This article is the first in a new series from Hamilton Locke’s Energy, Infrastructure and Resources team called “EIR Insights”. Stay tuned for regular updates and commentary on topical issues across the sector.
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The Dawn of Dispatchable Renewables
Dispatchable renewable electricity generation has the ability to support a secure, reliable and affordable electricity system with a higher share of renewable energy. Dispatchable generation essentially refers to sources of electricity that can be dispatched on demand at the request of power grid operators or the plant owner according to the needs of the market. However, without government help, or a balance sheet, it is less obvious where developers or investors might shoehorn storage into their renewables business. But there is a way forward.
The integration of energy storage into solar farms is no longer a public relations tool. Developers are implementing large scale energy storage into project design to manage curtailment and marginal loss factor risk. The ability to shift large amounts of generation from the middle of the day to peak load times later in the day re-writes the wind, and particularly solar, business case.
Projects which were marginal or non-economic because of curtailment, MLF, grid capacity, or market price risk are completely transformed when the time of energy dispatch is flexible and not linked to the time of generation. This is the dawn of dispatchable renewables.
But this is only the “push factor”, the “pull factor” is even more critical. Offtakers are looking for firmed green power. The types of offtakers in question are the big US technology firms, who are heavily committed to reducing their emissions and increasingly active in writing Australian power purchase agreements. When presented with a choice of renewables offtake firmed from the grid or energy storage charged from known renewable generation (ie behind the meter BESS), they are choosing the green firmed option despite the significant price difference.
There appears to be a strong impetus to be the first truly 100% green energy user, not merely buying wind or solar MWhs equal to consumption on an annual basis which ignores when that energy is consumed. While nothing has been announced on this yet, we have seen term sheets which reflect this.
New offtaker market
The rise of dispatchable renewables is also expected to open up a whole new offtaker market.
Corporates, governments and even community groups with smaller inflexible load profiles will be able to buy renewable energy directly from generators with the confidence that the time (and hence price) when the electricity is dispatched into the grid matches the time they are consuming electricity from the grid. This “load following generation” removes the inherent risk of entering into a financial contract (PPA) referenced to electricity prices at the time of generation in the hope that profits from that contract will offset the cost of electricity they consume at a different time of day.
At its simplest, advances in energy storage technology and reductions in cost are allowing renewable energy generators to produce a product that their customers want – electricity at the time of day they need it. Ultimately this will give these electricity consumers a lot more confidence to contract for a much larger percentage of their total load, conceivably up to 100%. This leads to the obvious question from both electricity consumers and generators – why can’t the generator be the supplier (retailer) of electricity? – and hence we are seeing the birth of the “miniGentailer”.
Energy storage is also supercharging the “sub 5MWac” market (those projects which have a connection capacity below 5MWac). The oversizing of the MWdc capacity and incorporation of BESS to store the “excess” energy allows projects to be sized to match the more modest annual MHh consumption of some corporates. These projects can be constructed and generating within a matter of weeks (12 weeks is common) with the single offtaker often being giving naming rights adding to the appeal. These projects are often progressed on a portfolio basis (5 – 10 separate sites) to create economies of scale in equipment procurement, construction, and financing.
As coal fired generators retire and are replaced with cheaper renewable energy and Australia moves to a low carbon future the resolution of the ‘energy trilemma’ – energy which is affordable, sustainable and reliable – will be critical to a smooth, just and efficient low carbon transition.
While all roads lead to dispatchable renewables, partnering with advisors with depth and breadth of renewables market experience who provide innovative commercial legal solutions will be critical to navigating a constantly evolving environment.
The Hamilton Locke team advises across the project life cycle – from project development, grid connection, financing, construction, including the buying and selling of development and operating projects.
Matt Baumgurtel leads the Hamilton Locke Energy Infrastructure and Resources team and specializes in renewable energy including energy storage and hydrogen projects.
David O’Carroll is an associate in the Hamilton Locke Energy Infrastructure and Resources team and specializes in renewable energy projects including wind and solar.