Price cannibalisation, which occurs when increased volumes of renewables with the same generation profile produce at the same time and depress power prices, is posing a serious threat to the revenues of unsubsidised renewable projects.
This is one of the key findings of the newly launched report by market intelligence firm Pexapark titled Renewables-plus-Storage Co-Location Trends: Hybrid PPAs and more.
The report provides insights into the opportunities and challenges of co-locating renewable energy assets with storage in Europe and identifies the complexity and challenges of monetising co-located assets.
According to Pexapark’s findings, co-location creates value at both the grid and asset levels, which are not mutually exclusive and therefore require full visibility of market opportunities and sophisticated revenue modelling. The research demonstrated that modelling revenues was the biggest challenge when considering contractual arrangements for co-located projects.
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The report highlights the role of Hybrid Power Purchase Agreements (Hybrid PPAs), which could offer revenues from grid services, while improving the value of the energy produced from the renewable asset.
In terms of regional insights, the UK leads Europe in co-locating solar and storage, with 70% of new solar project applications featuring batteries in Q1 2023. Co-location growth has been driven by the UK’s mature grid services and energy storage market, as well as increased contractual readiness for Hybrid PPAs.
Germany has pioneered government-backed, innovative tenders that have awarded a partial subsidy to more than 1GW of solar-plus-storage projects, leaving room for contractual innovation to further optimise the merchant exposure of the plants. Co-location growth in Germany is also being driven by market dynamics such as increased volatility in wholesale markets often leading to negative pricing.
The Nordics is a promising region to lead in the wind-plus-storage space. Advanced cannibalisation poses a serious threat to its legacy wind sector, and plays a pivotal role in the performance of Baseload PPAs which are popular in the area.
Lastly, Spain’s solar sector is set to explore co-location configuration due to the acceleration of the cannibalisation phenomenon in the country. Pexapark analysis shows that in April 2023, capture factors hit a low of 0.64, meaning renewables sold at 64% of the average baseload price.
Brian Knowles, director of storage & flexibility, Pexapark, said: “Price cannibalisation is a key challenge for revenue management and investment decisions. We have been very active in understanding the challenges of the industry on multiple levels, and we are excited to contribute to much needed knowledge-sharing to move the needle amid this tremendous momentum we are seeing”.
Originally published on Power Engineering International.
