Q&A - Innova: Strategic shift to long-duration energy storage

Innova is a UK-focused renewables developer, with projects largely consisting of solar and battery energy storage systems (BESS). To date, the company has over 60 grid-connected sites under development in the UK, with a combined solar and storage capacity in excess of 24GW. In the past year, the company secured permits for several solar and BESS projects across the UK.  

Daniel Mushin (pictured right), Innova's managing director for corporate finance, talks to inspiratia about the company's strategy to focus on long-duration energy storage (LDES) to address key challenges in the UK's electricity system. 

Which technologies are Innova's biggest priorities right now? 

Innova has historically focused on solar, which has been the engine for our growth and development. However, over the last few years, we have had a significant expansion of our development pipeline focused on lithium-ion energy storage. Our pipeline now broadly splits into two aspects: A distribution-connected portfolio, of utility-scale projects, which is about 1.7GW in total. Roughly two-thirds of that is solar, and the remainder is energy storage. Then we have a transmission-connected portfolio, which is around 22GW in total, which has predominantly been energy storage focused but has the export capacity to co-locate generation technologies, which we are also focused on securing. So, we have a flexible but very large energy storage pipeline. 

While, at the moment, we have a big focus on solar and energy storage, we also have a longer-term strategic ambition to focus on new and emerging technologies, such as long-duration storage technologies. We have started developing our first onshore wind site as part of our transmission-connected portfolio, and also have an in-house developed small-scale waste-to-energy technology that is in the latter stages of its pilot phase, which we are now looking to take to commercial scale. 

The pivot to LDES is quite interesting. What is driving that strategy? 

There are two things that Innova likes to focus on. We take a very long-term view of the renewable market. In particular, it is driven partly by timelines to connect assets to the grid, and also the time needed to get through planning. We, therefore, try to take a 5–15-year view of where we want to be, focusing on 2030-2040. We have recently set up a new business division that is focused on which new technologies we want to be investing in. We have just recently signed a memorandum of understanding with one of the technology providers in the LDES space. 

One of the reasons for us moving into this sector is we have seen a huge amount of lithium-ion energy storage development in the UK – which is very exciting as an industry, but not likely to deliver our Net Zero targets. To go truly Net Zero, what the UK market needs is long-term backup capacity, and that means durations of over 10 hours. At the moment, the UK Government has recently closed a consultation on LDES. But, in our opinion, it was mostly focused on large-scale pumped hydro, which is an interesting and useful technology (which exists today), but the consultation does not include and consequently does not provide enough significant support for new emerging technologies which we believe will be required to fully decarbonise of the UK grid network. 

Another reason that we have chosen to focus on the longer duration is that we believe it provides more flexibility. While two-to-six-hour duration projects are absolutely necessary for the UK, we think it misses an inter-week, inter-month type of load shifting, which we see as important for the UK market. 

What new technologies are you optimistic about then? 

There are several LDES technologies out there, many of which are in the early stages of interest. You have got high-density hydro (similar to pumped hydro, but smaller scale), compressed air technologies, different containerised energy storage technology, such as ion flow, reversible rusting or iron-air, flow battery, sodium-ion, molten salt, and hydrogen storage, which will provide some very interesting novel technological solutions. There are a couple that we find particularly exciting for the UK. One of which, as I said, we have signed an MOU with. 

Every market has its nuances, and in the UK in particular, you have nuances around planning constraints and land constraints. Those are two very challenging things that you have to balance. 

How essential is co-located battery storage in your portfolio? 

For us, co-location, not just for energy storage but for multi-technologies, is really important. One of the major constraints on the UK system is being able to go and get a connection to the UK grid network. One of the biggest frustrations with the system at the moment is the length of time it takes to obtain a grid connection, and give your project the ability to export. That means co-location is not just important for sharing the project's capital costs, but also importantly for just enabling access to that project to connect to the national grid ecosystem. 

While most of our early projects are standalone technologies, as you move through our pipeline connection dates, they become more and more co-located. In particular, about a third of our 1.7GW pipeline has co-located technologies on it. Meanwhile, for our 22GW transmission-connected pipeline, all of them were applied with co-located technologies on them. 

That is largely co-located energy storage, but I caveat that by saying that it is an energy storage solution. So, one of the reasons is that we would like to focus on long-duration storage as well as being co-located with other technologies like wind or solar. But it is very geographically specific to what the right technology is at that location. 

How does ISG Renewables, Innova's joint venture with Schroders Greencoat, help finance your pipeline? More broadly, how do you strike the balance between equity and debt? 

At the moment, we have a strategic joint venture with Schroders Greencoat on our distribution connected portfolio. They provide construction funding at FID across Innova's distribution-connected portfolio, in which we reinvest and also provide construction and asset management services.

From our perspective, we have access to a tremendous partner, with Schroders as one of the largest renewables investors in the UK. Meanwhile, we provide them with access to our project pipeline, along with the services needed to get the project through the construction phase to COD. It is a joint venture that has worked really well. 

That means we currently do not have any need for external debt on that portion of the portfolio. We have however used debt funding in the past, which included the first SONIA based project financing, and would for any projects we build on balance sheet, including both long-term project finance and short-term construction facilities.  

What are your thoughts on the ongoing REMA consultations in the UK, particularly around locational pricing? 

REMA could bring significant changes to how the UK market works. There is also an ongoing government consultation, in which we will participate. While that is ongoing, we are still forming our views on the latest round of information that the UK Government have recently released. 

Our initial assessment identifies that there is significant potential upside for customer savings on electricity prices in the UK, largely driven by savings of reinforcement costs being passed through to consumers. However, this needs to be carefully balanced against smaller, more volatile markets increasing cost of capital, leading to the risk of overall negative impact for the UK market. 

Overall, we see potential upside for solar in the UK, as typically solar is predominantly located in the south, and therefore, closer to some of the areas underserved from generation capacity vs electricity demand.  

Aside from locational pricing, are there any other broader policy-level changes you would like to see in the UK? 

The recent investment environment for UK renewables over the last few years has had a reasonable level of uncertainty. There have been a lot of changes in the market, including the introduction and then removal of the electricity generation levies, an inflationary environment, increasing cost of capex, and interest rate increases. Additionally, you have had a lot of supply chain issues, including transport costs, equipment lead times etc, and getting labour into the UK has become harder post Brexit. There were also long periods of discussion restricting 3B development land available for solar projects and then of course continued delays in getting grid connections and planning consents. 

All of this has created a more difficult overall policy environment for the UK. So, if there was anything specifically that I would choose to change, it would be providing a period of relative stability in the UK. Investors have been trying to invest for 40 years, and continuous policy changes are not always helpful. In particular, Innova would like to see better and improved support for long-duration storage technologies, outside of large-scale pumped hydro.