The UK will need 30GW of storage to meet our climate goals, according to Imperial College. That’s 10 times the current capacity. There are many questions this raises, such as ‘what is the appropriate technology mix?’, but if we consider the form predominantly being developed now (lithium-ion batteries of under or around two hours duration), one of the main questions is where best to situate this?
So far the vast majority of volume has been deployed as front-of-the-meter installations – a standalone site with a dedicated connection for the battery alone. However, given that connections can be costly or administratively difficult to obtain, a more cost-effective solution would be co-location.
In this blog we will dig into some of the advantages of co-location of batteries with solar farms (PV installations with a dedicated connection). We will leave the current policy/regulatory framework to the side and focus on the fundamental benefits.
The case for co-location
When new generation connects to the grid, it has to pay for the new copper in the ground. This isn’t cheap. For a battery (short duration, lithium-ion) the connection typically represents 10-20% of the total capital expenditure – and can be much higher, depending on the conditions of the local network (eg if you are unlucky enough to be the marginal connection requiring a sub-station to be upgraded).
If the battery was able to share an existing connection with a solar farm of the same size, it could save the 10-20% of upfront cost; it would still need to buy an import connection, which the solar farm doesn’t need, to ensure the battery can draw from the grid to charge, but the economy would be significant.
In the UK, solar PV (without tracking) has an average capacity factor of 10-15%. This means that for the vast majority of the time the connection is an expensive sunk cost, lying there unused. By sharing it with storage, the return on investment from the connection increases several times over.
Why solar and storage are perfect bedfellows
Sharing one connection becomes a problem when both energy sources are producing at the same time. Export from one resource will constrain the ability of the other to export. With solar and battery storage, we find that this is rarely the case; ie both assets are very seldom trying to use the connection to export at the same time [see fig 1].
This is due to the price cannibalisation of renewables – where prices are lowered at times of high renewable generation because they produce at zero marginal cost, and so will sell power at any price above zero. There is sufficient solar power in the UK (>12GW) that during the middle of the day market prices will drop lower.
If we are performing price arbitrage with the battery, it is obvious that we would not be looking to discharge at these times when prices are low. We want the highest prices – usually over the evening peak. In fact, we have found that when optimising the battery against Day Ahead prices, a conflict occurs with the solar generation less than 1% of the time.
Figure 1: Generally, the battery looks to discharge at times of high prices which does not align with solar output
What this means is that we can effectively trade the two assets separately from each other, rather than as one. This has great benefits because solar predictions are best made at portfolio level, taking advantage of geographical dispersion to neutralise stochastic cloud impacts on production. Therefore, the solar can be traded as a portfolio, while battery activity can be scheduled separately.
This also highlights one major advantage of pairing batteries with solar rather than wind. Solar has very high diurnal periodicity, so we can guarantee there would be no production over the most lucrative peak time (4-7pm, especially in winter). The same cannot be said for wind; so if it a wind farm was generating during this peak period there could be large entailed opportunity cost for the battery.
Given that the battery is the more controllable resource, and solar produces at zero cost, the battery should accommodate the solar generation and plan activity around it.
The need for advanced optimisation
Pairing solar with batteries, then, looks like an obvious and straightforward win. However, there is more nuance.
While Day Ahead prices will rarely incentivise discharging the battery in the middle of the day, there are often later market opportunities that do; for example, if a large generator trips off the network to create a shortage. The most advanced battery trading strategies will cycle far more than once per day by looking to optimise at each time horizon, to stack value across the day.
Given that cloud cover could have a strong impact on PV output, there will still be many instances where a solar farm has the connection unutilised in the middle of the day [fig 2].
Figure 2 – Clouds drive large short term volatility in production
To take advantage of this we need reliable, real time monitoring of the solar farm (we can only dispatch the battery and make use of the connection if we can be certain the solar PV isn’t) and dynamic responsive controls to ensure solar output is tracked closely (to prevent overloading the connection point).
Dynamic Demand 2.0 Trader is powered by our fully automated platform, needed to support this level of sophistication. Control logic is held both locally on the battery, to ensure responsiveness to changing site conditions, and centrally in the cloud, enabling responsiveness to live price opportunities provided by Erova Energy’s advanced market insight.
With this level of automated control and trading insight, pairing solar with storage represents a cost-effective solution for storage location and a potentially lucrative way forward for energy investment.
For a free consultation about co-location and your energy investment, call +44 (0) 20 3051 0600