Co-location of wind and storage: Greentechmedia Sourced from Invenergy
The coronavirus pandemic is causing chaos, leaving only the brave to do anything but look from the sides to see where it is all going. My take is that this is a time to look strategically at one’s portfolio to see whether it is future-proofed. Readers who follow me will be aware that in addition to two very rare events (COVID-19 and oil price war) happening now, this decade is the one when humanity decides if it wants a future. This means exit from fossil fuels.
Here I review the changing face of renewable energy as both solar PV and wind power shed their “intermittent” badge and start to become dispatchable power sources through strategic adoption of storage, which is mostly big batteries and pumped hydro. Wind projects are the new entrants in this new view of renewable energy. Major wind companies Vestas Wind Systems (OTCPK:VWDRY) and Siemens Gamesa Renewable Energy (OTCPK:GCTAF) both see storage becoming part of many (most?) wind projects in the future. These developments have positive implications for investment in solar PV, wind and battery storage.
In an earlier article concerning the Tesla (NASDAQ:TSLA) Megapack battery, I indicated that adding a big battery facility is going to become a major market for complex battery suppliers. Two major wind suppliers concur that this is where the market is headed, confirming that the battery opportunity and makes clearer how competitive the renewables market is becoming for new large scale power provision. Indeed the first of the solar, plus wind, plus battery plants are now being developed.
To attempt to forestall a sea of comments along the lines of “but a battery can’t possibly store all the power that a wind or solar farm produces,” it is worth mentioning that electricity is all about moving electrons around and batteries provide breathing space for these movements. There is not necessarily a need to keep the stored power in the battery for long if “downstream” there are further balancing opportunities. And of course in a modern grid there are other levers, such as time switching of power needs and demand management. The batteries are a vehicle for increasing the flexibility of the system.
For a number of reasons, especially involving new energy policy, solar PV has pioneered the development of hybrid facilities with battery storage. However, wind projects are rapidly catching up. Indeed, the now-famous Neoen (OTC:NOSPF) Hornsdale Power Reserve, a 100MW/129MWh Tesla big battery project in South Australia, is an adjunct to Neoen’s major 309 MW Hornsdale wind farm.
A number of wind farms are now at the stage where refurbishment is being considered. Swedish company Vattenfall has completed both wind-plus-solar and wind-plus-storage projects in the UK. Vattenfall’s Jake Dunn makes the obvious comment “If you were to repower a wind project, you would have to look at the option of storage – you’d be foolish not to”.
While it seems that in the future few big solar PV projects will proceed without at least some big battery component, it is clear that there are times when a solar PV-plus-batteries facility will fail to provide planned power delivery, especially in the evening peak power time slot. In recent studies, it has been found that adding a wind component to a solar PV + battery project could overcome many of the times when delivery of power is constrained. Vestas recently acquired New York-based Utopus Insights which focuses on energy analytics. Battery storage systems are getting bigger, having a storage capacity to smooth wind production over a day, with some even bigger projects planned. The goal of these hybrid facilities is to make gas-fired peaker plants redundant.
Utopus makes the point that the late arrival of use of energy storage in wind projects (or combining solar PV, wind and storage) is in part due to policy issues such as the Investment Tax Credit for solar power includes battery storage, while the wind production Tax Credit (which currently expires at the end of this year) does not. The Democrats are seeking support for the renewable energy industry as part of a COVID-19 stimulus package. If successful such a stimulus might help straighten out some of the inconsistencies between the solar PV, wind and battery storage industries and help coordination of integrated solutions. IEA chief Faith Birol is seeking support for investment in renewable energy as a central part of plans for economic recovery from the coronavirus pandemic.
There is a recent concrete example in the US of a hybrid renewables project that breaks new ground. NextEra Energy (NYSE:NEE) has contracted to complete by 2023 a 250MW wind/250MW solar/200MW/800MWh storage project in Oklahoma. This configuration is an economic alternative to a natural gas peaker plant. This will be the first substantial triple hybrid project in the US. It is new territory as there are a number of variables: optimising each component (wind/solar/batteries), with storage duration a curve ball to make it more complicated. And the battery is big! However, the project got a life when it was realised that it was cheaper than a comparable gas peaker plant. And the performance is better than a peaking plant, with a fast battery response plus the capacity to absorb extra power on windy days.
The above NEE project comes hard on the heels of a project with Portland General Electric (to be completed 2021) which is a 300MW wind/50MW solar/30MW/120MWh storage project.
The point about these projects is that the planning and management of the different components is a key issue in getting the best solution. These are dangerous times for gas peakers, which are expensive and have limited utility.
Siemens Gamesa claims to have completed the world’s first commercial solar and wind hybrid on-grid plant at Kavital in India in 2018, with the installation of 50MW wind power to an existing 28.8MW solar PV plant. Subsequent to its completion, this plant was reported to be including lithium battery storage to improve the operation of the plant. This solar/wind/battery project will be used to review such hybrid systems with a view to further implementation in other Indian projects. The Solar Energy Corporation of India issued a request for 2.5GW of hybrid solar and wind projects to be connected to the Interstate Transmission System.
A recent oversubscribed 1.2GW hybrid tender for firm power supply has shaken up the Indian energy sector as it is competitive with coal power. The Chairman of the National Solar Energy Federation of India Pranav Mehta put it bluntly: “thermal power in India has become priced out.” The results of the competitive bid led to 900MW from Greenko ($US0.086/kWh peak tariff; $US0.040/kWh off-peak tariff, with weighted average $US0.0561/kWh) and 300MW from ReNew Power ($US0.096/kWh peak tariff; $US0.040/kWh off-peak tariff) for 6 hours/day during peak and off-peak hours on a day-ahead demand basis. To achieve the firm power requirements, storage capacity of at least 3GWh was needed. This tender is a first in India for firm power from renewables and it provides a viable alternative to peaker plants on the grid.
The most recent thermal power tenders in India produced tariffs in the range $US0.0694-0.0972/kWh. The peak hybrid tenders described above were also competitive with international markets (e.g., USA $US0.1111-0.1250/kWh).
With the rise of renewable energy, it is perhaps significant that India’s 205GW of coal-fired capacity is averaging just a 56% utilisation rate. I think it is clear where this is heading.
In the above sections, I've documented projects involving wind, solar and batteries to provide low emissions power solutions and documented that even in difficult markets (e.g. India) these solutions are proving to be competitive with traditional fossil fuel approaches. There is little doubt that we are in a major energy transition. For example, the ability to finance coal power developments in India is very challenging with 46GW of coal projects cancelled in 2019 (bringing total coal plants cancelled to 600GW and leaving 37GW under construction). India will have 175GW renewables by 2022 and it has a 450GW renewables target by 2030. There is little doubt that the market opportunities are massive.
In the short term, there are many issues caused by the COVID-19 pandemic. China is a major global supplier. Some see that China has passed the COVID-19 crisis and is on the way towards a quick recovery. It is true that the Chinese response to the outbreak has been remarkable, but it was achieved by complete lockdown. Now that the reins are being loosened with businesses restarting and travellers coming back to China, infections are beginning to rise again (as yet from a low base). Virtually everyone in China is still susceptible to infection. Given lockdowns around the world, there is little doubt that current business activities are going to be dramatically affected.
There may be a silver lining during this emergency as there is a lot of money being spread around. It will be interesting to see if governments use this time constructively to move action on emissions reductions forward.
Both Vestas Wind Systems (market cap $14.47 billion) and Siemens Gamesa (market cap $9.43 billion) are substantial companies with very strong technical capacities and major business opportunities in front of them. Siemens Gamesa is interesting as there may be a consolidation play in the wings as the parent Siemens AG (OTCPK:SIEGY, OTCPK:SMAWF) is planning to IPO Siemens Energy. Christoph Liu has explored this in a recent article. The GCTAF share price has been resilient in the COVID-19 disaster (falling from ~$17.50 to ~$14). Vestas has been more affected falling from ~$34 to the low $20s. From a personal perspective, it is comforting that my VWDRY shares are still above my acquisition price.
Not long ago, to claim feasibility of hybrid renewable energy projects including solar PV, wind and batteries would have been thought of as complicated and fanciful. The dramatic cost reductions for all three technologies as well as smart integration of different technology solutions is dramatically changing this landscape. As shown here in several emerging domains around the world, hybrid renewable energy/battery solutions are challenging traditional gas peaker plants and coal power. This is a big change. Here I’ve focused on some major wind manufacturers (Siemens Gamesa Renewable Energy, Vestas Wind Systems) who are seeing new market opportunities for their technologies, and elsewhere I’ve focused on big batteries through an article concerning the Tesla Megapack.
Solar technology is of course the glue for these hybrid solutions. Think about these opportunities as the markets work themselves out. My view is that now is a good time to reposition your energy portfolio towards future opportunities rather than investing in the fossil fuel past and hoping it might return.
I am not a financial advisor, but I am paying attention to the revolutions happening as energy gets electrified and decarbonized. If my perspective helps in your decision making about investment in this space, please consider following me.
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Disclosure: I am/we are long VWDRY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.