Clearer Rxpectations Over Energy Storage Needed In Utility-Scale Project Contract Negotiations

on October 9, 2019

Enthusiasm about solar energy and battery storage projects is reaching celestial heights. And for good reason. Thanks to the falling costs of lithium-ion batteries and new government policies designed to promote clean energy, deployment of utility-scale solar-plus-storage is growing rapidly.

But as developers and utilities approach this technology in contract negotiations, they should ground themselves in reality with a clear and shared understanding of what batteries can and cannot do (and for what price). If they fail to do so, parties risk talking past each other, resulting in cost miscalculations, missed opportunities and unmet goals.

As batteries become more mainstream, this concern is no longer theoretical. After utility-scale battery capacity in the United States quadrupled between the end of 2014 through March 2019, it is projected to more than double by 2023, according to the U.S. Energy Information Administration (EIA). Record solar-plus-storage projects have been announced this year in California, Nevada and Arizona.

Still, integrated battery storage projects represent a tiny share of the overall market in the United States, and it’s still very early in the development of the technology. Its nascency may help explain why some fundamental aspects of it are lost in translation and not fully appreciated.

I’ve seen it happen. Developers and utilities can spend months negotiating the terms of a power purchase agreement for a combined solar and battery project and still not realize that they have mismatched expectations and assumptions about what the battery needs to do, the battery’s operating parameters (and its limitations) and who controls its use. Too often, a battery is seen as simply another line item in a budget that can be priced like another piece of equipment added to a generating facility. But it’s much more than that.

Adding a battery to a solar project can appear deceptively simple. And it’s true that for developers, adding a battery (especially to a utility-scale development) is not a particularly burdensome step in a greenfield solar project. Solar site selection, resource assessments, environmental reviews, engineering studies/economic modeling and interconnection studies can all require more time, planning and due diligence.

By contrast, adding a battery to a solar project usually does not require additional permitting. And because they have a relatively small footprint, additional land acquisition is usually not required, nor is an additional environmental impact review required.

To be sure, there are some important operational questions that must be addressed around where to connect a battery to the electrical system. Should the solar energy be transmitted to the battery and then to the grid? Or, should the solar energy be allowed to flow directly to the grid or to the battery? Answers to these questions can have a significant impact on the cost of the project as well as significant tax implications that go beyond the scope of this article.

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Fractal Energy Storage ConsultantsClearer Rxpectations Over Energy Storage Needed In Utility-Scale Project Contract Negotiations