We caught up with the CEO of BESS optimiser Enspired to discuss what the emergence of tolls means for companies like his, and what role optimisers can play in the area of performance warranties.
The Austria-based battery energy storage system (BESS) optimisation has been in the news recently for expanding out of its main market of Germany into numerous new European countries, something relatively unique amongst its peers, which are typically single-country players.
However, readers may also know the company from CEO Jürgen Mayerhofer’s highly opinionated LinkedIn posts on industry topics like forecasting, backtesting, warranties and degradation, topics he discusses in this interview.
Germany: ‘not clear what the need for tolls will be’
Like others, Mayerhofer sees the main challenges in Germany’s grid-scale market as grid access and constraints, regulations and the question of financing and commercialisation.
Enjoy 12 months of exclusive analysis
- Regular insight and analysis of the industry’s biggest developments
- In-depth interviews with the industry’s leading figures
- Annual digital subscription to the PV Tech Power journal
- Discounts on Solar Media’s portfolio of events, in-person and virtual
Or continue reading this article for free
“We see operationally the impact of grid constraints on BESS revenues. The market needs to learn about this, especially in light of the discussion around tolling,” he says.
“A third big topic evolving is around leveraging existing grid access. Like how to integrate batteries with power purchase agreements (PPAs), adding charging capacity to a grid connection. It’s not a new topic, but way more are getting involved, especially as standalone renewables projects struggle to get PPAs.”
“Not a lot of players can finance projects fully with equity upfront, so they need debt and banks ask for guaranteed revenues. So there’s a lot of activity in the tolling market. I cannot judge if the deals are good or bad, and it isn’t yet clear how much of the market needs tolling and who will go with merchant. Some banks initially ask for guaranteed revenues, then they fund merchant. Most of what we have contracted is merchant,” Mayerhofer says.
Implications for optimisers
We ask Mayerhofer what the emergence of tolling means for optimisers like Enspired. One obvious though simplistic take is that it’s a threat, since they are small asset-light firms that do not have the balance sheet to provide tolls. Mayerhofer, however, says that optimisation firms are still needed for tolling deals.
“We have some utilities that want to partner with us, and we’ve always worked with partners. They have the balance sheet but not the optimisation capabilities, so they come to us. The combination of having both is still rather rare.”
“Tolling also doesn’t mean the full asset is tolled. If you fully toll an asset, the asset owner doesn’t care how much revenue you make. Having a merchant share keeps them invested in it. I’m confident that even in tolling setups there is a clear need for optimisation capabilities.”
Tolls have the challenge of complexity
Another challenge often cited around tolls, and the subsequenty benefit of doing merchant via a revenue-share deal with an optimiser, is complexity versus simplicity.
“In a tolling environment you typically sign a terms sheet first, while the long-form contracts come in at the later stage. We’ve seen deals go wrong between those two things. You could offer a better price at the terms sheet stage but new information could come out in between.”
“A tolling contract requires a lot of scrutiny because it separates you into both sides, whereas in a revenue-share model you are both totally in the same boat.”
Performance warranties
One topic that Mayerhofer has been quite vocal on is performance warranties for BESS. These are essentially a guarantee of maximum degradation of the battery cells provided by the BESS supplier, so long as limits on its utilisation are stuck to. Those limits can be excessive according to some in the industry.
Cell manufacturers provide a guarantee, and the system integrator or BESS manufacturer that puts those cells into a system uses a derived warranty, to protect their system setup. These effectively shield both asset owner and supplier from respective risks around the product degrading too fast. Two executives form Accure Battery Intelligence recently wrote a guest piece on the topic for our quarterly journal PV Tech Power.
“Everyone is invested in warranties right now, including optimisers, and lenders who want to see that the asset they’re funding will still work in three years,” Mayerhofer says.
“We have assets where the warranty allows for four cycles a day, which allows us to leverage very volatile price days. Other assets have very unsophisticated warranties with 1.5 or 1.6 cycles a day. The revenue difference is plus-minus 10 or 20%.”
“We try to help our customers to negotiate these based on things we know, but some don’t have any flexibility if the supplier is a big OEM.”
“I understand warranties, you have to protect your product. But when you look at what really needs to be protected it is really around temperature. All the models try to limit throughput over time but that’s really a proxy for temperature.
“This approach would increase the complexity a lot. If i charge now for five quarters at 80%, what is the expected impact on temperature? You could have real-time ancillary service calls, it would be a complex task.”
“If you simply gave the operator temperature profiles and limitations from the cell supplier you could make the most out of the asset without needing a 1.6 cycle limit. By that point you are so far from technical capabilities of the cell, and there is a lot of value not realised for the owner.”
However, Mayerhofer acknowledges there is a limit to the extent that an optimiser or operator’s knowledge based on past project performance can be applied to new projects, because new cells or variants of cells are coming out all the time. “We have data for five-year-old assets, but no one is using those cells anymore.”
A lot of the development on this needs to come down to integrators’ operational experience and track record, which can allow them to write warranties for products that work in each market.
“It will take some time to get there,” Mayerhofer says.
