Revenue Opportunities for Energy Storage Projects 3 rd Annual IBESA - PowerPoint PPT Presentation

Revenue Opportunities for Energy Storage Projects 3 rd Annual IBESA Energy Storage Day Vitaly Lee, EVP Development, BayWa r.e. Solar Projects | Anaheim, CA September 24, 2018

Agenda BayWa r.e. Introduction Energy Storage Markets & Revenue Opportunities Overview 6 Revenue Models Questions 2

BayWa r.e. – Stable yet dynamic renewable energy solutions provider Dynamic growth and sustainable profitability under the umbrella of a stable parent company $ 1.6 billion $ 19.3 billion REVENUE 2017 >1,500 17,550 EMPLOYEES 2009 1923 FOUNDED 5 GW Worldwide EXPERIENCE Renewables under trading and services group management & O&M in agriculture, energy and building materials 3

Our Value Proposition GLOBAL  We can navigate - legal, financial & regulatory complexities of the renewable energy sector, we can create profitable solar projects for you anywhere H FINANCIAL STRENGTH  We fund a lot of projects in-house  $8bn assets on our balance sheet LONGEVITY  95-year track record of turning a profit  We can be your long-term partner in creating a better world through our joint solar projects. TURN-KEY SOLUTIONS  From siting to delivery of electrons, we are full-service provider (Development, EPC, O&M, Finance) SPI 2018 Briefing 4

Leveraging Global Experience & Local Expertise to Deliver Projects in North America Delivered energy through corporate PPAs globally 300+ MW NH WA ME VT MT ND MN MA OR ID NY WI SD RI MI CT WY PA IA NJ NE OH IN NV IL DE UT WV MD CA VA CO KS MO DC KY NC TN OK SC AZ Solar projects delivered in the U.S. to date NM AR Our North American pipeline GA AL 112 MW 4.5 GW MS LA TX Projects in Operation FL Projects in Development 5

Energy Storage Markets Markets and market applications are commonly differentiated as being Key Drivers of Energy Storage Market Growth either:  in-front of the meter (FTM) or Incentives  • behind-the-meter (BTM) Upfront or performance-based to subsidize initial capital requirements Front of the meter : energy storage interconnected on distribution or Enabling Policies • transmission networks or in connection with a generation asset. Explicit targets or state goals incentivizing energy Applications are largely driven by ISO/RTO market products (e.g. storage procurement (e.g., AB 2514 in CA) electricity, ancillary services) or network load relief Market Fundamentals • Attractive real-time pricing spikes Behind the meter : energy storage interconnected behind a commercial, Favorable wholesale/utility program rules • industrial or residential customers utility meter primarily providing bill Demand for fast responding assets and their services savings (e.g. demand charge management) High Peak and/or Demand Charges • Opportunity to avoid utility charges through peak load As grids become increasingly distributed the line between FTM and BTM management during peak hours becomes blurred where storage is seen as providing value across the Cost curve declines meter. Energy storage project value is highly market dependent . Biggest markets currently in the U.S. are CA, HI, AZ, NY, NJ, CO, NV, MD, OR and MA. Other markets will continue to open up as participation rules evolve and energy storage costs continue to come down.

Energy Storage Can Cut Across Multiple Silos – “Revenue Stacking” • Energy storage systems are configured to support one or more specific revenue streams, considering  Local regulatory and energy market conditions  Commercial terms and cost implications • The operating requirements of one use case may preclude operations in another use case for the same system due to:  Physical constraints  System configuration  Optimizing the design and operation of a storage system (using software) to maximize combined revenue stream can be a source of competitive advantage

Operational Use Cases for Energy Storage – “Value Proposition Mapping” SOURCE: SCE 2011, HTTPS://WWW.EDISON.COM/CONTENT/DAM/EIX/DOCUMENTS/INNOVATION/SMART-GRIDS/ENERGY-STORAGE-CONCEPT-TO-REALITY-EDISON.PDF

Energy Storage Use Cases and Revenue Opportunities Not all use cases present significant revenue earning opportunity today. Major use cases are 1. Frequency regulation 2 3 2. Peaking (or Resource Adequacy) capacity 3. Energy sale 5 4. Energy time shifting 4 1 5. T&D upgrade deferral To optimize the revenue stream and costs – understand each use case, commercial terms, market opportunities and system design Some revenue streams carry market price risk or may be more suitable for utility ownership (vs. third party ownership) Although project developers often include Energy Arbitrage and Spinning/Non-Spinning Reserves as sources of revenue – Frequency Regulation, Bill Management and Resource Adequacy are currently the predominant forms of realized sources of revenue 9

Revenue Model 1: Wholesale Market Revenue (Frequency Regulation and Energy Revenue) Ancillary services that support system reliability - in order to synchronize generation assets to the AC grid, frequency must be held with tight tolerance bounds around 60 Hertz. Inverter- based resources such as energy storage can respond more quickly than conventional resources  Frequency regulation: highest price  Spinning reserve  Non-spinning reserve Seven distinct ISO markets in the US Flurry of ESS projects were installed in PJM in 2013 - 2015 after a new tariff to comply with FERC Order 755, which paid resources based on the speed and accuracy of response to regulation signals Can also earn energy revenue if energy market price spikes 10

PJM an Early Leader in Market-Driven Storage Jan 2017 PJM’s changes to regulation AGC signal presented significant challenge to 250 MW of battery investments  Energy neutrality from 15 min to 30 min  Energy throughput increased by 62%  More frequent full charge/discharge calls Impact on Battery systems  Performance score went down  Available capacity went down  Revenue dropped by 30%+  Impact on battery life 11

Revenue Model 2: Tolling Agreements Typically Front of the Meter – stand-alone battery storage project Seller conveys and the utility Buyer has the exclusive rights to ISO/RTO the product (Capacity benefits, Energy and A/S) Energy, A/S revenues  As the Seller, project owner is responsible for developing, Charge/Discharge owning, operating and maintaining battery storage project and Dispatch retains technical operational control of the battery. RA Capacity  Buyer exercises full authority to charge and discharge the ESS Project Utility battery, subject to agreed upon limitations and dispatch Fixed monthly payment parameters. Also acts as “scheduling coordinator/market + Variable O&M + participant”. VARC Cost Capex + Utility Recovery Opex payments  Energy to charge batteries is provided by the Buyer Long term, contracted revenue stream ESS Owner Rate Payers  Monthly capacity payment  Variable O&M charge  Variable Asset Replacement Charge (VARC)  Payment adjusted based on availability and efficiency Title of presentation. Use "Insert" | "Header Footer" | Apply to All 12

Revenue Model 3: Capacity Sales Agreements Typically Front of the Meter – stand-alone battery storage project 3 Fundamental Differences from Tolling Agreements:  Only capacity and its attributes are sold. Seller can sell energy, A/S to 3 rd parties  Buyer pays monthly capacity charge, but not variable or energy charge  Seller retains not only full technical operational control, but also full authority over charging and discharging. Revenue Sources  Capacity payments (resource adequacy, etc.) - contracted  Energy • Day Ahead and Real Time • CA RT Energy: 100+ hours with >$200/MWh LMP in 2016  Ancillary Services • Regulation Up and Down – $10 to $23/MWh in CAISO • Frequency regulation - ~$20/MWh in PJM SCE and SDG&E RFP in 2016 from Aliso Canyon gas leak 13

Revenue Model 4: Hybrid or Integrated PPA (e.g., Solar + Storage) Sale of bundled products from a generation facility integrated with a battery storage project. Main attraction is eligibility for ITC Standard as-available take-or-pay renewable PPA • Requires charging by the on-site renewable project. • Seller sells as-available energy bundled with all attributes and receives a fixed or escalating price ($/MWh) • Seller has full discretion over charging/discharging Another form of Hybrid PPA • Allows Buyer to decide: a) when to charge/discharge and b) whether to charge the system from on-site generation or from the grid (ITC reduction) Compensation: - Energy charge ($/MWh) for energy delivered plus capacity ($kW-month) or Energy charge ($/MWh) but with an adder (“uplift”) for MWh (1 - - 2 cents/kWh) to compensate for battery system 14

Solar plus storage is expected to play an important role in growth of storage 15