Key take-aways of the launch event
By Jamie Maule, Dr Matthew Chadwick & Nick Fothergill (Partner – Weightmans LLP)
As part of the UK’s transition to net zero, the electricity generation mix needs to evolve, with increasing amounts of renewable capacity required to meet net zero commitments. To maximise the timeliness and minimise the costs of this evolution, many developers and investors are considering the co-location of multiple generation and storage assets behind a single grid connection, alongside co-location of generation and storage assets with electric vehicles (EV) charging infrastructure or low-carbon hydrogen production.
Held at Weightmans’ London offices on 7 December, this launch event and webinar for the paper ‘Co-location, co-location, co-location’, written in partnership by Cornwall Insight and UK law firm Weightmans, centered around seizing the key opportunities and overcoming potential challenges for co-location.
Why co-location and why now?
As the UK transitions to net zero there is an increasing need to bring renewable generation and storage assets online quickly and at scale. Dr Matthew Chadwick, Lead Research Analyst at Cornwall Insight, highlighted that “co-location provides a way to bring capacity online quickly and with reduced costs” and that “as more renewables enter the generation mix there will be more intermittency and a greater need for flexibility”. Chadwick added that “current grid connection times for stand-alone batteries are out beyond 2030” and so co-location can provide a crucial mechanism for getting more flexibility and storage on the system this decade. The panellists noted that alongside the decarbonisation benefits that co-location brings it also helps lower the costs for consumers and provide system security, thereby supporting all three pillars of the energy trilemma. From the investor perspective, panellists highlighted that with decreasing returns on renewable generation, investors are looking for how best to optimise generation projects, and co-location can provide that opportunity for both new and existing generation and storage projects.
A wealth of options: routes to market for co-located assets
Co-located batteries can access a range of different revenue streams, many of which are the same as for a stand-alone battery, but trading and optimising a co-located battery can be very different compared to stand-alone. At present, ancillary services provide the most lucrative revenue streams for batteries, but existing contractual mechanisms need to be taken into account when selecting which revenue streams can be opted into, with the panellists noting that a co-located battery is likely to be constrained by the generation asset. Nick Fothergill, Partner at Weightmans, stated that a battery could also be “charged cheaply at night and then utilised at peak times for EV charging”. In terms of charging a battery from a co-located generation asset for price arbitrage or peak shaving, Liam Kelly, Chief Operating Officer at Green Switch Capital, highlighted that, except in very specific circumstances, it was “difficult to see how the battery doesn’t just end up becoming a parasitic load on the generation”.
REMA: opportunity or barrier to co-location?
For the future of co-located projects and energy market investment as a whole, the Review of Electricity Market Arrangements (REMA) consultation launched in July is an area of high uncertainty. One of the key suggestions within the REMA consultation is the shift in the UK market from a national to a zonal or nodal pricing model. The panellists argued that in a locationally priced market there are risks associated with investors moving to follow the money and creating system imbalances. Liam Kelly, Green Switch Capital, added that the mismatch between where the revenue is and where it is possible to build, combined with the upheaval of the grid and pricing infrastructure, could result in “huge infrastructure and investment projects being put on hold or collapsing altogether”. For co-location specifically, the panellists noted that locational pricing could discourage co-location, with renewable assets limited by the geography of the UK and planning process, but with batteries able to move to where the price signals are highest, resulting in a separation of the two.
Accessing land and the grid
One of the main challenges to new onshore renewable developments in the UK is the planning permission requirements. Weightmans’ Nick Fothergill highlights that there has been “a general lack of clarity and some mixed messaging” for setting up new renewable generation, particularly onshore wind. Fothergill adds that, from a planning perspective, there are “obvious advantages to co-locating with an existing project” due to the less stringent requirements for retrofits to existing sites. Green Switch Capital’s Liam Kelly stated that getting connection to the grid was the “single biggest killer of any energy project that [Green Switch Capital] has developed” as a result of extremely costly grid connection offers and long, slow-moving, development queues. Kelly added that the “grid needs to tell [developers] how [developers] can help the grid”.
The future of co-location
Overall, co-location looks likely to play a key role in bringing more renewable generation and storage capacity onto the system in the coming years, with a healthy pipeline of projects lined up this decade. However, there are still some challenges that need to be overcome to further build investor confidence in co-location. Clarity and certainty on future market design will be crucial for investor and developer confidence in both co-located and stand-alone projects.
Presenter & Panellists
- Dr Matthew Chadwick, Lead Research Analyst, Cornwall Insight
- Nick Fothergill, Partner, Weightmans LLP
- Iona Penman, Energy Markets Regulation Manager, Arenko Group
- Roberto Castiglioni, Co-founder and CEO, Ikigai Group
- Liam Kelly, Chief Operating Officer, Green Switch Capital
- Dr Matthew Chadwick, Lead Research Analyst, Cornwall Insight
- Dr Daniel Atzori, Research Partner, Cornwall Insight (chair)
For access to the full report, follow this link: https://www.cornwall-insight.com/our-thinking/insight-papers/co-location-co-location-co-location/