Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
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Global | Publication | septiembre 2017
The largest non-recourse financing of energy storage assets anywhere in the world is the USD 2.3 billion financing of the AES Southland project in the USA that closed in June 2017. The project included a 100 MW, utility-scale battery energy storage system located in California, a 10 MW utility-scale battery energy storage system in Arizona and two combined-cycle gas-fired power projects with a combined capacity of 1,284 MW in California. The 100 MW battery will provide capacity to the local utility, Southern California Edison, under a 20-year power purchase agreement (PPA).
Although Southland is the largest financing of an energy storage project to date, it relied heavily on the cash flow generated from the two large gas-fired power plants that were part of the portfolio. Each asset has a separate revenue stream under its own PPA, and the revenues from the gas-fired PPAs dwarfed those from the battery storage assets. Thus, the level of scrutiny for the energy storage projects in the Southland portfolio wasn't as rigorous as the lenders may require for the financing of a stand-alone energy storage project of this size.
As is often the case in project financing, the key to getting the deal done was for the project to secure a long-term offtake agreement with a creditworthy offtaker. The PPA structure that was employed in Southland, and which has emerged as the dominant model in California, is a classic tolling agreement. Under this structure, the project receives a large capacity payment and a small, variable operation and maintenance payment. As would be the case with a conventional power tolling agreement, the utility-offtaker is responsible for supplying and paying for the input, in this case, charging electricity. In return, the utility has the right to charge or discharge the battery as it sees fit, 24 hours a day, 7 days a week. The project company has the obligation to ensure that the battery meets certain minimum efficiency standards (which can be fixed or decline over the life of the contract) and availability requirements, and to discharge the battery at a certain rate. Failure to meet these requirements leads to a reduction in capacity payments.
The Southland project did not have a fully-wrapped EPC contract for the battery systems. It remains to be seen whether lenders in stand-alone energy storage financings will require a fully-wrapped, turnkey EPC contract or will get comfortable with a separate supply agreement between the battery manufacturer and the project company. Whether or not the EPC contract is fully wrapped, an area of focus will be the scope and duration of the warranty for the battery. Based on what we have seen, a warranty covering performance for a period of 10 years appears to be market for lithium-ion technologies.
There is tremendous appetite among developers, lenders and investors to do stand-alone battery storage deals in the U.S. and we expect the volume of battery storage financings over the next year to increase significantly.
Falling lithium-ion battery prices to drive rapid storage uptake
IHS Markit expects prices for lithium-ion battery modules to drop below USD 200 / kWh by 2019, continuing a trend that has seen lithium-ion battery prices fall 70 per cent since 2012. According to the research firm, falling prices are expected to drive rapid storage uptake, with 8.8 GW of grid-connected energy storage predicted to be deployed globally by 2025, up from 1.3 GW in 2016. As a result of the sustained cost reductions, previously “uneconomical applications” such as the co-location of battery storage and solar PV, are expected to surge. California, South Korea and Australia have been identified as leading markets.
Alphabet is developing clean energy storage based on molten salt technology
Google parent company Alphabet Inc. is developing cutting-edge molten salt technology that aims to store wind and solar power for longer periods of time and for less cost than lithium-ion batteries. The technology stores electricity by converting it to thermal energy, which is stored in molten salt and antifreeze. The company claims that the technology has the potential to be many times cheaper than battery storage due to inexpensive materials and that the technology can last for up to 40 years.
AES and Siemens create joint venture for energy storage
US-based energy company The AES Corporation and German-based Siemens AG will form a new global energy storage technology and services company under the name "Fluence". Fluence will sell the Advancion and Siestorage lithium-ion battery technologies currently sold by AES and Siemens, respectively, as well as develop new energy storage technologies and services.
Aggreko to buy energy storage firm Younicos for GBP 40 million
Glasgow-based temporary power provider Aggreko has agreed to buy German-based energy storage company Younicos in a GBP 40 million cash deal. Younicos currently operates a portfolio of 40 energy storage projects worldwide with 200 MW commissioned. Aggreko said the acquisition was in line with its strategy of investing in technology in order to reduce the cost of energy for its customers.
Tesla, Vestas pair up to develop ways to combine storage and wind
The world’s largest wind turbine manufacturer, Vestas, has joined forces with Tesla for the development of energy storage solutions for wind turbines. The deal is part of Vestas' continued efforts to increase its market share through energy storage, with reports that the company has teamed up with as many as ten other battery manufacturers since 2012. For Tesla, the partnership allows the car and battery manufacturer to expand its business, achieve greater economies of scale and a bigger exposure in different markets.
Dubai Electricity & Water Authority (DEWA) awards 250 MW pumped hydro consultancy to EDF
A consultancy contract for a 250 MW pumped hydro energy storage plant in Dubai has been awarded to French power company EDF by DEWA, the emirate’s main public infrastructure company. Thought to be the first project of its kind in the Arabian Gulf, the installation will use water stored in the Hatta Dam and in an upper reservoir 300 metres above it. The contract is for the design of the plant and related hydro and geological studies. The contract also extends to deep-water tunnel design, dam and hydroelectric power station, tendering for material supply, supervising construction, site installation and on-site testing and commissioning.
South Africa’s Eskom opens battery demo facility for 2 GW energy storage need
South Africa’s main utility Eskom has identified a need for as much as 2 GW of energy storage on its networks, and has opened a testing facility to find the most suitable technologies. South Africa’s Integrated Resource Plan of 2010 called for 18 GW of renewable energy generation capacity to be added in the country which would require up to 2 GW of “additional, daily balanced energy storage within the existing grid” to accommodate it.
Multiple Indian ‘Gigafactories’ expected by 2019
At least two global technology leaders could set up Gigafactories to manufacture lithium-ion cells in India in the next couple of years, and most major Indian firms are setting up energy storage divisions, according to the head of the India Energy Storage Alliance.
Energy Renaissance building 1GWh of lithium-ion battery storage manufacturing in Darwin, Australia
Energy Renaissance is constructing a 1 GWh per annum lithium-ion battery storage manufacturing plant at Darwin, in the Northern Territory of Australia, while in related news Clean Energy Finance Corporation has provided funding of AUD 20 million for a 2 Mtpa lithium concentrate mining project in Western Australia.
SolarReserve inks deal with South Australia to supply solar thermal power with storage for 6 US cents
The state with large amounts of renewable energy and a fragile grid prone to blackouts is a prime candidate for CSP-plus-storage. SolarReserve could provide the cheapest option having won a contract to supply the South Australian government with dispatchable solar for between AUD 7.5 and 7.8 cents / kWh.
Tesla will build world's largest lithium-ion battery for South Australia
Tesla has been selected by the South Australian government to provide 100 MW / 129 MWh of battery storage alongside the Hornsdale Wind Farm project being built by French energy provider Neoen near Jamestown. Once completed, the Powerpack system will be over three times as large as its nearest global competitor.
Sungrow’s hybrid solar-storage microgrid powers five islands in the Maldives
Chinese PV inverter manufacturer Sungrow has installed a hybrid solar-diesel-storage system for five islands in the Maldives, consisting of 2.7 MWp of solar and 700 kW / 333 kWh of energy storage. With an average ground-level elevation of 1.5 metres above sea level, it is the world's lowest country and its government has pledged to make the Maldives a carbon-neutral country by 2019.
MPower to deliver 5.6-MWh battery system in Cook Islands
MPower has been selected to design and install a 5.6 MWh battery storage system at the 1 MW Te Mana Ra Solar Farm in Rarotonga, Cook Islands. The project, worth NZD 4.3 million, has financial support from the Asian Development Bank, and EU and Global Environmental Fund and once completed will help to reduce the nation’s reliance on diesel.
European flywheel battery storage project gets underway
The EUR 4 million (USD 4.51 million), a first for the UK, will be capable of 500 kW peak power and able to store 10 kWh of energy. It will be delivered by a consortium of engineers from the University of Sheffield, flywheel specialists Schwungrad Energie and Adaptive Balancing Power, and product supplier Freqcon.
Acciona starts up the first hybrid wind power-storage plant in Spain
A ‘hybrid’ demonstration plant for storing wind energy (generated by a 3 MW Nordex wind turbine) in batteries has been commissioned by Acciona in Navarra, Spain, and is thought to be the first such project in the country. The project has two battery packs – one for fast-acting response (a 1 MW / 0.39 MWh battery, to deliver 1 MW of energy for 20 minutes) and the other for slower response (a 0.7 MW / 0.7 MWh device that can output 0.7 MW of energy for one hour). Acciona is also developing software that allows for the system analysis, dimension and optimisation of energy storage specifically for pairing with wind farms.
AES’ ‘energy modernisation’ agreement with Northern Ireland includes 100 MW of energy storage
AES Corporation has signed an agreement with a Northern Ireland Environment Agency to build a 100 MW battery storage array. The array will use the Advancion energy storage platform and may be added to AES’ existing 10 MW Kilroot installation or could be deployed at the Ballylumford natural gas power station, or split between the two sites. Upon completion, this will be the largest battery storage installation in the UK.
Vattenfall establishes new solar and storage business unit, with USD 170 million initial investment
Swedish state-owned power company Vattenfall has established a new business unit dedicated to solar-plus-storage, having split its previous Business Area Wind unit into three new units: offshore wind, onshore wind and PV and battery. Over the next two years, Vattenfall plans to invest EUR 150 million in large-scale and decentralised PV and battery projects.
EWE plans large-scale energy storage in salt caverns
German utility EWE AG, partnering with the Friedrich Schiller University, plans to apply the redox flow battery principle to underground salt caverns that are currently used to store natural gas. Two medium-sized caverns could supply a city such as Berlin with electricity for an hour. The caverns are currently expected to start operations in 2023.
Drax planning 200 MW battery at UK coal station to play in grid services market
UK generation company Drax has submitted plans to convert two of its coal-fired units to 3.6 GW of new gas generation (requiring a 15 year capacity market contract) and to add 200 MW of battery storage at the same site.
Utilities in the U.S. poised to deploy energy storage
A recent survey conducted by the Smart Electric Power Alliance indicates that electric utilities in the U.S. are planning to deploy energy storage at all levels. At the utility-scale level, 76 per cent of the 115 utilities polled said they are exploring energy storage procurements to avoid investments in the grid. At the customer level, 80 per cent of the utility respondents said they are planning on offering behind-the-meter energy storage programs to their commercial/industrial customers, while 72 per cent plan on offering such programs to their residential customers.
California and Hawaii drive US to busiest ever quarter for-behind-the-meter energy storage
Q2 2017 was the US’ busiest quarter to date for behind-the-meter energy storage installations, driven in large part by residential adoptions in California and Hawaii. A total of 443 behind-the-meter systems were deployed, which equated to 32 MWh of capacity. Behind-the-meter was 19 per cent of the overall 2016 market and is expected to hold around 26 per cent in 2017 and then double to 52 per cent in 2022.
Powin Energy to deliver Canada’s largest energy storage rollout at 52.8 MWh
Leading energy storage provider Powin Energy will be building and installing six energy storage projects at two sites in Ontario, Canada with a total capacity of 12.8 MW / 52.8 MWh. The projects are being developed in collaboration with Hecate Energy, a global developer, owner and operator of solar, wind and storage projects. The foundation of the projects will be Powin’s modular Stack 140 – which is a modular, purpose-built 140 kWh battery array that easily scales up to multiple megawatt applications.
Deepwater Wind wants to add 40 MWh of Tesla energy storage to Massachusetts offshore project
Developer Deepwater Wind has applied to build a 144 MW offshore wind farm, coupled with 40 MWh of battery-based energy storage from Tesla, off the coast of Massachusetts. The application is in response to a request for proposals issued by the Massachusetts investor-owned electricity distribution companies for long-term contracts to build up to 400 MW of wind energy projects based offshore. At least three wind developers were known to be in contention for contracts: Deepwater Wind and rivals Bay State Wind and Vineyard Wind.
Alevo’s bankruptcy illustrates the pitfalls faced by newcomers in energy storage markets
In August, Alevo USA and Alevo Manufacturing, both part of the Alevo Group, filed for Chapter 11 bankruptcy court protection and are now seeking to liquidate their assets. This is in spite of group successes this year, such as signing the 10 MW Rabbit Hill energy storage project in Georgetown, Texas.
GE planning Mexico energy storage projects
General Electric (GE) is developing five energy storage projects in Mexico. While the project sizes will differ, Rodrigo Salim, GE's Latin America director for digital grid solutions said the company is investing at least USD 5 million in each project. The news follows a larger trend of foreign investment in Mexico to greater expand its renewable energy sector.
Chile: 62 MW commissioned at Cerro Dominador solar complex
Spanish renewable energy developer Abengoa announced that it has connected Latin America's first solar thermal plant to the grid, the Cerro Dominador. Located in the Atacama desert in Chile, the plant has 62 MW of photovoltaic power generating capacity and will feature 17.5 hours of thermal storage, enabling a 24-hour electricity supply. The project comes is scheduled to be fully operational by the end of 2017.
White paper examining the opportunities and challenges of investing in the rapidly growing energy storage market
This report by AXIS, prepared in collaboration with the Renewables Consulting Group, considers the applications of energy storage across the value chain and assesses four categories of risk relevant to energy storage projects: technical, commercial, market and natural event risk.
The author makes a sobering comparison of the maturity of battery supply chains with that of oil supply chains in 1908, when Henry Ford’s fledgling auto company launched its mass-market Model T automobile. If energy storage is to deliver on growth forecasts, the supply of raw materials will need to be scaled up. This will require an assessment of the extent to which deposits are technically recoverable as well as socially and environmentally sustainable.
USTDA backs tender request for 25 MW hybrid solar-storage in Sierra Leone
The US Trade and Development Agency (USTDA) issued a first tender request for a planned two part 25 MW hybrid solar-diesel-storage project in Sierra Leone. The tender pertained to finding an EPC for phase 1 of the project, a 5 MW facility in Sierre Leone's second largest city Bo. Solar Era Holdings, the local independent power producer and subsidiary of global EPC Africa Growth Energy Solutions will develop the project.
Falling battery storage costs fuel opportunities for renewables investment in Africa
The USTDA, Kenyan renewable energy developer Xago Africa and a US battery storage manufacturer Alevo USA have teamed up to develop a solar PV plant with integrated lithium-ion battery storage. The venture is an important milestone in the disruption of the traditionally more centralised. African power market by energy storage technologies. It is unclear how Alevo’s subsequent filing for bankruptcy in the USA will impact the scheme (see above).
Thailand backing up ambitions for energy storage
The Thai government has plans to look at the issue of energy storage in the next revision of its national renewable development plan. Deputy Energy Minister, Surasak Srisak, has stressed the importance of supporting energy storage technology to combat major issues affecting the country’s grid, such as regular blackouts.
Indian tax reform uncertainty beginning to impact energy storage industry
A lack of clarity around the Goods and Services Tax Bill has delayed PV tenders in the state of Gujarat and prompted the Indian Energy Storage Alliance to write to energy minister Piyush Goyal asking for clarity over taxes on separate segments of cells and batteries amid concerns that rates might be as high as 28% (excluding customs duty).
Australian distribution companies could be restricted from owning behind-the-meter energy storage
The Australian Energy Market Commission, the regulator which administers rule-making and energy market development in Australia, is consulting on proposals to restrict or prohibit distribution network operators from owning or operating distributed energy resources, including energy storage assets. The measure is intended to stimulate the market for behind-the-meter batteries and avoid use of the energy storage systems for the benefit of their own networks rather than the system as a whole. The proposal would mean distribution network businesses would have to procure storage services from consumers or from energy services suppliers.
Queensland plans to confiscate solar subsidy from battery storage users
The Queensland Government plans to remove the premium feed-in tariff (FiT) from PV consumers on its Solar Bonus Scheme who install energy storage batteries. The measure, criticised by some, has been welcomed by the Australian Solar Council, which observed that action was taken so that the 1/3 of the Queensland PV owners with AUS44c FiT cannot structure their systems by adding more panels or a battery storage system so as to receive a windfall and excessive additional income.
Standards Australia reconsiders controversial guidelines on battery installation
Standards Australia invites stakeholders to comment on its recent controversial draft of guidelines for the safe installation of lithium-ion batteries. Should the guidelines go ahead as currently drafted, it could spell the end to lithium-ion batteries in Australian homes, likely adding costs and complications to future installations.
UK launches Faraday Challenge for battery development for the electrification of vehicles
Greg Clark, UK Secretary of State for Business, Energy and Industrial Strategy, unveiled the first phase of a GBP 246 million (USD 320 million) commitment over the next four years on battery development for the automotive electrification market.
UK publishes "Upgrading our Energy System: Smart Systems and Flexibility Plan"
The move to smarter, responsive systems and the true scale-up of battery storage in the UK requires a clear regulatory framework. The UK Government and energy regulator, Ofgem, have committed to removing barriers to the introduction of new technology into the power network. This includes removing barriers to storage by creating a new definition of storage as a distinct subset of generation in the Electricity Act 1989 licensing regime (when parliamentary time allows); removing double charging for storage assets within the grid charging regime; making it clearer when storage can co-locate with renewable energy assets without putting any renewable support at risk; improving the connections and planning processes for storage assets; reviewing health and safety standards for storage; and increasing competition by determining that network operators should not own or operate storage assets. Shortly prior to this publication, National Grid published its consultation on reform of the electricity ancillary services market (the System Needs and Product Strategy consultation) which, it is hoped, will provide further opportunities for energy storage (see further National Grid’s System Strategy).
UK residential energy storage gets tax breaks when installed with solar
Residential battery storage has won a partial victory after the UK government agreed to a tax break for battery systems, but only if they are supplied and installed alongside solar panels.
Stacked benefits of batteries are the key to unlocking value in Energy Storage
Brattle provides an assessment of the potential economic perks of capturing the multiple benefits of batteries, thus increasing the value of energy storage in California. Stacked benefits will comprehensively increase the value of battery storage, but will require retail and wholesale policy considerations as market penetration of energy storage grows.
Financing energy storage projects: assessing risks - part 2
In many ways, energy storage projects are no different than a typical project finance transaction. Financings will not close until all risks have been catalogued and covered. However, there are some unique features to energy storage with which investors and lenders will have to become familiar. This article delves into regulatory, technology and operating risks that are unique to storage.
Solar + storage: US regulatory issues
Adding batteries to rooftop solar systems raises regulatory questions. The main issue is whether adding a battery could subject the owners of the system - the solar rooftop company and any tax equity investors - to federal regulation. Delve into an understanding of the potential regulatory issues, the risks involved and the options for the owners of the system.
Massachusetts sets 200 MWh energy storage procurement target
Massachusetts issued a 2020 energy storage target for its utilities of 200 MWh. Along with the energy storage target, the Department of Energy Resources (DOER) also announced up to USD 10 million in additional funding for certain energy storage demonstration projects and that the DOER will be examining the benefits of amending the Alternative Portfolio Standard to expand the eligibility of energy storage technologies able to participate beyond flywheel energy storage.
New York Legislature passes historic legislation to advance energy storage
The New York legislature passed two bills (SB 5190 and AB 6571) directing the state's public service commission to develop a storage procurement target for 2030. A long-term, binding storage procurement target will provide a steady commitment to deploy energy storage in New York, driving significant market investment and hiring by diverse firms, ensuring the widest range of products are offered, driving down soft costs, and enabling learning-by-doing.
Nevada Governor Sandoval signs storage, electric vehicle bills
Nevada Governor Brian Sandoval has signed bills aimed at boosting battery storage resources and electric vehicles in the state. Senate Bill 204 directs state regulators to consider requiring utilities to purchase energy storage in the next couple of years, while Senate Bill 145 establishes an incentive program for energy storage within the state's solar program. The law also puts in place incentives for the development of electric vehicle charging infrastructure. The state’s public utilities commission will need to make a recommendation on battery purchases by October 1, 2018.
New Mexico’s utilities ordered to consider energy storage in their plans
The growing commercial viability of energy storage has led New Mexico’s Public Regulation Commission to amend its rules governing utilities’ integrated resource planning (IRP) to allow power companies to include energy storage in those IRPs. IRPs essentially lay out a utility company’s roadmap for future investment in their networks, intended to demonstrate how the energy provider will keep costs as well as consumer rates as low as possible while ensuring security and reliability of supply. Now those IRPs will include existing electric supply-side, energy storage and demand-side resources.
Mexico's nascent energy storage market 'very open for business'
The Mexican government sees the potential to add as much as 2.3 GW of storage to its grid in the next decade. Mexico's deregulation of the electrical grid in 2013 has expanded opportunity for competitive investment in the Mexican electricity system. So far, that has unfolded on the generation side, but the laws opened the way for storage as well.
Jamaican utility approves 24.5 MW hybrid energy storage project
Jamaican utility company Jamaica Public Service (JPS) announced it has approved a hybrid energy storage solution which will be the first of its kind in the Caribbean. If approved by the Office of Utilities, the project will be a combination of fly wheel and lithium-ion batteries providing a total of 24.5 MW of storage. The project will provide faster response when renewable energy output is reduced and is projected to be operational by the third quarter of 2018.
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