BY RICHARD HEAP:
I know from my work with A Word About Wind that there are areas where wind and solar can work well with storage. But that doesn’t mean the future of storage is all about hybrids.
Rather, energy storage is a sector with its own drivers to investment and we won’t simply look at it as an extension of wind.
This is a point that came across loud and clear when we spoke to Ben Guest, managing director of new energy at UK asset manager Gresham House.
As part of this he looks after Gresham House Energy Storage Fund, which is one of the few investment vehicles dedicated to solely investing in energy storage, and shows that Guest has strong experience in the industry.
The fund has this week raised £31.2m in an oversubscribed issue of 30million shares. The funds will be used to support an acquisition of a project that could grow to over 50MW, and fund the 10MW extension of a project it acquired in December 2019.
Growing at Gresham
After starting out at Lazard, Guest moved to Cantillon Capital Management in 2003 and then founded his own company, Hazel Capital, in 2007. While Hazel was primarily a solar developer, it also invested in storage as far back as 2008.
Hazel Capital became more involved in storage in 2015 when it teamed up with Noriker Power. Their developments included a 20MW hybrid battery-and-engine project, which completed in March 2017, and the 15MW Lockleaze project in Bristol that was the UK’s largest standalone battery storage facility when it completed in May 2017.
The company was then acquired by Gresham House in November 2017 to provide the seed assets for the then-new £100m energy storage fund. The fund shows that there is investment potential in storage developments that is often missed by fund managers that also invest in wind and solar.
Guest said this is because co-locating energy storage with existing wind or solar farms does not always make financial sense.
“A lot of the time, fund managers in wind and solar say, ‘We don’t think co-location makes sense yet’ or ‘We don’t think batteries make sense yet and so we won’t put batteries on our project.’ But by the same token, if you asked me if I wanted to build a battery project and append a solar or wind project to it, which is essentially the same thing in reverse, I’d say: ‘No thank you.’”
He said this is because standalone storage projects can take advantage of negative pricing, which is where they are paid to absorb excess electricity from the grid. They can then sell it on later when the prices have risen again. Guest said the growth of renewables in the UK meant that such eventualities would become more common due to intermittent production.
However, storage projects could not take advantage of this opportunity if they were linked to a specific wind or solar project. Rather, they would be forced to buy electricity from the generation project they were linked to at low rates.
Guest said: “To make both parts of the investment work, you’d be asking to buy a lot of power at very low prices and that is exactly the reason why wind and solar fund managers cannot justify a battery investment. The battery investment would need to buy power from these renewables investments at too high a price – the price in their financial model – [but] the reality is that we can exploit lower prices.”
He said this raised serious questions for investors in renewables projects about the potential impact of electricity oversupply, and the price cannibalisation that follows from this, on financial models in renewables.
But he isn’t against pairing in principle: “I don’t mind pairing them when it’s part of a financial case you set out with, if it makes sense, and this is the key question. We’re not completely sure if it makes sense and a lot of it will turn on what happen with regulation in the next few years.”
Fluctuating production from renewables puts pressure on UK grid operator National Grid to balance supply and demand, and will force the UK – and other countries with a similar issue – to look more at storage for grid balancing.
Even so, Guest said he felt the UK government had been “strangely silent” on supporting the evolution of batteries, despite their great growth potential.
Gresham House currently has 174MW of storage developments in its portfolio and is set to grow this to almost 300MW by the end of this year. It is aiming to reach 1GW of installed storage capacity by 2021 or 2022.