Battery energy storage system (BESS) can now be prudently positioned as a technology solution that can thrive on a cost-competitive basis as well as a viable application, especially on the sphere of ancillary services (AS) or the technology support to guarantee reliable operations of the power system, according to a study.
Lawrence Ang, managing partner of transaction advisory firm Climate Smart Ventures Pte. Ltd. (CSV), said its study indicated that the combination of renewable energy plus BESS “for on-grid mid-merit for smaller distribution utilities (DUs) is already compelling today” and could also flourish as mid-merit capacity for off-grids and even the Small Power Utilities Group (SPUG) domains currently being catered to by state-run National Power Corporation (NPC) and the private sector-underpinned qualifying third parties.
He, however, said that the study also showed that for on-grid mid merit requirements of larger DUs, this solution is still considerably not competitive yet. But, the study showed that the “declining capex (capital expenditure) costs for BESS that is likely going to make it competitive in the next 2-4 years.”
More broadly, the proof-of-concept to the viability of the RE+BESS suite of solution for a mid-merit supply portfolio of a giant power utility would be the 850-megawatt contracted capacity of Manila Electric Company (Meralco) -- that shall be sourced from 3,500 megawatts of solar installations plus 4,500 megawatt-hours of battery energy storage that will be delivered into its load network starting 2016.
For baseload capacity, Ang specified that this is not a cost-competitive option at this point, but decline in capital cost will likewise drive it into commercially viable price points in the next 2 to 4 years. Also, reducing funding costs, operation and maintenance, detailing strategies for dispatch and mixing business models and contracts can also allow for more competitive tariffs.
There is also an "extra value" for a first mover, especially in pushing for a faster transition from fossils to RE to avoid exposure to fossil fuel price volatility and decreasing margins due to more competition from local and international players.
In the case of off-grid applications, Meralco Vice President Lawrence S. Fernandez shared that their company had already pioneered projects in Isla Verde in Batangas; as well as in Cagbalete Island in Quezon province – and both yielded positive result in the energization of areas which lacked electricity service for decades and it also proved affordable in the pockets of consumers in these jurisdictions.
“Meralco already embarked on pilot projects to make use of RE plus BESS in off-grid areas, so we started one in close coordination with the Batangas City LGU (local government unit) and the USAID (United States Agency for International Development) in the island of Isla Verde in Batangas City. That was energized in 2020, so learning from that, Meralco already proceeded with its expansion project in Cagbalete to include 1.2MW of solar PV with battery energy storage – that’s now ready for energization,” he narrated.
Hanzel Cubangbang, senior market applications officer for Southeast Asia of Fluence Energy, conveyed that there are several applications where BESS can serve as a ‘viable fix’ to array of predicaments through the entire supply chain of the energy system.
“When you look at it in the Philippine system, we see that ancillary services - that’s one of the use cases we’ve seen as already lucrative now,” he said, adding that other practicable applications for BESS will be co-location with RE; as well as transmission and development (T&D) enhancement support and behind-the-meter applications for commercial and industrial (C&I) end-users.
Beyond ancillary services, Cubangbang emphasized there are still limitations and prohibitions when it comes to the other BESS applications – chiefly in the T&D segment because of the definition of BESS as a "generation" capacity or load.
“For other use cases such as behind-the-meter applications, T&D enhancement and RE- colocation with energy storage, we need specific policy and regulatory support for each use case...under the Department of Energy Circular of 2019, there’s a provision there that says ‘energy storage’ shall be classified as a generator – let’s make a new classification for energy storage; and that’s what we need,” he stressed.
Cubangbang specified that for the T&D deployment of battery energy storage, “they cannot classify it as generator because it provides services to the grid. So, there are several ways to go around it – first, we need to re-define energy storage.”
On the aspect of financing, Matthew Carpio, head of Transaction Advisory at CSV, asserted that the smaller players in the RE development milieu still suffer from gridlocks when it comes to project funding access, especially with the commercial banks.
“In terms of debts, banks are still pretty much going for the big names, so the big names, they won’t have problems on financing even on a project level. It’s the smaller developers that will need more help,” he said.
For the marginal players, Carpio reckoned that the banks have yet to “get more comfortable with market exposure – a lot of these developers would need to get their projects first into market exposure through merchant risk. So, the banks would need to get comfortable with that, particularly for smaller names.”
The silver lining at this point, in his view, is the willingness of the Development Bank of the Philippines (DBP) to lend to merchant-anchored development of RE projects; and that is viewed as an eventual catalyst for expanded ventures in the BESS investment space.