NextEnergy's Ross Grier: 'Right time to invest in storage'

• NextEnergy Solar Fund (NESF) agrees £100m joint venture with storage specialist Eelpower
  
• NextEnergy Capital UK MD Ross Grier: ‘Storage will be fundamental part of NESF business’
  
• NESF considering co-locating storage with existing assets

NextEnergy Solar Fund (NESF) has become one of the latest players to make a bold move into the UK energy storage market.

Last week it was revealed that NESF has entered into a £100m joint venture partnership (JVP) with battery storage specialist Eelpower.

The JVP, which is targeting the development of up to 250MW in projects, has already agreed its first acquisition, a 50MW standalone battery storage project in Fife, Scotland.

The fund's decision to add energy storage assets to its portfolio of 99 operating solar assets is a result of NESF's shareholders approving a mandate that allows up to 10% of the fund's gross asset value to be invested in standalone energy storage systems.

Energy Storage Report spoke to Ross Grier, UK managing director of NextEnergy Capital about the rationale for the JVP, the challenges faced when investing in storage, and the emerging market trends.

Why has NextEnergy formed this joint venture?

Ross Grier: Our investor base has become more sophisticated and we've had plenty of interactions with them around how they want us to manage our fund in the future. And there was a lot of desire for us to look at different ways to diversify the fund. One of those is battery storage. We were a relatively early mover into battery storage, we bought some small co-located solar batteries back in 2017. We've watched the space maturing significantly, and the time is now right, from a maturity perspective, for infra investors to be moving into the space. So we've watched everything, from the capex of the underlying technology reduce, the management of the technology maturing, and systems maturing to allow you the flexibility and comfort that you can access revenue products without undermining the underlying validity of your battery. We’ve also seen that the National Grid has really adopted battery storage as part of its future energy scenarios and its long-term view of how it wants to manage power on the grid.

Why partner with Eelpower?

RG: We’re solar specialists and that really is our core. We have battery experience internally, but we don’t have the same breadth or depth of expertise as Eelpower. From my investors’ perspective in NESF, what I wanted to do is present an opportunity that allows us to partake in the upsides of all those revenue opportunities while creating a structure that ensured we achieved our target returns for a preferential structure as well as bringing that extensive expertise to the table that would allow us to really leverage the deep understanding and track record of Eelpower so we know we’re getting the right delivery from day one and we're able to evolve that business case over time. We selected Eelpower, and they selected us, because we have a mutual understanding of how we want to run assets.

Would you expect NextEnergy’s involvement in the storage market to increase significantly?

RG: This will form a fundamental part of our business case going forward. We've set an initial target of around £100 million of spend, 250 MW, from that JV and, and that's really our core focus. I'm running two work streams – the standalone piece delivered through the Eelpower JV is probably the lower hanging fruit as an asset. In parallel, we’re running an exercise to look at the opportunities to co-locate with the existing infrastructure we have. Obviously, it’s pretty challenging to access import at the right scale in the remote locations where we've got healthy export on those assets, and there are interface challenges around not undermining our existing assets, but I do see value in that co-location proposition.

Exactly what assets will you be focusing on?

RG: We’re working with Eelpower and other elements of the storage market to review a comprehensive pipeline of opportunities on a standalone basis. We like the geographic diversity that these assets are able to bring us – we particularly like the seed asset being located in Fife in Scotland. And the fact we know that's a really constrained part of the grid because of all the wind generation. We're looking on an asset by asset basis, thinking about the local dynamics and the overall business case we believe is there for those batteries.

What are currently the biggest obstacles to the wider adoption of energy storage?

RG: Comfort with the business case is primary driver. You have to get into the detail of the energy ecosystem and its evolution, and really understand where those underlying economics are coming from today and where there’ll come from tomorrow. And that's how you build your comfort as an infra investor. You have to be a specialist to get that right, it's possible to get there, but to get there in the right way and do the right deal is actually quite challenging. And, therefore, we've seen slower adoption [of energy storage]. But I see a massive wave of incoming investment into battery storage now and I believe we've got to that inflection point of maturity. The UK market is the most attractive market in the world for battery storage and it's the most advanced in terms of investor understanding in the space, so I see a very bright future for battery storage.

What will be the emerging trends in storage in the coming year?

RG: We need to be looking at these virtual power plant solutions that have been concepted for years and people are now publicising that they've really made some traction with them. Those are really quite interesting for us as asset owners. Having the right partners is vital there. We continue to watch how the technology evolves and how the duration evolves. The duration piece has evolved rapidly, especially over the last 12 months or 18 months in my mind, I see that continuing to evolve. I think the underlying battery availability is going to be an interesting dynamic to feed into how the market grows over the next few years, as well as capex issues for commodities, and the overall global demand for batteries will make it interesting to get through that deployment window. All of those things really factor into our thinking. I don't think any of them are insurmountable hurdles, and most of them are actually quite exciting things to hit as an industry.