Janet Wood talked to Thrive Renewables investment director Monika Paplaczyk about the barriers and opportunities in investing behind the meter in storage and generation and the company’s move into battery storage
Thrive Renewables’s aim is to help individuals and businesses to have a meaningful stake in clean energy projects. For investment director Monika Paplaczyk that spirit is an important reason why she joined the company 14 years ago. She says, “It is about people having a few shares and bringing that community together. There will always be big utilities and big funds doing this stuff but not everyone can participate in that. This is why I have always been very keen on keeping that togetherness and everyone sharing that spirit.”
That sharing approach might have extended to businesses and a few years ago Thrive joined with Aura Power to offer them ‘behind the meter’ (BTM) battery solutions, at no upfront cost. That has not happened and when I meet Paplaczyk virtually I first want to find out why.
BTM business models for batteries
She says that when looking at BTM batteries, “The business model was still quite tricky. It was three years ago and the businesses couldn’t see how much extra value it would deliver to them. They were looking at say 10-15% savings on their bills, which was not capturing their minds as much as, say, solar feed-in tariffs had done.”
She says, a lot of businesses got excited at the energy manager level but it was difficult to make those decisions at the higher level. “We need the businesses to commit to 25 year power purchase agreements (PPAs) and leases and they say ‘if we are only going to get 10% of savings why would we sign a long term PPA? We normally don’t take decisions for that long’.”
She recalls that three clients were very very near a decision – Ofgem’s ongoing revision of charges put them in hold. “That had a huge impact. If that decision was not in favour that would impact the business model,” she says. Thrive decided that, “maybe right now in front of the meter is where the opportunity is”.
She thinks that the BTM model will return, not least because companies are thinking more about resilience “We were offering UPS as one element and this was coming through very clearly as one of the benefits”. She says, “I feel it is probably another six or 12 months because some clarity is coming from Ofgem and the price of batteries has gone down and I think what has changed hugely is that lots of businesses are on the Net Zero agenda. I didn’t see that three years ago: if we went to the companies right now I think we might see a completely different reaction from the businesses – it is so much more Net Zero commitment.”
Even with Net Zero on the boardroom agenda she says batteries are tricky. “With solar or wind generation you can see quite clearly what saving you have. With batteries we know it is helping bring more renewables onto the system, but it is not as easy to translate that into a saving.”
Making it work
There has been a quicker upswing for BTM energy generation projects. Paplaczyk says they had fallen off after the feed-in tariff ended, “but in the last 12 months we have seen so much more”. Thrive has joined forces with specialist Olympus, providing it with investment facilities for BTM solar. It is targeting medium to large companies for ground mounted or rooftop BTM solar and there is more interest than expected. “It takes time,” Paplaczyk says, “but the Net Zero commitment has really increased interest”. It has also invested in Rendesco, whose model is investing in ground source heat for retirement villages. Paplaczyk says, “We definitely need heat – it is one of those things that just isn’t sorted yet. The challenge is that growth was driven by RHI and that is in limbo now, no-one knows what is going to happen now and we really need some replacement for it to increase interest. For businesses heat is another area that really needs to be addressed.”
The common theme in these BTM options, Paplaczyk explains, is that “the business case is not only about renewables and carbon but about the businesses and giving them visibility of the future cost of energy. .. sometimes those kinds of businesses look at fixing an element of those future – inflation – so they can protect themselves against that.” But business also wants flexibility – Paplaczyk says the question of whether contracts can allow for a decrease if energy prices goes down in future “comes up in conversations a lot”. But she says “that’s about the conversation so they understand our position as investor and we understand their position. There are ways of addressing some of their concerns while protecting our business case.” She adds, “there are synergies to be achieved between the energy supplier and the host business by providing future cost certainty, plus directly addressing the environmental objectives”
For the market to grow, she says “a lot will depend on standardisation of the process and installation. Finding some standards that you can show to businesses.”
I ask whether a secondary market would help; Paplaczyk says it she can see it, or consolidation in future, but on the other hand, businesses like to know who they will be dealing with. “If someone is putting their equipment in your premises you want to know who they are, there are lots of issues, like health and safety. I don’t know what the reaction would be if suddenly things started changing hands.
“…. you are effectively embedding someone into your electricity system. They may be actually putting in cables connecting to yours. If there are power quality or harmonics issues that might shut the site. I haven’t come across that, but they are the kind of things that are asked.”
The other area is credit. “BTM is typically small projects and the only reason they work is that you are agreeing a PPA with the companies, which is still better for them than buying power from the grid.
“If for any reason those customers disappear or move premises or are not in business any more, it is quite challenging for the project to continue.” Some issues like access to the grid are common with standalone projects “but we are really looking in detail at the business and investing in terms of their financials, their track record, the industry they are in.” That means looking at the broader economy too – especially now. “Covid there is so much changing in business, some of these things are not as straightforward as they were.” That can be positive, she says, citing the growth in deliveries, but many businesses are struggling.
I ask whether the key to matching flexibility and visibility is expanding local energy markets. Paplaczyk agrees, “That would be perfect. There are quite a few projects developed by smaller developers or by community groups that don’t have many nearby customers and they are less than 5MW and won’t qualify for CfDs or be able to compete for them but smart local energy systems, would give [them] an advantage.” However, she says, “these are very new models”.
Equally she wants more flexibility from distribution networks. “We have a project with a wiling customers interested in buying an electricity contract and a project that would deliver what they need but the length of cable means it is not feasible [as private wire]. There is a grid cable in parallel … it makes sense because now the DNO is bringing power from somewhere else through those cables, but at the moment DNOs just don’t have the flexibility to allow for these kind of solutions.”
That’s partly the use of system charges that are the subject of Ofgem’s review, but “even physically it is not possible … they say the substation is full and they can’t accept anything else.”
In front of the meter
With BTM barriers so high at the moment Thrive has refocused its battery work on grid-connected projects, helped because its partner Aura had two projects in the pipeline. Thrive could just continue to invest in generation, so I ask why the shift, and Paplaczyk says, “When I started working 14 years ago no-one thought we would be where we are now. But we have hit the moment that in order to do more renewables we have to stabilise the system and make it more flexible so for Thrive is important to look at the overall system”.
It is not a lack of generation projects, she insists. “Three years ago there was a real dip for example of renewables going through planning but that has springboarded again and we are seeing more projects.
“We are looking at the UK’s energy system needs to be in the future, renewables, some load generation, heating and transport. What will the future energy system be and where can we participate – almost a microcosm of what the future will be. So some batteries, some renewables, etc.”
“We started from wind and hydro and we are doing solar and there is just so much to be done there.” Less interesting is biomass, because of issues like, sustainability, and where it comes from, but also having long term contracts for the feedstock “quite different from wind and solar and the risk profile and business model is different,” she says.
That may also seem to be the case with batteries. Paplaczyk says in the list of things you cannot control “with batteries it is revenue, but at least the technology is easy to control and you are not relying on feedstock too.”
Thrive has two projects.
“Wicken is in the construction phase, the batteries have arrived onsite and I think we will be seeing startup in September. Feeder Road is later, we are looking at probably summer next year. We are still in procurement in buying the battery system.” Wicken has a Capacity Market contract and Feeder Rd will participate in the next auction.
Thrive has already selected an aggregator for Wicken, as Paplaczyk says “For a small generator like us it doesn’t make sense to build that capacity in-house and also it is changing all the time – literally every month. To make a success you have to work with specialists. If we built a big portfolio in the future who knows, but not now.”
When I ask how Thrive expects the payback on batteries to compare with generation, she points out that “Generation projects are without subsidies and in a different world from what they used to be – they are also merchant and rely on the power prices.
“I would say the payback period is 8-12 years for batteries and I suspect it is 8-13 [years] for generation assets depending on the PPA structure, or maybe even 9-13 [years].”
Thrive is clearly keen to expand, and Paplaczyk says the funding source may change. “Historically we have had project finance from banks to fund generation assets, now we have Thrive’s equity to invest in the immediate pipeline. We remain committed to providing individuals with the opportunity to participate in the energy transition. As we grow in the next 18 month to three years we will be looking for more project financing and refinance to fund growth” once the current pipeline is in operation. She is confident that, “ Banks are getting more ready to fund battery storage and merchant generation” and suggests Thrive might make that easier by packaging up a group of projects to spread the risk.
With ambitious plans, both behind and in front of the meter, what does Thrive need from the government? Paplaczyk says “It would be nice to know what the whole picture is”, starting with CfD allocations. She wants BTM business model support. But also she wants a better planning regime that joins up with network needs to provide signals on where projects can be accommodated, or even welcomed “It just makes sense that we plan for projects where they should be planned for – with guidance, developers are not wasting resources on projects that will never happen,” she says.