Main Risks Associated with Storage PPAs
- Performance and Degradation Risk:
- Energy storage systems, such as batteries, degrade over time, affecting their performance and efficiency. This degradation can impact the ability of the storage system to provide consistent services, leading to reduced revenue or contractual breaches.
- Operating storage systems outside manufacturer specifications can further exacerbate this risk.
- Market and Price Risk:
- Storage PPAs are subject to market price volatility, similar to other energy PPAs. Changes in electricity prices can impact the economic viability of the storage services provided.
- The potential for negative price occurrences, where energy is sold at a loss, is a particular concern for storage systems relying on arbitrage.
- Operational and Technological Risk:
- The choice of technology affects performance, lifecycle, and maintenance costs. Ensuring compatibility and future-proofing of storage technology is crucial to mitigate these risks.
- System failures or operational issues can disrupt services, affecting contractual obligations and revenue streams.
- Regulatory and Policy Risk:
- Changes in regulations or policies can significantly impact the profitability and viability of storage PPAs. Flexibility in contracts to accommodate regulatory changes is essential.
- Supportive policies are crucial for encouraging investment in storage technologies.
- Credit and Contractual Risk:
- Credit risks arise if an offtaker defaults on payments or if the project faces financial difficulties.
- Complexity in contract negotiations and administration can lead to transaction risks, especially with hybrid or innovative contract structures.
- Volumetric and Intermittency Risk:
- Energy storage can help manage volumetric risk by smoothing out energy supply through storage, but this requires effective integration and management strategies.
- The inherent intermittency of renewable energy sources requires robust risk management strategies to ensure reliable energy supply.
Mitigating these risks involves careful contract negotiation, flexible contract structures, and innovative financial instruments such as proxy revenue swaps. Effective risk management is crucial for the success and viability of storage PPAs.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/what-are-the-main-risks-associated-with-storage-ppas/
