar-wind storage project in the Indian state of Andhra Pradesh. The grant, designed to aid the project’s technical design and planning, is just the latest capital backing by the USTDA in wind, solar and energy hybrid projects in India.
Details of the costs and revenues of the Hornsdale Power Reserve 100 MW/129 MWh battery, owned by French developer Neoen, and (famously) switched on by Tesla CEO Elon Musk, have been revealed in the share registration document supporting Neoen’s planned initial public offering. The capital cost of the battery was €56 million. The facility is reported to have earned €8.1 million in the first half of 2018, including €1.4 million from a services contract with the South Australian government (covering 70 MW of capacity), and a further €6.7 million from merchant market sales from the remaining 30 MW/90 MWh.
Siemens is opening a £1.5 million pilot project in Oxfordshire, UK employing ammonia as a new form of energy storage. The project will turn electricity, water and air into ammonia without releasing carbon emissions. The ammonia is then stored in a tank and later either burned to generate electricity or sold as fuel for industrial purposes. In addition to generating electricity and fuel sales, Siemens believes that its technology may be able to extract the hydrogen from the ammonia in the future for use in hydrogen powered vehicles and the wider hydrogen economy.
RedT, a UK-headquartered energy storage company, has brokered a deal with developer Energy System Management to provide its storage tanks for a two-phase project consisting of two 40 MWh grid-scale projects in the first phase and projects comprising 690 MWh in the second phase. RedT’s storage tanks are based on vanadium redox flow technology which is intended to provide four hours of Secondary Control Reserve to the Austrian and German grids. Once financial close occurs, the project is expected to begin construction in 2019.
Storelectric, a UK energy storage start-up, recently won the NAM70 Challenge and will partner with Dutch energy company NAM (jointly owned by Shell and Exxon) to investigate how to repurpose oil and gas infrastructure for energy storage use. Storelectric’s technology is based on compressed air energy storage (CAES) stored in salt caverns. However, rather than venting the heat generated during compression from the air, the company stores the removed heat and uses it later to reheat the air during expansion (a process known as adiabatic CAES), thereby increasing efficiency.
The SUSI Energy Storage Fund, the world’s first dedicated energy storage infrastructure fund, recently received capital commitments of €252 million from institutional investors from Germany, the Netherlands, Austria, Sweden and Switzerland. Since the fund’s inception in 2017, it has already completed two investments of approximately €90 million into projects that include lithium-ion batteries and flywheels and is working on investments in four additional projects for another €90 million.
Leclanché, a Swiss-based vertically-integrated battery and energy storage system and equipment maker, recently secured US$76 million from its primary investor, FEFAM, an investor group aggregated from four "sub funds". This investment, combined with FEFAM’s previous investment of US$51 million, fully funds Leclanché’s business plan through to 2020, when the company expects is EBITDA to be positive. Leclanché has confirmed orders of more than 50 MWh of battery storage systems for 2018 and anticipates it will hit 100 MWh of energy storage deployments by the end of this year.
Residential battery storage systems are growing in importance in the German energy storage market. Since 2013 battery costs have fallen by over 50 per cent, making the energy transition more affordable and expanding “flexibility options” open to grid operators for intelligent load management, while bolstering energy security.
The Energy Storage Association and Wood Mackenzie Power and Renewables (formerly Greentech Media Research) reported that, for the first time ever, the United States saw more residential energy storage than utility storage deployed in a single quarter. Both California and Hawaii currently hold the residential market lead, accounting for 72 per cent of the MWh totals, with Massachusetts and Arizona vying for the number three spot.
California investor-owned utility PG&E has requested approval from regulators to build four large storage facilities in South Bay, California, in an effort to use batteries instead of gas to ensure grid reliability. The request includes two of the largest battery systems ever proposed: a 300 MW/1,200 MWh project to be developed by Vistra Energy and a 182.5 MW/730 MWh project from Tesla. The scale of both of these projects would break the record for largest storage capacity, a record that is currently held by Tesla’s 100 MW Australian system. The projects originated from the California Public Utilities Commission’s (CPUC) decision to overrule gas generator Calpine’s request for a “reliability must run” status for three of its plants, and CPUC’s subsequent instruction to PG&E to seek out storage alternatives.
A commercial 10 MW/20 MWh system, developed by Convergent and supplied by IHI Energy Storage in Ontario, is set to match two utility-scale storage projects for the largest power capacity built in North America this year. The focus of the storage device is on the accurate prediction of the province-wide system peak for five hours in the year, and the reduction of the customer’s load during those hours. This focus differs from the approach taken by commercial storage projects in the US, which typically focus on reduction of a customer’s monthly peak to diminish a demand charge. To de-risk the investment, Convergent financed the project on balance sheet and pitched the product as a shared-savings agreement, meaning that if the system does not create savings, then the customer has no obligation for any fees.
NRStor C&I and IHI Energy Storage announced plans to deploy eight behind-the-meter lithium-ion battery projects of 42 MWh aggregate capacity in Ontario, Canada, all expected to be operational by 2019. NRStor C&I will develop the systems under a turn-key build, own, and operate business model where no-capital outlay is required from the customer. IHI Energy Storage will deliver the battery, inverter, energy storage software, temperature-controlled enclosure, full balance of plant and a full wrap of the system, including a warranty and operations and maintenance for the life of the project.
Lithium and sodium sulfur batteries will be used for the first time in new territories, after NEC ES and NGK inked deals to deliver projects to an island archipelago in Brazil and in Dubai respectively. For the Brazil deployment, Neoenergia has contracted NEC Energy Solutions to deliver a lithium-ion battery energy storage system to the islands, on the company’s scalable DSS (Distributed Storage Solution) platform. The size of the initial deployment was not given by NEC ES, which announced the news, but the DSS platform can be configured from 100 kW to 710 kW for power and 85 kWh to 510 kWh of energy storage.
Antigua and Barbuda are moving forward with a combined 10 MW solar PV and 6.5 MWh energy storage installation. The project is being developed by UK-based renewables developer PV Energy Limited and will help the twin islands state achieve its goal of being fossil-fuel free by 2020. The storage installation will provide grid-balancing services, while the total solar production is estimated to provide almost 20 per cent of the country’s total grid capacity.
DNV-GL recently released their latest Energy Transition Outlook, which provides a forecast of energy markets up until 2050. The Outlook predicts the dominance of both solar PV and wind in the coming decades, with solar PV accounting for 40 per cent of the world’s electricity generation by 2050 and wind accounting for 29 per cent. To support this growth, the Outlook highlights the importance of energy storage, as an increase in capacity of variable renewables requires greater energy storage capacity and new technologies to address grid-stability. Battery and energy storage costs are forecast to drop over the reference period, attributable to the adoption of EVs on a larger scale. The Outlook predicts major regulatory intervention will be required as a result of changes to electricity market fundamentals which this transition entails.
The USTDA recently announced that a grant has been signed by the US Ambassador to Mozambique, Dean Pittman, with South African solar developer WHN Solar to pay for a feasibility study for a 100 MW solar PV project “and associated energy storage facility”. Mozambique is reported to struggle with generation capacity and stability issues and the USTDA stated that the energy storage portion of the project can help stabilise the grid.
The USTDA awarded a US$500,000 grant for a vanadium redox flow battery pilot project to South African energy storage solutions company Bushveld Energy, a subsidiary of Bushveld Minerals. The pilot project will use technology from US firm UniEnergy Technologies to demonstrate how flow batteries can replace fossil fuels for peaking power, integrate renewable generated power and improve the operating efficiency of existing base load plants. Meanwhile, the UK prime minister also announced that £56 million (US$72 million) was being made available to South Africa to fast-track the region’s access to clean energy.
A new report by Australia’s Chief Scientist, Dr Alan Finkel, has highlighted that there has been an increase in the uptake of residential batteries and investment in pumped hydro and other storage technologies. According to Dr Finkel, these advances have place Australia at the global forefront in energy storage. In light of this, Dr Finkel has said that storage technology must be put at the centre of Australia’s transition to renewable energy.
The Indian Ministry of New and Renewable Energy has published a joint report on the potential for scaling up domestic manufacturing of batteries for EVs. The draft National Energy Storage Mission report, jointly authored by the National Institution for Transforming India and Rocky Mountain Institute, highlights the critical role that energy storage will play in India's transition to renewables and overall energy infrastructure strategy.
According to the 2018 Integrated System Plan published by the Australian Energy Market Operator (AEMO), storage will play a key role in Australia’s transition to renewable energy. AEMO’s modelling confirms that Australia’s national energy market is at a critical point with a combination of solar, wind, storage, gas and transmission investment set to produce the energy required to offset power from retiring coal-fired generation in the coming decades. One of the key recommendations in the report is that the Snowy 2.0 and Battery of the Nation hydro storage projects in NSW and Tasmania should be progressed.
The Australian Renewable Energy Agency has committed AU$1.4 million in funding to develop an Australian performance standard for residential and small-commercial battery systems connected to solar PV systems. The project will examine, assess and evaluate both Australian and international battery performance testing measures in order to better inform customer decision making – regardless of whether the batteries are intended for use at residential or commercial premises.
India’s first ever commercial lithium-ion battery project is set to go ahead following an agreement between the government-run Central Electro Chemical Research Institute and RAASI Solar Power Pvt Ltd. The project aims to reduce dependence on imports, especially from China, and achieve self-reliance in the defence sector. The project will help India achieve its dual goals to increase the amount of clean energy in the domestic energy mix and achieve 100 per cent conversion to electric vehicles by 2030.
Energy storage is going to play an ever more important role in the energy market in the future, with the National Grid Future Energy Scenarios projecting storage to grow from 2.9 GW in 2017 to between 5.9 GW and 9 GW by 2030. Changes in the ancillary services market and capacity market have caused the storage sector in Great Britain to review business models, pushing new assets to favour more nimble structures. The result is a diversification of the types of projects and business models coming to market. But regulation must keep up with growth and a number of decisions are still pending. For more information on the current state of regulatory reform, see our briefing which is available here. Since publication, National Grid has also published a consultation on exclusivity clauses to facilitate revenue stacking.
HEDNO (the Greek DSO) announced that the "Smart Island Pilot Projects", which aim to increase the penetration of renewable electricity up to 70 per cent in three island micro grids on the Symi, Kastelorizo and Astypalaia islands, is moving ahead. The Greek Regulator (RAE) will present its opinion to the Minister of Environment and Energy by October 2018, and, subject to ministerial approvals, a tender for contracts to deliver the projects may be announced in 2019.
The draft of the MDD which is currently being discussed in the European Union (EU) trilogue procedure contains various provisions regarding the future regulatory framework for energy storage. A very broad definition of energy storage is emerging, although details of the legal consequences of such definition are still awaited. Legal questions, such as whether distribution system operators will be entitled to own and operate storage assets if they are fully integrated network components, will have an immediate effect on the market for storage and flexibility services in the EU. In this article, the German Energy Storage Association (BVES) assesses the key provisions of the MDD and considers the potential consequences for participants in the energy storage market.
Homeowners in Ireland are now able to access grants to fund the installation of solar and energy storage systems through the government’s micro-generation pilot scheme which will run until 31 December 2020. The scheme offers €700 per kWp of solar installed up to 2 kWp, at which point any installation up to 4 kWp must include a battery storage system for which a fixed grant of €1,000 is available. The grants are funded by the Department of Communications Climate Action and Environment and take the form of a one-off payment to a homeowner and is intended to promote self-consumption.
The California governor Jerry Brown has signed SB 700 into law, authorizing the continuation of Self-Generation Incentive Program (SGIP) through 2025, with funding to supply roughly US$166 million per year in incentives for qualifying behind-the-meter technologies, or US$830 million total. With the new bill, SGIP will end up providing about US$1.2 billion in incentives by 2025. Further background on the bill can be found here.
New York governor Andrew Cuomo has unveiled a roadmap to help reach the state’s goal of deploying 1,500 MW of energy storage by 2025. The comprehensive plan recommends the provision of US$350 million (€301 million) in incentives to speed up the deployment of advanced storage systems, as well as additional funding for storage that is combined with solar projects developed under the NY-Sun Initiative. Other recommendations include regulatory changes to utility rates and solicitations, streamlining the project permitting and siting process and modifications to wholesale market rules.
The Massachusetts legislature passed an energy bill that set an energy storage deployment target of 1,000 megawatt-hours by 2025. The bill also provides for a so-called “clean peak”, which is a requirement for a minimum share of clean energy to be used during peak hours.
Just over US$28 million in funding has been awarded by the US Department of Energy (DOE) for ten projects across a range of technologies that deliver storage with durations of between 10 to 100 hours. The Duration Addition to electricitY Storage (DAYS) programme has provided funding to, among others, Form Energy for the development of a sulphur-and-water electrolyte battery, as well as to Primus Power, which produces zinc bromine flow batteries. The DOE has also recently announced the renewal of the Joint Centre for Energy Storage Research (JCESR), a battery science and technology facility which opened in 2012, and committed to five years more funding, totalling US$20 million. Like the DAYS programme, JCESR will look at taking energy storage capabilities beyond what is achievable today with grid-scale lithium batteries.
Michael Kleinberg, head of distributed energy resources and energy storage at DNV-GL, joins Norton Rose Fulbright’s Todd Alexander to discuss what the future holds for energy storage. The pair discuss technology trends, the cost environment, how projects are priced and deployed, and key players on the manufacturing side.
USTDA India Energy Storage and Smart Grid Workshop – October 5, Washington, DC, USA
Solar and Storage Live – 16-18 October, Birmingham, UK
On July 27, 2017, the FCA announced that they would no longer compel or persuade banks to make submissions to LIBOR as from the end of 2021.