The lack of power grid capacity became a new norm in many countries. The grid congestion map of the Netherlands became a hallmark featuring in many energy policy discussions these days. And the problem is not limited to the Netherlands, nor to Europe. Nor to renewables: storage and load are also queuing.
As power grids are the main integrators of future energy systems, their unavailability is evolving to be a key barrier to the energy transition. Connection requests piling up forced many governments to take action. There are fundamentally 3 ways to mitigate grid scarcity: better utilization of existing grids, more efficient (re)allocation of remaining grid capacities, and building new grid infrastructure. The first two options include various quick fixes, often through regulatory changes. Building new assets comes with a much longer lead time.
One increasingly popular and easy way to optimize the use of existing grids is to move away from the principle of ‘one resource behind each connection point’.
Colocation/cable pooling/hybridization means several resources share the same grid connection point and most often the site as well. Sometimes the distinction is made between resources that are:
- Co-located (under separate control) or hybridized (under joint optimization);
- A secondary resource collocates to the existing primary or they are developed jointly from the beginning (‘hybrid power plans’);
- Resources are AC or DC coupled.
Potentially all kinds of resources can be co-located. The current policy discussion in the US is about building datacenters at power plants. While Amazon and Google try to secure generation to meet the load of their planned datacenters, FERC, the US federal regulator, is concerned that such bilateral agreement provides unfair benefit for these new loads against other system users. They take away valuable dispatchable generation resources from the power system and avoid paying for the cost of transmission grid upgrade for their separate connection.
Some projects pair solar and wind to capitalize on the complemental profiles of the two technologies. Examples of such projects are in countries like Turkey, Spain and Portugal.
Most often, however, colocation means the pairing of renewables and storage. Solar-plus-storage is by far the dominant configuration of hybridization in the future. The US National Renewable Energy Laboratory (NREL) reports that in the US, “hybrid power plants comprised 55.2% of active bulk solar capacity and 51.7% of active bulk energy storage capacity in the interconnection queue at the end of 2023.”
Benefits of colocation
Colocating solar with battery storage offers various system benefits. Average solar uses approximately 10-14% of its connection capacity at nameplate and at times of scarce grid availability, to increase this allows more clean resources to be connected quicker. The complementarity of the load curves of the technologies increases the utilization rate of the connection point. The avoided curtailment of renewables that was due to network congestion reduces emissions by less reliance on dispatchable fossils.
Distribution system operators (DSOs) benefit from having to process less feasibility assessment as secondary resources do not require extra grid connection capacity. Sharing of a connection point means that the resources behind the same connection point take over the optimization from the DSOs by agreeing on how they share the connection capacity and settle grid fees among themselves.
The business case for participants in colocation comes from higher revenues and reduced costs vis-à-vis separate installations. First, it increases revenues by firming solar generation and reduced curtailment. Secondary resources (in most cases storage) can get online quicker by jumping the connection queue. If co-located storage is allowed to charge from the grid as well (banned in some countries that can turn to be a major disadvantage) then early entry to ancillary and wholesale markets provides higher revenue when the market gets more saturated. Cost saving is often as impactful drive as revenue opportunities, especially for colocation designed as hybrid plants from the onset. Cost can be saved on connection cost and equipment, especially if the resources are DC coupled, on site overhead in the form of rent and insurance, and lower network losses.
Some examples across Europe
Some European countries provide active support to co-located solar and battery energy storage systems (BESS), most often integrated to their renewable support auctions. Germany launched Innovation Tenders in 2020 that are open to projects combining two or more renewable or clean energy technologies (one should be either wind or solar). The storage system can only store electricity generated by the co-located renewable generation assets and cannot charge from the grid. The last round saw bids amounting for 1.8GW compared to the 583MW tendered capacity. All cleared projects were solar-plus-storage. Hungary introduced mandatory storage in its 2022 renewable tender. Storage must have a minimum nominal capacity of 10% of the generation asset and be accredited for automatic Frequency Restoration Reserve (aFFR). At the same time – as there is no grid capacity available in the whole territory of Hungary for variable generation capacities – mandatory colocation of BESS (or DSR) for any new variable generation (practically solar) assets became a condition for grid connection in July 2022. The rule has been suspended – due to pushback of stakeholders – in December 2022 until further notice. Spain organized a dedicated tender for co-located renewable and storage projects in 2023. The first PERTE tender for 150M EUR targeting 600MW oversubscribed with more than 1.1 GW/1.1GWh capacity. The tender awarded CAPEX support based on several criteria:
- Economic Viability (35%): Mainly including support level required;
- Technical features (25%): MW/MWh-ratio, Round-Trip-Efficiency, Advanced controls capability including Inertia, Short-Circuit Levels, Oscillation Damping, Black-Start;
- Project viability (10%): Status of permitting process, Risk mitigation plan, Applicants execution experience;
- Externalities (30%): Employment generation, Supply Chains, Environmental aspects.
Other countries are opening up the colocation option outside of their renewable support regime. Poland allowed cable pooling of renewables in 2023 to keep their growth despite the lack of grid connection possibilities. Even if it is a novel option, two problems have been already identified: it excludes storage, and secondary assets are not eligible for renewable support. In the UK, projects awarded contracts for difference (CfDs) are able to co-locate with a battery. With only a handful of projects in operation, it is yet to be seen how much of the potential will be delivered. The UK is the most advanced market for solar-plus-storage PPAs as well even though the different business models of the two resources require innovation in deal structuring.
Even though the new Energy Law that contains this change has not been approved yet, the regulator in the Netherlands already allows for cable pooling both with new and existing connections to ease grid connection queues. Cable pooling is limited to connection from 2MVA and for a maximum of 4 installations. The participating installations must be located at the same site.
Conclusions
Colocation is not going to be a silver bullet for eliminating grid constraints and to develop a forward-looking coordinated development of new generation, new load and new grids. Carving out resources from the power system in any forms, such as colocation, energy communities, microgrids or corporate PPAs, means fencing off system value for the participating users. It needs to be assessed against the system benefits it creates by quicker and cheaper decarbonization. It can however increase the utilization of existing grids and reduce the volume of new grids that needs to be built. In the meantime, it allows for getting clean resources online earlier and thus speeding up the decarbonization of the power system. Transparency platforms, such as hosting capacity maps mandated by the EU Grid Action Plan, that provide information on grid users (current and queuing) and grid utilization could act as matchmakers for complementary resources and allow for informed locational choices for batteries as well. Colocation can provide benefit – additional to grid access and cost – to the investors by improving renewable capture rates and sharing site cost of hybrid projects. And to the system as a whole by reducing price cannibalization.
