Last month, ACORE hosted an executive member meeting in New York City in advance of our annual REFF-Wall Street conference that focused on the pathways to value and finance the integration of renewable energy systems with enabling technologies, a.k.a. “integrated energy systems,” in both utility and commercial applications.
Our first panel of the day – featuring representatives from Skadden Arps, Lockheed Martin, Fluence, First Solar, Viridity Energy Solutions and Greentech Capital Advisors – focused on how to align market incentives to promote the deployment of utility-scale renewables-plus-storage systems. Following the panel, Paul Quinlan of Scott Madden gave a presentation featuring case studies of companies unlocking value streams for integrated systems.
The second panel featured representatives from Starwood Energy Group, Ameresco, Greenworks Lending, Eaton Corporation and Rabobank and zeroed in on how to develop and finance distributed integrated systems, as corporates, universities, communities and the military increasingly seek onsite integrated solutions to meet their energy needs.
Here are a few of the major takeaways that came out of these discussions:
#1: The Hype is Real for Renewables Plus Storage Projects
As energy storage experiences significant market growth, utility projects that couple renewables and energy storage are becoming competitive with traditional fossil generation. Recent bids for electricity from grid-scale renewables-plus-storage projects have come in at record low prices. Meanwhile, a recent analysis forecasts that the renewables-plus-storage market could surpass $23 billion by 2026. While solar plus storage remains the cheaper option, there is an increasingly attractive opportunity to pair wind projects with storage in certain markets.
Speakers at the meeting emphasized the importance of clearly defining the services that energy storage can provide to the grid and renewable energy systems so that stakeholders can appropriately value stacked revenue streams. For example, in addition to renewable energy integration, storage can be used for a variety of grid and generation services in front of the meter, such as peak remediation, generation arbitrage, transmission congestion relief, non-wires alternatives and ancillary services. Additionally, energy storage can be used behind-the-meter to provide backup power, enable solar self-consumption and stabilize microgrids.
#2: Market Structures Matter
Implementing appropriate market structures will be key to accelerating growth. Speakers highlighted the potential effects of the Federal Energy Regulatory Commission’s (FERC) recent Order 841, which directs grid operators to develop market rules for energy storage to participate in wholesale markets. While FERC Order 841 undoubtedly sets the stage for the integration of energy storage, Independent System Operators (ISOs) and Regional Transmission Operators (RTOs) are also working to better define the value of storage within their respective markets.
In addition to FERC and regional grid operator actions, states are moving forward with distributed energy resource planning that will not only help “prime the pump” for energy storage, but will also help establish an appropriate market for behind-the-meter resources. States like New York, Massachusetts and California are already moving in this direction by establishing markets that will more accurately reflect the value of integrated energy systems.
Progressive actions taken by FERC, ISO/RTOs and states will lay the foundation for accelerated growth within the industry. This will create appropriate market structures and allow developers and financiers to identify new project opportunities.
#3: We Can Learn from the Early Use Cases, but Standardization is Needed
ScottMadden explored three use-cases to identify how companies have paired renewable energy with enabling technologies to give generation assets a competitive advantage:
- Hawaii, which has a 100 percent renewable portfolio standard, adopted innovative power purchase agreements (PPA) using fixed payments with variable components to maximize the value of generating resources by increasing the flexibility necessary to improve dispatchability.
- Earlier this year, First Solar beat out natural gas peaker plants in Arizona with a solar-plus-storage bid. This bid was based on a model that showed a stand-alone solar plant had a capacity factor of 50 percent over a five-hour target evening peak period, whereas a solar plant coupled with four hours of energy storage had a 98 percent capacity factor over the same timeframe.
- A microgrid on Ocracoke Island in North Carolina was able to effectively island and provide power to most residents when transmission lines delivering power to the island failed in August 2017.
These three use-cases show how customers are finding innovative ways to unlock value through smart and integrated energy systems. However, despite success among early adopters, the financing behind integrated projects (renewables, storage, energy efficiency, demand response) may lag in development until financing structures are standardized, such as PPA contracts for renewable energy.
#4: Diverse Financing Structures are Essential to Reduce Risk and Grow the Market
The last session of ACORE’s executive meeting explored a variety of financing options that may help customers more easily procure distributed renewable energy systems. By making financing options more standardized and straightforward, project risk for integrated systems can be mitigated, and subsequently become more attractive to a larger pool of investors.
One way to improve the process of financing distributed integrated systems is to utilize energy savings performance contracts (ESPC), which use the energy efficiency savings of an installation to pay for microgrids with enhanced energy security and reliability. On Parris Island, S.C., Ameresco used an ESPC to design, construct and operate a microgrid on a military installation. The goal of this sort of financing mechanism is to bundle the microgrid installation and the operation and maintenance contract into something like a low-risk bond that can achieve steady cash-flows after proving efficiency savings.
Commercial Property Assessed Clean Energy (C-PACE), which allows private property owners to access long-term financing for renewable energy upgrades based on the value of the property, is another novel mechanism that can be used to finance distributed energy systems. While commercial customers traditionally use C-PACE for renewable energy and energy efficiency upgrades, corporate and industrial customers are just beginning to use this financing mechanism for their distributed integrated systems.
As more renewable energy comes online, new market structures are being developed to meet the needs of an ever-evolving grid. To increase deployment in integrated systems, investors will need to become familiar with alternative financing structures that will accurately value new projects. However, solar-plus-storage, wind-plus-storage and other forms of integrated systems are still on the cutting edge of the renewable energy industry. In order to mature the market, additional conversations will be needed with key stakeholders across the industry. Therefore, ACORE plans to continue this conversation, as well as explore other grid modernization issues, at the Renewable Energy Grid Forum on Nov. 8 in San Francisco.