With lithium-ion batteries raising ESG-related concerns, investors are increasingly seeing value in long-duration storage
Fluence & Pexapark on mission to maximise revenues for investors
How can storage investors maximise the value of their assets? In an effort to address this issue, Washington DC-based energy storage services company Fluence – which is on course for annual revenues of around $1.1 billion in 2022 – entered into a strategic partnership with renewable energy software provider Pexapark earlier this year.
- Fluence & Pexapark joined forces to offer analytics services to investors, IPPs and utilities
- Partnership’s aims include ‘improving structure’ of power purchase agreements
- Few players understand the ‘full picture’ of the storage market, Fluence claims
How can storage investors maximise the value of their assets?
In an effort to address this issue, Washington DC-based energy storage services company Fluence – which is on course for annual revenues of around $1.1 billion in 2022 – entered into a strategic partnership with renewable energy software provider Pexapark earlier this year.
Annoucing the partnership, Fluence and Pexapark said the aim was to provide “unique insights” that would help investors, independent power producers (IPPs) and utilities make better decisions as they navigate merchant market risks, as well as maximise revenues.
A statement added that, under the terms of the partnership, Fluence’s customers would gain access to Pexapark’s analytical tools and services that “simplify the complexity of energy transactions, delivering greater price transparency and risk management, while supporting industry players in their journey through project planning to long-term operations.”
Energy Storage Report spoke to Phil Goodman, Fluence Digital’s vice president operations & strategy, Pexapark’s senior storage adviser Brian Knowles, and Pexapark’s head of quantitative products Werner Trabesinger to find out more about how the partnership aims to help investors and improve energy trading and hedging strategies.
They also discussed the importance of data-driven market intelligence, as well as how the partnership aims to improve the structure of power purchase agreements.
Why is data-driven market intelligence becoming increasingly important in the electricity sector?
Werner Trabesinger: Merchant market price volatility has increased in general, and in particular in spot markets, due to the massive increase of intermittent renewable generation capacity. To have the capability to enable optimal asset dispatch – especially for storage assets – efficient risk management, and correct asset valuation, you need to have the right models. These models should span all timescales, from multiple years down to sub-hourly granularity. The effective calibration of these models is reliant on massive amounts of price data, meteorological information, and production data.
Phil Goodman: Power traders have successfully used tools like excel spreadsheets to bid fossil generation assets into wholesale power markets for decades. The use limited nature of energy storage changes all of this. Optimally bidding batteries into power markets requires hundreds of thousands of decisions every few minutes. Legacy tools are ill-equipped to handle this complexity. Battery operators who do not use a data driven, AI-based approach risk leaving substantial value on the table.
What problems will Fluence and Pexapark be helping to solve via this partnership?
WT: Pexapark's analytics for asset valuation and benchmarking will help customers to gain visibility of their storage asset revenues, both on a standalone and hybrid basis. The partnership with Fluence provides operational expertise required to optimise assets. Jointly, Pexapark and Fluence support the entire project lifecycle of storage with advanced digital solutions and deep renewable energy advisory insight.
PG: Pexapark focuses on long-term valuation and deal structuring for clean energy assets. Fluence's ‘Mosaic’ [technology] focuses on the short-term, day-to-day dispatch of storage assets. Adding in Fluence’s expertise in designing and delivering storage projects, this partnership provides customers with a unique, end-to-end energy storage solution.
How will Fluence and Pexapark’s offering help investors and independent power producers make better decisions?
WT: Pexapark’s storage services let customers objectively assess trade-offs between different storage asset configurations, such as optimal storage asset capacity and duration in order to optimise the risk/return profile of their projects.
PG: Pexapark helps customers structure projects to maximise returns for investors over a long-term horizon – for example ten to 20 years. Mosaic allows customers to maximise the value of their assets on a day-to-day basis (within one to three days). Both aspects of the partnership are critical for maximising the value of clean energy assets to accelerate the clean energy transition.
What will be the end result of this improved decision-making?
WT: Renewable assets commonly price below baseload rates due to so-called cannibalisation. With net zero ambitions continuing to drive the growth of renewable asset developments, this effect will further weigh on the future value of renewable asset output. Using Pexapark’s data driven insights, investors can quantify these adverse impacts and assess how the addition of storage can future-proof their asset base. Pexapark’s toolbase provides the analytical insight required to successfully argue the economic case for co-localisation with lenders.
PG: Mosaic ensures that these assets deliver on their PPA obligations while maximising revenue for project owners. The ultimate result of this partnership is improved IRR [internal rate of return] of clean energy projects, and the accelerated decarbonisation of the electricity sector.
How will Fluence and Pexapark’s offering increase deployments of energy storage?
Brian Knowles: As a maturing industry, energy storage assets will require the right mix of economic analysis and system design for investors to feel confident in the asset class. The partnership between Pexapark and Fluence helps clients bring the right resources into the project to help secure the financing and build their portfolio quickly.
PG: Energy storage is still a nascent industry. Many players specialise in either the revenue side (for example, energy trading) or the cost side (for example, battery integration or energy, procurement and construction). There are relatively few players who deeply understand the full picture. Such an understanding is critical for optimally structuring deals, and realising the pro-forma project performance via actual market operations. The Pexapark-Fluence partnership will enable an even deeper understanding of the full storage project model, increasing energy storage deployment in markets around the world.
How will this offering improve the structure of power purchase agreements (PPAs)?
BK: As co-located energy storage projects become more common, Pexapark and Fluence will work together to ensure the right PPA structure is put in place for the best combination of renewable generation and energy storage.
PG: A deep understanding of real-life storage market operations is critical when negotiating storage PPAs. Contracted revenues are critical for bringing debt into storage projects, but contractual obligations have the potential to substantially decrease merchant battery revenues. It is critical that developers carefully assess the wholesale market impact of their contracts when structuring deals and ideally work with capable optimisation providers to maximise returns. The Pexapark-Fluence partnership gives developers the full picture, so they can optimally balance the needs of investors when financing new projects.
How can it improve trading and hedging strategies?
BK: As portfolios get more diverse, Pexapark and Fluence can help identify the best way to introduce energy storage into the portfolio mix based on the combination of resource types, existing hedges and potential changes in energy market behaviour.
PG: Pexapark has a deep understanding of PPA structures and how these are handled by Europe’s largest trading houses. Fluence has a market leading understanding of storage market operations, and how to maximise the value of storage assets in wholesale markets. Combining these perspectives provides traders with a unique perspective on how to optimise their portfolios in wholesale markets.
MAGE (left to right): Phil Goodman (Fluence), Brian Knowles (Pexapark) and Werner Trabesinger (Pexapark)