By fully integrating solar PV and a long duration Battery Energy Storage System (BESS) behind a single power plant controller, Lyon’s solar battery power stations become dispatchable solar peakers.

The operational flexibility of Lyon’s projects allows them to tap into numerous existing revenue streams, remain agile in a changing market, unlock far greater value and reduce risk. 

David Green, Chair, Lyon Group

There’s a question Lyon has fielded more times than just about any other over the course of our seven year journey developing truly integrated utility solar and battery storage projects: 

“How can you say these projects can be commercial when battery storage is so expensive.  These types of projects won’t be commercial until battery storage price drop considerably!”

It’s an important question. But it is, in fact, the wrong question, because it is based on the wrong premise. It reflects a cost plus mentality rather than an approach that seeks to develop and apply a business model that achieves a commercial return on all invested capital (ie a value creation premise).

This cost-based paradigm is a hangover from the approach applied to date to incorporating standalone solar and wind into the generation mix. These are very basic forms of generation, with the only real scope to improve financial performance being to cut costs.

By focusing on the separate component cost of the PV and the BESS instead of the integrated value, the total project value becomes limited to the sum of separate value of PV plus separate value of BESS. This ignores the fact that the real value in marrying up PV and BESS is to operate them together as a complete power station, which dispatches valuable energy that meets people’s needs and makes the grid stronger by meeting power system requirements.

Co-located is not integrated

This cost-based paradigm persists because there haven’t been fully commercial BESS projects until now. Developers have sought to build a business model around retrofitting or co-locating an undifferentiated BESS, and relied on governments to bridge a commercial gap.

In this context, a decision on whether to add a BESS in this non-integrated way is based on a limited assessment of the separate, additional return the BESS will deliver. However, if operated in isolation, the BESS reduces the commercial return because its costs are not offset by sufficient additional revenues and adding the BESS has done nothing to extract more value from the solar.

This approach leads to the BESS being a drag on the project’s required rate of return, which can only be cured by government subsidisation.

The design, operational and revenue reality of these co-located but essentially standalone non-integrated projects is that:

  1. The solar injects intermittent renewable energy into the grid via its connection point but only as the weather allows (because the battery is not integrated with the solar); and
  2. The BESS is charged from the grid and discharges those grid-sourced electrons according to a limited, BESS only operational strategy (the operational strategy has to date been dominated by provision of grid support services, eg FCAS).

This reality opens up only very limited operational and thus revenue flexibility, and ultimately constrains the commercial returns achievable by co-located solar plus storage. Further, seeking to retrofit a BESS to an existing solar project to achieve an integrated project is cost-prohibitive at this stage.

Unlocking far greater value and reduced risk through Lyon’s truly integrated solar battery power stations

Lyon’s design philosophy requires that the solar and the BESS are operated as a single, integrated and complete power station. The BESS is as integrated with the PV as the invertors are. Integration unlocks a wide range of functionality that is not available individually from the BESS or generation. This provides an operational flexibility far beyond what can be achieved by co-locating a battery with a solar project. The value of that single, fully integrated plant is greater than the sum of its parts.

This wide range of functionality available from the integrated projects results from the application of Lyon’s business model, which is distinctly different to that applied to co-located, non-integrated PV plus BESS projects. Lyon’s business model requires that each project:

  • has the operational flexibility to maximise access to the broadest range of revenue streams currently available in the NEM and in the future;
  • includes capital equipment only if it enhances the return on capital;
  • meets the requirements of financiers for non-recourse project financing; and
  • provides a single owner operator with multiple arbitrage opportunities.

When The Atlantic published its list of the world’s greatest breakthroughs since the wheel in November 2013,[1] electricity was nominated as number 2 (the Printing Press was #1), and the Atlantic’s speculation about near-future additions to the list included wind and solar, and, separately, batteries. The article correctly stated that wind and solar “don’t produce power on a schedule that matches the grid’s demands” and correctly but misguidedly asserted “modern batteries cost too much, and store too little energy, to be useful in buffering undersupply”.

 

There is now very broad understanding of the amazing learning rate-driven falls in battery module costs since 2013, and the consequence that BESS is falling down a steep cost curve just as PV has done before it. What is much less well understood is that the value of PV and BESS – these wonderful, complementary innovations – is maximised by operating them in an integrated manner.

The primary use case for BESS is true integration with solar or wind, so the integrated plant meets as many of the power system requirements, as articulated by AEMO,[2] as possible, and is able to deliver operational and revenue flexibility. Helping to clean up the destabilisation caused by the unmanaged power dispatched by standalone solar and wind (alongside carbon-heavy gas and pumped hydro) is a secondary use case.

True integration allows multiple revenue streams and manages increasing risks in the sector. Lyon’s projects offer approximately 10 independent products that can generate revenue, some of them concurrently.

The operational flexibility of integrated solar battery power stations creates revenue flexibility and an ability to optimise across multiple revenue streams in real time, between contracted versus uncontracted revenue, and as market conditions change. True integration also mitigates the risks of adverse effects of MLFs, constraints and sagging solar peak pool prices.

On the other hand, traditional standalone wind and solar projects spurt out unmanaged, low value energy.

They lack flexibility and can’t manage their output or its variability. This low flexibility results in higher risk as there is little ability to adjust to changing conditions in the market or to extract a premium. This higher risk affects revenues and their level of uncertainty, reducing project value.

Traditional standalone wind and solar projects have one operating mode and can only receive revenue from the sale of electricity and LGCs.

The inflexible nature of traditional standalone solar and wind energy means that these projects must take what they can get from counter-parties that have to firm the supply. They also increasingly face additional dead weight capital costs such as a synchronous condenser to manage the negative effect their electricity has on the grid.

The relatively higher value of Lyon’s truly integrated projects in comparison to others can be highlight by articulating what Lyon’s projects are not.  Lyon’s projects:

  • do not need to contract with other parties to firm their energy;
  • do not need to include dead weight capital items such as a synchronous condenser;
  • are less likely than traditional standalone renewables to be negatively affected by MFL changes;
  • are not likely to be constrained off the network;
  • do not need to pay ‘user pays’ costs;
  • do not charge using carbon-based fuels (unlike pumped hydro and standalone grid-connected BESS);
  • do not add to network instability (and therefore meet increasingly rigorous connection requirements); and
  • will not be stranded in the evolving market.

The wheel fundamentally changed the world only when integrated with the axle. The comparison with the pairing of solar and battery storage in a truly integrated way (as in Lyon’s projects) is a useful one, up to a point.

There is a ceiling on the extent to which traditional standalone solar (and wind) can change the world on its own. Solar farms spit out a bucking bronco or uncontrolled, unstable energy, as allowed by the weather. A critical mass of people now understands that, no matter how much demand side and distributed energy resource flexibility we can unleash, traditional standalone utility solar and wind simply can’t underpin a ‘first world power grid’ because they weaken the grid.

Beyond this well accepted point, things have gotten weird.

The traditional standalone renewables lobby has convinced most people that what they’re selling is so important that the cost of buttressing the grid to countervail the destabilisation caused by their projects should be socialised, via the regulated returns of the grid companies.

This mode of thinking has been adopted by government entities, with public funding of energy transition now increasingly focused on subsidising the entry of battery and other forms of storage for the purpose of “firming” intermittent energy and countervailing its grid-weakening impacts.

This is a circuitous and expensive way to achieve the necessary decarbonisation of our electricity system.

What is required is that new generation meets the power system requirements for a stable grid. This happens to be Lyon’s design philosophy, which we adopted seven years ago because we could see that solar and wind would, should and could replace old dirty generation, but only if it delivered stable energy. Which requires true integration with battery storage.

I said the comparison to the integration of wheel and axle worked to a point. Clearly, there’s a place for standalone variable renewables and standalone BESS. And this will manifest as some volume of firming and countervailing particular with the level of renewables currently grid connected. But this should be Plan B!

For the transition of our electricity system to achieve the related goals of being least cost, stable and publicly supported, Plan A has to be that new generation faces a default requirement that it meets as many of AEMO’s power system requirements for a stable grid as possible.

[1] https://www.theatlantic.com/magazine/archive/2013/11/innovations-list/309536/#list

[2] https://www.aemo.com.au/-/media/Files/Electricity/NEM/Security_and_Reliability/Power-system-requirements.pdf

© 2019 Lyon Group

Contact Us

info@lyonasia.com.au
+612 8098 0213

 

Media Contact

Luke Brown
lbrown@lyonasia.com.au
+61 403 805 310