INTERVIEW: Econergy targets longer duration BESS as power volatility climbs

Independent power producer Econergy is targeting longer duration battery energy storage system (BESS) projects across its European plays as revenue opportunities tilt towards wholesale markets and long-term contracts, the company’s head of storage Joshua Murphy told S&P Global Commodity Insights in an interview Sept. 10.

The Israeli-listed IPP has a large portfolio of solar and storage assets in Italy, Greece, Spain, Romania, the UK and Poland, and has just closed a financing and route-to-market agreement with Goldman Sachs for its 102 MWh, two-hour duration Swangate battery project in Yorkshire, England. The asset is already permitted to expand to three hours and is expected to be connected by the end of the year.

“Depending on the market that we are planning to operate in, projects being developed today for deployment in three to four years’ time will be of four-to-eight hour duration,” Murphy said.

This is in part due to falling lithium costs but mainly due to rapidly evolving regulation in markets like Italy and Poland.

“Poland’s capacity market offers a 17-year secured contract for a battery that over its lifetime represents up to 25% of its revenue according to data supplied by market forecasting agencies -- for BESS that’s a huge amount of contracted revenue to take to a bank and raise project finance on,” he said, noting the country’s call for four-hour duration storage.

Italy’s MACSE auctions, meanwhile, are seeking four-to-eight-hour duration batteries. “Securing contracts under this scheme is driving the market,” he said.

“Before you enter a market you need to be satisfied by the underlying fundamentals and long-term trajectory. Italy and Poland are the next focus for us after GB,” Murphy said.

Econergy already has a large Polish four-hour battery project under contract for connection in 2026 with a favorable derating factor of 95%.

Polish derating factors have been cut sharply for future auctions, “but the direction generally is encouraging in Poland and elsewhere with proximity to Russia, where coal is being phased out and where solar and wind are booming -- all create volatility, which is good for BESS,” he said.

Paid to charge

Where possible, Econergy’s strategy is to develop solar and storage as shared grid connections.

“The crossover in trading times is very, very low -- your solar can operate quite freely around morning and evening trading periods for the battery,” Murphy said.

As the gouging of hourly midday prices gets more accentuated in solar-heavy markets like Spain and Greece, solar-only power purchase agreements are becoming increasingly tricky to negotiate.

“Batteries will be needed to bolster the case for a solar project where the PPA pricing is low,” Murphy said, noting the increase in negative hourly prices.

“Getting paid to charge makes it a nice environment for batteries -- and the more batteries we deploy the more renewables can be built,” he said.

Falling costs

Meanwhile falling lithium prices have had a considerable knock-on effect on developer costs, “but you’ve also had internal cannibalization of spreads for batteries in mature countries,” Murphy said.

Platts, part of S&P Global Commodity Insights, assessed the price of lithium carbonate (CIF North Asia) at $10,500 per metric ton Sept. 9, down from $29,800/t a year earlier, and from $78,000/t in November 2022.

“There is no shortage in the supply in lithium, it’s in the processing and productizing of battery packs where we had bottlenecks two years ago,” Murphy said. “We’re constantly evaluating what is on the market -- vanadium flow, nickel hydrogen, liquid air -- but I strongly believe lithium-ion batteries will be the technology of choice for the next two to six years.”

Lifecycle choices

In terms of revenue, National Grid ESO’s dynamic containment market in the mature GB market was suited to one-hour batteries but as this market saturated and asset duration increased, “the opportunity cost for dynamic containment is high so we’re looking into the balancing market, the day-ahead market or longer term contracts to secure revenues,” Murphy said.

The Swangate deal would see Goldman Sachs trading the battery along agreed operating principles.

“We give route-to-market providers the framework of our warranty conditions, but we also have an agreed operating principle. The warranty might say we can do up to 2.5 or 3 cycles per day but that will reduce the overall lifetime of the asset. So we might go in with a framework of 1.5 cycles per day,” he said.

However, the advent of huge swings in the market is beginning to present opportunities that prompt informed decisions that could reduce the overall lifetime of the asset, Murphy said.

“That is now a key consideration when we’re sourcing batteries -- we ask all Tier One suppliers, what performance can you guarantee us for 15 years? That then gets built into the financial model for the project.”

GB battery revenues increased by 42% month on month in August to GBP56,000/MW/year, buoyed by record-high balancing market earnings and a volatile wholesale market, according to Modo Energy.

The spread between average N2EX day-ahead baseload power prices in August and capture prices for GB solar as assessed by Platts rose to GBP9.96/MWh versus GBP1.20/MWh in July.