In this edition of New Energy Expert Insights, we sat down with Javier Garcia Sanchez of GRS and Fernando Plaza Martinez of Energy Storage Solutions (known as E22) to discuss their experience in developing, constructing and integrating energy storage technologies and the current state of play in the energy storage market in Australia.
Part of the Spain-based Gransolar Group, GRS is a market leading EPC Contractor, specialising in the construction of photovoltaic plants and their connection to the grid. E22, its sister company, is a utility-scale energy storage systems designer, supplier and installer.
What opportunities are you seeing in the energy storage market both in Australia and abroad?
From a development point of view, there is a huge need for batteries due to the rapid rise in electricity demand. The reliance on electricity as both a source and product of renewable energy far outpaces what the conventional grid structure is built to handle. While the grid upgrades are now coming, batteries offer an excellent tool to help facilitate that transition to meet current demand.
At the core of Australia’s potential is a question regarding infrastructure: is there a grid system in place that can accommodate the inclusion of mass energy storage facilities? In the case of places like the United Kingdom and USA, the answer is yes – they can handle bringing these systems online without too much additional external build. However, that question remains to be answered for places like Australia which requires a lot more investment in infrastructure before a significant expansion of energy storage technology can occur.
What about the risks?
Utility-scale energy storage projects have the potential to provide a number of ancillary services to support the grid, such as frequency regulation and voltage support. However, it is difficult to monetize these services at present in overseas markets as they are not currently recognised in the wholesale electricity markets. Their revenue streams are therefore uncertain and difficult to accurately forecast over the life of the asset. As a consequence, bankability is still a key concern for lenders although we are seeing lenders starting to finance storage projects with merchant risk.
In terms of technology, GRS has made significant upfront investment in the core technologies and resources required to get these projects off the ground. In Australia GRS has traditionally been an engineering, procurement and construction (EPC) company. We know the most important players in the industry and felt well positioned to move into battery storage development through E22. While that’s provided us a front row seat to development, the industry still faces a lot of unknowns.
Supply chain issues and the rising costs of procuring the raw minerals to supply integrated lithium-ion battery storage solutions remains a big issue, as the demand for lithium batteries coming from EV manufacturers is increasing dramatically. However, we are now seeing a lot of projects and developers look at strategies to mitigate these issues, like signing volume purchase agreements with suppliers or looking at alternative technologies.
GRS has a strong track record of fostering investor confidence. What is it about the GRS approach that gives investor confidence in putting their capital in battery storage projects?
Our ability to wrap the full design, supply and construction of a renewables project instils confidence in potential investors. Because we intend to carry out the EPC and be the system integrator, we are able to develop projects in a way that we know is going to be feasible. We develop the project to build it ourselves. We know what technology we want to use, what kind of solution we intend to implement. We undertake everything from the geotech studies to ensuring the BESS is fully integrated with the project and connected to the grid.
This adds an attractive element of uniformity to our projects. And that translates well for investors. Having control of any given project from the very beginning is tremendously useful and provides a significant advantage in a market that tends to take a piecemeal approach to project contracting. It gives investors a sense of certainty that is often lacking elsewhere in the market.
Could you provide an overview of the technologies that are shaping the energy storage market at the moment?
Over the last few years, we have seen massive investment in storage technologies. In terms of what we’re currently implementing, we are mostly focused on integration and EPC services for large scale lithium-battery projects, although we have some small storage units coming online in Western Australia in the coming months utilising vanadium redox flow batteries (VRFB) manufactured by E22 in Spain. These are one of our specialities and are proving popular as they offer a high level of safety compared to other battery technologies, last longer and are reusable at the end of their lifespan.
Lithium batteries continue to drive the market – they remain popular and, due to that demand and investment, are very cost competitive. They were first intended for shorter storage applications, frequency control and other ancillary services. However, we are also seeing lithium batteries being used in some 8-hour duration energy storage projects, where VRFB (or other long duration solutions) may be better suited technically, mainly because they are much more cost competitive at the moment.
Do you see lithium remaining the main choice for battery technologies?
Potentially, however the price of lithium is rising, and supply constraints are increasingly putting pressure on lithium’s accessibility. It is certainly a very good technology. But we are seeing increasing investor willingness to work on vanadium projects in the wake of a rapidly changing supply landscape. Of course, vanadium is also subject to rising prices, but it is not rising as fast as lithium and that gives us confidence vanadium may emerge as a strong alternative to lithium batteries in the wake of the continuing energy crisis.
For our part, we are very confident in VRFB technology. We have batteries running from 2018 without any issues. This is an unusually long lifespan and provides historical data indicating strong performance over more than a decade. Further, vanadium can be recovered and reused at the end of a battery’s lifecycle. Lithium batteries are simply used up. From an investor’s perspective, that’s an attractive element – even after a decade of use, the materials of the battery still have a market value.
However, there is no technology that is completely dominant at the moment. While lithium is most cost competitive and most widely known, we have found that educating clients about vanadium redox flow technology tends to place the two technologies on an even playing field.
What are energy regulators saying about vanadium batteries?
Currently, regulators appear to be mainly focused on inverters, and they are less concerned about what’s connected to the DC side of the inverter. They may not yet necessarily have the in-depth knowledge about the storage technologies that are coming onto the grid. Of course, this may change as regulators gain more knowledge about energy storage and grid infrastructure upgrades begin.
There is a clear preference among regulators for grid forming inverters as they can provide enhanced ancillary services like synthetic inertia and black-start capabilities than can improve the operation of the networks and allow for more renewables to be installed. The great thing about grid forming inverters is that you do not have to install completely new inverters – some inverter manufacturers only need to do a firmware upgrade for existing inverters to start providing this functionality to assist in upgrading the existing energy infrastructure.
What changes in the market do you think would help facilitate the introduction of more batteries into the grid?
Making legislation consistent across the Australian states and territories would be a big step in the right direction. Some states have a more difficult regime than others to navigate – they don’t always provide clear guidelines on process. Every state wants to build batteries to reenforce the grid. Without making their regulatory regimes easier to navigate, it will not be possible to provide energy storage in a timely, cost-effective manner.
How do you see the market developing over the next few years?
We think it is going to become far more competitive. The number of battery suppliers is increasing. However, we remain an industry leader and have the ability to consistently deliver due to our experience as an integrated EPC company. We believe we will continue to maintain our first mover advantage as new opportunities emerge.
The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel.
