Operational Renewables Projects – Part 1
With the Feed-in Tariff now closed to new applicants (from 1 April 2019), and the Smart Export Guarantee still a twinkle in the government’s eye, now is an opportune moment to assess where the opportunities and challenges lie for operational renewable energy assets.
In this article - the first in a series of five articles on operational renewables projects - Jonathan Croley of Ashfords and Richard Palmer of Roadnight Taylor consider the investment opportunities that exist for owners of solar assets and those seeking to diversify.
Establishing the business case for retrofits
The vast majority of revenue in a renewables project is produced only when electricity is being generated and turning the meter. Whilst wind and solar generation is in large part weather dependent, it is worth assessing the efficiency of equipment to ensure that they maximise available wind and sunshine. For anaerobic digestion (AD) and biomass projects, generation is less intermittent, but recently a mini-industry has developed to deliver technology that improves facility performance.
Even where equipment is operating at peak efficiency, there may be a business case for retrofitting new technology and augmenting the scope of the assets, perhaps through the installation of battery technology and smart meters for offtakers who are supplied under private wire arrangements. Such technology can enable installation owners to seek more favourable terms for the sale of electricity to the grid.
“We are constantly surprised at the extent of revenue that is being missed-out on through a poor understanding of the efficiency of generation equipment – often the highest returns can come from investing in existing renewables schemes. We find that many assets are missing out on revenue just because a project was initially set up a certain way and hasn’t been re-evaluated since.”
“We’ve acted on many projects where owners have retrofitted equipment in order to increase profitability. From a legal perspective it is important that contracts for the provision and installation of this equipment sufficiently protects the purchaser to ensure that the installation is capable of achieving the required level of performance and does not cause any issues (such as overloading) to existing project infrastructure.”
Taking a whole-project approach
It is important that the impacts of retrofits are viewed “in the round” in order to avoid unintended and adverse consequences. An independent view on the proposed changes at the planning stage can help provide comfort that the expected returns will be forthcoming before funds are committed to a solution.
“It’s surprising how far some proposals can progress before it is realised that there are juicier low-hanging fruit that give better returns for less risk and investment. A sound business approach is to carry out a strategy review of a site to ensure all current and future heat and electricity demands, as well as existing processes and assets, are properly mapped out. For example, before considering investment in battery storage it is sensible to understand what demand side management can be implemented without significant investment and/or with existing assets alongside a change in the underlying tariff structure from an electricity supplier. Furthermore, an investment in a particular renewable technology can potentially cannibalise more lucrative investments in the future.”
“In respect of AD projects, some technology claims to reduce the feedstock requirements for the plant, increasing the same amount of biogas derived from the same or smaller quantity of feedstock. That’s all very well and good, but if your total feedstock requirement reduces, do you have the flexibility under your feedstock agreements to reduce the quantities of feedstock purchased? Many facilities will be committed to buying certain quantities of feedstock under long-term arrangements. There may well be a cost to securing the agreement of the feedstock provider in varying these arrangements. These costs will need to be factored into the business case of the retrofit.”
Opportunities exist for increasing the energy-and-revenue-generating ability of renewables assets. In the absence of opportunities to invest in new generating stations, investing in the existing infrastructure can provide improved returns for the project as a whole. Precisely which retrofits produce the best returns will need to be assessed on a project-by-project basis, perhaps involving a ground-up review of the project to ensure that all the relevant options are examined and costed appropriately.
About the contributors:
Jonathan Croley is an Associate at Ashfords LLP. Jonathan and his colleagues have advised on a number of retrofits to existing projects, including adding batteries to solar assets and pre- and post- treatment in AD facilities.
Richard Palmer is a Senior Consultant at Roadnight Taylor, a leading independent power and energy consultancy that provides strategic energy reviews and advises on optimal deployment of generation and storage technologies, as well as financial optimisation of existing assets.
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Read the next article in this series.