The business case for co-located solar projects in Europe

“From my point of view, co-located projects are a win-win for grid operators and asset owners,” says Ulrike Gunnemann. Image: BayWa r.e.

At the Energy Storage Summit 2024 conference in London last month, PV Tech reported a panel discussion on the business opportunities for co-located solar and energy storage projects. The emergent theme from the panellists’ discussion was that, despite a general awareness of the benefits that co-located storage and solar can offer, the commercial model for such sites – particular in the UK and parts of Europe – was yet to materialise.

This is not the case everywhere, or with every technology. Co-located solar and battery energy storage system (BESS) plants are more commonplace in California than almost anywhere else, and within Europe the business case is most viable in Iberia. Solar-plus-wind projects are also more commonly seen, such as in the case of German EPC Baywa r.e’s 135MW/53MW co-located wind and solar PV project in Zaragoza, in Spain.

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Solar PV and BESS are at different stages of maturity. The business model and commercial value proposition for solar are well established and developers in the EU are aware of how it works, but BESS is a newer and separate technology with a different business model.

The Californian example

Speaking to PV Tech Premium, Rimshah Javed, senior business development manager at energy storage and renewables optimisation services company Arenko, says that California could serve as a model for how co-located solar and BESS plants can operate.

“It’s a much more developed market [than Europe or the UK],” she says. “If you look at CAISO (the California Independent System Operator) they have a very high capacity of solar co-located sites.”

California has long been a bellwether for solar PV and renewables generally, and is by far the largest US state market for both installed solar and energy storage capacity. As well as the backing that the government has put behind renewables over the years, Javed says that this abundance of co-located solar and storage is due to a commercial policy driver: the Resource Adequacy Contract.

The Resource Adequacy Contract requires that the CAISO grid has enough capacity, in this case solar, and reserves, in this case energy storage, to maintain a balanced supply and demand across the whole state grid.

Javed says: “In this type of bilateral capacity market, if you’re an asset owner or an investor there is essentially a guaranteed revenue stream for your battery as well as your solar plant.

“That is the commercial reasoning,” Javed continues. “And over time the business case was strengthened when they started having the ‘duck curve’ issue.”

The ‘duck curve’ is the result of mapping California’s daily net energy load – the demand remaining after subtracting the power produced by renewable energy, most of which is solar PV – on a graph. The line peaks in the morning and evening and dips through the middle of the day when solar generation is at its highest. The resulting shape has been likened to the profile of a duck.  

Simply put, the amount of solar and solar irradiance available to California’s grid, and the mismatch in demand hours and solar peak hours, means that co-locating with storage becomes entirely logical as operators can store power when the sun shines and dispatch it when needed.

US renewables developer Arevon recently secured over US$1 billion to support a 374MW/150MW 4-hour duration solar-plus-storage project in Kern County, California, a project larger than most found across Europe.

“First of all you had the grid needs,” Javed says, “but then the business case for resource adequacy was already there.”

Moving back to Europe, she says that a similar principle could underpin a business case for co-locating in Iberia, and Spain specifically.

“I know that in Iberia and Spain in particular there is a business case for this. If you think about California, they get a lot of sun, it’s the same with southern European markets. I think the commercial structure is extremely poorly defined. But the need is there; the technology works, but the commercials are not defined.”

“You know how you’ll make money on your asset”

The commercial model for standalone solar PV is well established. And as Javed makes clear, the case in California for co-location is strong: “If you’re an asset owner, you know how you will make money on your asset [in California]. You know that there are different options available for the technology you will build. The grid has essentially liberalised the market.”

This investment security is not present in European markets. Ulrike Gunnemann, head of global hybrid at BayWa r.e. tells PV Tech Premium: “In the EU and UK, co-located projects are suffering from a combination of insufficient grid regulations and alignment on permitting processes, as well as the design of some incentive schemes.

“Grid regulations are especially insufficient when it comes to the overbuild of a grid connection point (when the total generation capacity exceeds the available grid connection capacity) and/or cable pooling (the sharing of a connection). This has resulted in grid operators holding back approval of co-located projects, despite there often being no technical issues.”

‘Overbuilding’ is the practice of installing more solar capacity than the grid connection is capable of transmitting, partially so the plant can produce more electricity when there is little solar irradiance, for instance on cloudy days, than it would if only the maximum grid capacity was installed.

Gunnemann says: “If we overbuild the grid connection point, we accept that in a very few situations one of the technologies (typically PV) is partially curtailed. But in the end, we make better use of the scarce grid capacity and design the project in a way that it happens very rarely.”

‘Cable pooling’ is a term most readily applied to a policy introduced last year in Poland, which allows multiple renewable energy sources to share the same grid connection, even from independent projects, effectively an expansion of co-location. The move has been touted as a “new future” for the Polish renewables market, which, like so many, has been held back by grid congestion.

Both Javed and Gunnemann say that market awareness, maturity and cost-effectiveness come to play the biggest part in the success – or otherwise – of potential co-located projects. The market awareness of grid operators and legislators can create the environment for investors and project owners.

“The business model of a co-located PV-wind project [for example] does not differ from that of a standalone solar PV business,” Gunnemann says. “Instead, the difference comes down to cost-effectiveness for co-located projects in the context of the grid infrastructure and land use.”

Grids and asset owners

During the discussion at the Energy Storage Summit, panellists proposed that grid operators and governments in Europe and the UK should be the ones to recognise the value of co-located projects and create the conditions to turn that into financial returns.

Gunnemann echoes this: “From my point of view, co-located projects are a win-win for grid operators and asset owners.

“Adding technologies with complementary profiles to the same grid connection point helps grid operators reach their goal of bringing more stable and more predictable power to the grid. While, if complemented with BESS, additional flexibility can be provided.

“It also means that existing grid infrastructure is optimised by allowing more hybrids/co-located projects and postponing costly grid reinforcement investment. While the clear benefit for asset owners comes from the cost and performance synergies that are a part of the hybrid set-up.”

As an example, Baywa r.e head of projects for Spain and Portugal, Jorge Gomez, tells PV Tech Premium about the challenges the company faced in the development of its 135MW/53MW co-located wind and solar PV project in Zaragoza.

“One particular challenge involved in the Zaragoza project was the permitting process,“ says Gomez. “This took a long time and delayed the project considerably. The cluster consists of five different SPVs (special purpose vehicles) and two interconnection infrastructures, and each one required its own permitting and authorisation process.”

“The main problem isn’t contrasting priorities, but a lack of awareness of the value hybrid projects bring,” adds Gunnemann.“ In order to boost hybrid developments, similar incentives must be implemented in other European countries.”

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