What’s in storage?


(Originally published in the Summer 2018 edition of IJGlobal)

New technology can be exciting and often revolutionary, but it can also be unpredictable and short-lived. Early adopters can be left with products that are soon out-of-date or markedly more expensive than later iterations. If you are really unlucky you can end up sinking a lot of money into a technological dead-end – like a MiniDisc player, Sinclair C5, or Betamax cassette (depending on your age).

While conventional and renewable generation, along with distribution and transmission assets, have mature supply chains and standardised processes, stationary battery storage is still very much a new technology, with much greater variety in development process, business models, ­financing and procurement. The industry is still very young and developing fast, with various options open to investors and developers.

Differences among actual hardware is just one variable. Picking the right contractual structures, with the necessary guarantees, is also essential for a successful battery storage project, but the vast array of options can be bewildering.

And the speed at which the market is developing makes it harder still to keep track of. Utility scale battery storage projects are now being developed across a range of jurisdictions and markets, and are progressively increasing in size.

At the start of 2017, AltaGas and Tesla were unveiling 80MWh projects in California and by the end of the year the latter had delivered the 129MWh Tesla South Australia battery storage project.

The fi­rst Enhanced Frequency Response (EFR) battery projects in the UK have been constructed over the last 12 months. They were awarded in a pilot auction in 2016, resulting in surprisingly low prices. The market has now moved on: future contracts for similar frequency-response services will be specifi­ed differently.

This speed of development and change can be daunting but it also means precedents are being set, and the growing collective experience of DNV GL’s team makes it perfectly placed to advise on the sector.

Contractual structures

There is some consensus on contract structure for battery storage projects, with a number of common features to be found. These include performance guarantees, liquidated damages assessments, and lifetime estimation and warranty. You would also expect to see a ‑ow-down of an EPC wrap to supplier warranties and guarantees, which makes the role of an EPC contractor with sufficient balance sheet critical. Experienced EPC contractors are also, in our experience, a route to lower costs.

In addition to these recurring features, there are also a number of special considerations that any developer needs to bear in mind:

  • Is it utility scale? A utility scale contract may require specifi­c guarantees related to one or more contracted revenue streams.
  • Is it co-located with solar or wind generation? Specifi­c attention needs to be paid to grid connection requirements, and round-trip effi­ciency. There may also be a reliance on combined operation of the wind or solar plant controller and the storage control system in order to meet specifi­c conditions of the connection agreement.
  • Is it located ‘behind the meter’ on an industrial or commercial site? There may be a need for a guarantee for peak demand reduction, or other issues critical for the business case.

Principal contractual guarantees

The lifetime performance of a battery storage project can be highly unpredictable for a variety of reasons, and developers will want some level of guarantee in the contract to protect against all of the following:

  • Lifetime/capacity degradation – The power and energy capabilities of a battery will degrade over its lifetime. It is important to understand not just how quickly this will happen but also the major influencing factors. Some guarantees will not provide the protection you imagine, if usage in the real application is different from the (usually simple) charge/discharge cycle assumed in the supplier’s guarantee.
  • Availability – Depending on application, it may be desirable to specify higher availability at some times of year, or time of day (for example, for peak shaving). This could drive the supplier to schedule planned maintenance accordingly, or to increase the spares holdings on site.
  • Round-trip effi­ciency – This is the ratio of energy retrieved to the energy put into the storage system. There can be great variety between broad technology types and speci­fic products. Losses occur in the batteries, in the power electronics, and in any external transformer, and will depend on the application: for certain applications, the form of the guarantee may need to be written carefully, in order to provide the required protection.
  • Location environment – The environment the asset will be operating in is important. The batteries may be required to operate in high ambient temperatures. If exposed to high temperatures, the performance of cooling system will also need to be tested. Industrial sites may require guarantees on corrosion or dust ingress, for example. The environment also includes conditions on the electricity system: robustness against harmonic currents and voltage transients may be important.

Performance guarantees are typically formula-based to determine liquidated damages. It is possible for the supplier to earn a performance bonus if the equipment performs better than expected.

Future developments

Very large investments are being made in battery R&D, and further substantial technology development is expected. However, gradual evolution of preferred contractual structures and guarantees are more likely than major changes. This evolution will be helped by the development of ‘best practice’. An example is the GRIDSTOR Recommended Practice RP-0043, developed by an industry consortium led by DNV GL.

One exception could be the emergence of mass-market household storage as a consumer product, possibly in conjunction with residential PV. If this becomes popular, and if aggregators develop business models to make use of the combined storage capacity to provide services to energy suppliers, generators and network operators, then it could displace the need for utility-scale storage. The contractual arrangements for such small devices will be those appropriate for consumer products. The aggregators’ obligations to provide services will rely on the ‘portfolio effect’ of multiple similar devices.