The report, titled “Renewables-plus-Storage Co-Location Trends: Hybrid PPAs and more”, explores the drivers, value streams, contractual arrangements and regional insights of this emerging market segment. It draws on the company’s market research and experience in supporting clients on hybrid projects.
According to the report, price cannibalisation - a phenomenon that occurs when increased volumes of renewables with the same generation profile produce at the same time and depress power prices – is posing a serious threat to the revenues of unsubsidised renewable projects. Around 64 percent of survey respondents to Pexapark’s “Renewables Industry Survey Report 2023”, a separate paper published earlier this year, want to introduce or increase storage in their portfolios to mitigate this risk.
However, the new report – which leverages unpublished energy storage-specific insights from Pexapark’s industry survey – also outlines the complexity and challenges of monetising co-located assets. Co-location creates value at both the grid and asset levels, which are not mutually exclusive and therefore require full visibility of market opportunities and sophisticated revenue modelling. Pexapark’s research demonstrated that modelling revenues was the biggest challenge when considering contractual arrangements for co-located projects.
The report highlights the role of Hybrid Power Purchase Agreements (Hybrid PPAs), which could offer the best of both worlds: revenues from grid services, while improving the value of the energy produced from the renewable asset. It examines various Hybrid PPA types, including their advantages and disadvantages, and the components that impact their pricing.
A major takeaway is the report’s regional insights into different markets and drivers for co-location in Europe. For example, the UK leads Europe in co-locating solar and storage, with 70 percent of new solar project applications featuring batteries in Q1 2023. Co-location growth has been driven by the UK’s mature grid services and energy storage market, as well as increased contractual readiness for Hybrid PPAs.
Germany has pioneered government-backed, innovative tenders that have awarded a partial subsidy to more than 1 GW of solar-plus-storage projects, leaving room for contractual innovation to further optimise the merchant exposure of the plants. Co-location growth in Germany is also being driven by market dynamics such as increased volatility in wholesale markets often leading to negative pricing.
The Nordics is a promising region to lead in the wind-plus-storage space. Advanced cannibalisation poses a serious threat to its legacy wind sector, and plays a pivotal role in the performance of Baseload PPAs which are popular in the area. Lastly, Spain’s solar sector is set to explore co-location configuration due to the acceleration of the cannibalisation phenomenon in the country. Pexapark analysis shows that in April 2023, capture factors hit a low of 0.64, meaning renewables sold at 64 percent of the average baseload price.
“Price cannibalisation is a key challenge for revenue management and investment decisions” said Brian Knowles, Director of Storage & Flexibility, Pexapark. “We have been very active in understanding the challenges of the industry on multiple levels, and we are excited to contribute to much needed knowledge-sharing to move the needle amid this tremendous momentum we are seeing”.
Xuejiao (Jo) Han, Lead Storage Quant, Pexapark added that co-locating renewables and storage can create new value streams and opportunities for hybrid projects, but it also adds complexity and uncertainty to the revenue modelling.
“Our report aims to help developers, IPPs and funds overcome this challenge and explore this emerging and exciting market segment” said Mr Han.
For additional information:
Report: Renewables-plus-Storage Co-location Trends: Hybrids PPA and More
