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

Revenue Opportunities for Energy Storage Projects

3rd Annual IBESA Energy Storage Day

Vitaly Lee, EVP Development, BayWa r.e. Solar Projects | Anaheim, CA September 24, 2018

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

Agenda

BayWa r.e. – Stable yet dynamic renewable energy solutions provider

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>1,500

REVENUE 2017

$ 1.6 billion $ 19.3 billion

EMPLOYEES

17,550

FOUNDED

2009 1923

Dynamic growth and

sustainable profitability under the umbrella of a stable parent company

EXPERIENCE

5 GW Worldwide

Renewables under management & O&M trading and services group in agriculture, energy and building materials

Our Value Proposition

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GLOBAL

• We can navigate - legal, financial & regulatory

complexities of the renewable energy sector, we can create profitable solar projects for you anywhere 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)

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SPI 2018 Briefing

Leveraging Global Experience & Local Expertise to Deliver Projects in North America

Solar projects delivered in the U.S. to date

112 MW

Our North American pipeline

4.5 GW

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Delivered energy through corporate PPAs globally

300+ MW

WA OR UT MT ID CO WY ND NE KS IA MO KY WV SD NV AR TX FL OK MN WI IN OH MS AL GA SC NC TN NH VT NJ CT MD DE IL PA MI DC AZ NM CA ME VA NY LA Projects in Operation Projects in Development MA RI

Energy Storage Markets

Markets and market applications are commonly differentiated as being either:

• in-front of the meter (FTM) or
• behind-the-meter (BTM)

Front of the meter: energy storage interconnected on distribution or transmission networks or in connection with a generation asset. Applications are largely driven by ISO/RTO market products (e.g. electricity, ancillary services) or network load relief Behind the meter: energy storage interconnected behind a commercial, industrial or residential customers utility meter primarily providing bill savings (e.g. demand charge management) As grids become increasingly distributed the line between FTM and BTM becomes blurred where storage is seen as providing value across the 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. Key Drivers of Energy Storage Market Growth Incentives

• Upfront or performance-based to subsidize initial

capital requirements Enabling Policies

• Explicit targets or state goals incentivizing energy

storage procurement (e.g., AB 2514 in CA) Market Fundamentals

• Attractive real-time pricing spikes

Favorable wholesale/utility program rules

• Demand for fast responding assets and their services

High Peak and/or Demand Charges

• Opportunity to avoid utility charges through peak load

management during peak hours Cost curve declines

Energy Storage Can Cut Across Multiple Silos – “Revenue Stacking”

• Energy storage systems are configured to support
• ne 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

• pportunity today. Major use cases are

1. Frequency regulation 2. Peaking (or Resource Adequacy) capacity 3. Energy sale 4. Energy time shifting 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

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1 2 3 4 5

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

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PJM an Early Leader in Market-Driven Storage

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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

Revenue Model 2: Tolling Agreements

Title of presentation. Use "Insert" | "Header Footer" | Apply to All 12

Typically Front of the Meter – stand-alone battery storage project Seller conveys and the utility Buyer has the exclusive rights to the product (Capacity benefits, Energy and A/S)

• As the Seller, project owner is responsible for developing,
• wning, operating and maintaining battery storage project and

retains technical operational control of the battery.

• Buyer exercises full authority to charge and discharge the

battery, subject to agreed upon limitations and dispatch

• parameters. Also acts as “scheduling coordinator/market

participant”.

• Energy to charge batteries is provided by the Buyer

Long term, contracted revenue stream

• Monthly capacity payment
• Variable O&M charge
• Variable Asset Replacement Charge (VARC)
• Payment adjusted based on availability and efficiency

ISO/RTO Utility ESS Project Rate Payers

RA Capacity Fixed monthly payment + Variable O&M + VARC Charge/Discharge Energy, A/S revenues Cost Recovery

ESS Owner

Utility payments Capex + Opex Dispatch

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 3rd 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

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Revenue Model 4: Hybrid or Integrated PPA (e.g., Solar + Storage)

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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

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

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Revenue Model 5: Behind-the-Meter Agreements

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Small BTM storage projects, when aggregated across C&I sites, can provide a wide range of products & services

• To utilities: capacity attributes, peak management and load

shifting abilities, A/S, and grid support functions.

• To host customers – simultaneously provide energy arbitrage

(or TOU cost management), demand charge reductions and back-up power supply. 1. Utility Services Agreements

• Seller installs and aggregates small battery projects.
• Utility retains first priority over the use of batteries.
• Tolling agreement-like payments, but variable payment is

based on each host customer’s actual energy use reduction from the grid 2. Host Customer Agreements

• Similar in structure to distributed, BTM/on-site solar projects
• Seller builds at the host site
• Battery typically charges from the grid to provide time-shifting,

demand-peak charge management and energy back-up services.

Revenue Model 6: Design-Build-Transfer ESS for T&D Asset Upgrade Deferral

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Provide extra capacity to meet projected load growth for the purpose of delaying, reducing or avoiding transmission and distribution system investments Incremental amounts of storage can defer the need for new T&D equipment to meet overload scenarios, which can be very costly and take long time to install Can be designed for various levels of overload elimination. Usually requires long duration storage capability (4+ hours)

Different markets require different combinations

• f revenue streams

Tale of two different markets

• Different markets provide different types of revenue
• pportunities and require optimization of hardware and

software Frequency regulation, resource adequacy and demand charge management (for BTM storage) are currently the predominant forms of realized revenues Market to provide capacity and energy by shifting time of solar generation will continue growing

18 Sources: DOE Global Energy Storage Database, Lazard’s Levelized Cost of Energy Storage Analysis – Version 3.0

Commercial Factors for Project Viability and Financeability: Long-term offtake revenue contract to provide a steady stream of project cash flow EPC (or vendor) performance guarantees providing unique battery- specific acceptance tests and continuing guarantees to ensure proper construction and long-term performance. Low regulatory risk (change of law, etc.)

Thank you! Vitaly Lee EVP, Development BayWa r.e. Solar Projects LLC vitaly.lee@baywa-re.com