Tolling Agreements for Energy Storage: How They Work
Tolling agreements are contractual arrangements used in the energy sector, particularly for energy storage, where a third-party provider (offtaker or toller) assumes operational control of an energy storage system, such as a battery, in exchange for fixed payments. These agreements are becoming increasingly important as they offer a method to stabilize revenues amidst market volatility.
Key Components of Tolling Agreements
- Ownership and Operational Control:
- The developer or owner of the energy storage system retains ownership but transfers operational control to the offtaker.
- The offtaker, often a utility or energy trading company, manages the charging and discharging operations to optimize financial returns.
- Payment Structure:
- The offtaker pays a fixed toll or capacity payment to the owner. This ensures predictable revenue for the owner, shifting trading risks to the offtaker.
- In some cases, additional variable payments might be made based on specific performance metrics like availability or round-trip efficiency.
- Benefits:
- Risk Mitigation: Tolling agreements reduce financial risks for the energy storage asset owner by providing guaranteed revenue streams.
- Expertise and Optimization: The offtaker optimizes the use of the battery to maximize revenue from electricity sales and other services like frequency regulation.
How Energy Storage Tolling Agreements Differ From Other Contracts
- Floor Agreements: In contrast to tolling agreements, floor agreements provide a minimum guaranteed revenue level but leave upside potential with the asset owner. The owner pays a higher fee for this arrangement, and it is less comprehensive regarding operational control.
- Merchant or Profit-Share Contracts: In these contracts, the asset owner retains full operational control and market risk. The owner may earn higher revenues if the market conditions are favorable but also faces potential losses if the market deteriorates.
Examples and Current Developments
- Gresham House and Octopus Energy Agreement: In the UK, Gresham House partnered with Octopus Energy in a two-year tolling agreement for a significant battery storage capacity. This marked Octopus’s entry into optimizing large-scale battery storage and secured substantial revenue for Gresham House.
- ERCOT Market: In the ERCOT region of Texas, tolling agreements are emerging as a tool to stabilize revenue in a volatile market. Developers are increasingly considering these agreements to manage risks and ensure predictable income.
In summary, tolling agreements for energy storage provide a stable revenue source by outsourcing operational control, allowing asset owners to mitigate market risks while leveraging the offtaker’s expertise to optimize financial performance.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-do-tolling-agreements-for-energy-storage-work/
