Co-located wind, solar and storage: how hybrid assets capture more value

What co-location means in power markets

We use co-location to address the volatility and intermittency of renewable energy generation by combining two or more assets.

Grid-connected vs behind-the-meter models

Co-location can utilise different connection methods, grid-connected or behind-the-meter. Behind the meter refers to the energy-producing asset, such as solar, behind a single meter or on the same node. One of the benefits of co-location is the sharing of capital (CAPEX) and operating (OPEX) costs, such as cabling or the cost of land.

Value drivers for hybrid assets

Grid operators can restrict power output due to network constraints; this is what's known as curtailment. We can take advantage of excess energy by capturing what's known as clipped energy. A co-located battery will store this excess energy for future use instead of letting it go to waste.

Avoiding negative pricing can be done by altering when generation occurs. Leveraging the multiple energy streams of a hybrid asset by generating energy during high-demand periods instead of periods of negative pricing can help to restrict revenue loss.

Capturing higher price periods is a key element of co-located assets because batteries are able to charge during lower periods of demand and sell during higher periods.  

Having one or more energy elements can help stabilise a hybrid asset. When negative pricing occurs, energy generated at that time can be stored instead of being dispatched and sold at a later date when prices are higher.

Co-located systems are also much more flexible than singular alternatives. They can be reactive to increases in demand while still maintaining a baseline of available, stored energy. They can smooth out the volatility associated with renewable energy, which results in a more predictable energy output to the grid, stabilising it.

Co-located services can also reduce peak reliance. Because energy is stored where it's generated, less reliance on balancing services and rapid response services such as gas.

Optimisation strategies

Hybrid systems benefit from shared costs such as infrastructure, as well as reduced curtailment costs. These benefits can be extended further by employing techniques such as intelligent charging when generation is in excess rather than in demand and selling energy during price spikes.

Charging from excess generation

This crucial technique allows hybrid systems to charge during low price periods, acting as a buffer and directing what would be waste energy into a reusable resource. This is particularly useful during negative price periods and has been put into practice in Germany and the Netherlands, where negative pricing has increased. Power producers can take advantage of optimal charging times, such as midday periods, where energy is most in excess. We can use AI to monitor the periods most likely to yield low price points and automate charging to occur during those periods.

Impact on price capture

Hybrid solutions tend to enjoy higher than average price capture than a single alternative because of their ability to reserve excess power generated during low price periods and sell during price peaks. 

Improved realised prices vs standalone assets

Realised prices of hybrid assets are usually higher than standalone assets because they are able to withstand the volatility associated with renewables, for example, solar, due to the combination of storage to utilise in low generation periods. This is despite the higher upfront costs associated with co-located assets.

Reduced exposure to negative pricing

Negative pricing occurs when renewable energy levels are oversupplied to the market, making prices so low, thanks to competition, that they turn negative. With co-located assets, energy produced during oversupply can be banked and sold when prices begin to increase, which leads to higher profit and avoids curtailment.

This ability to shift output to higher profit opportunities is what's known as dynamic response. We can also automate the usage of batteries to remove the element of human error. When negative pricing occurs, batteries can automatically switch over to changing, giving stable revenue when markets become more volatile.

Trading implications

While co-located systems are a beneficial asset to decarbonisation, they do come with implications for trading.

Traders are unable to rely on simple portfolio-based trading strategies and must instead move towards faster, unit- and algorithm-based trading strategies.

Enhanced arbitrage opportunities

It's not just energy arbitrage that hybrid systems are associated with; they can also offer solutions such as revenue stacking, including servicing high-frequency and wholesale markets in tandem. 

More complex decision-making

Simpler trading strategies won't cut it with co-located solutions and this is in part due to the higher operational complexity. Hybrid systems require more sophisticated software than their singular counterparts. This goes hand in hand with faster and automated trading. Optimal dispatch strategies also make up decision-making in the hybrid industry. Traders are required to judge whether energy is stored or sold and who it should be sold to, as well as monitoring the potential wear-and-tear on batteries.