Q&A - Statera Energy: Addressing storage solutions across durations

Battery energy storage systems (BESS) are currently one of the most popular solutions to tackle key issues like the intermittency of renewables and grid constraints. However, as two-hour BESS projects have grown in popularity, Statera Energy argues that more forms of energy storage are required to tackle all the challenges the UK faces.

In particular, the UK's wind-led renewable electricity profile needs storage solutions to balance power on a multi-day basis. The EQT backed firm is currently developing 3GW of BESS, and 5.2GW of pumped hydro. For even longer duration storage, Statera is developing a pipeline of 5.7GW hydrogen projects as well.

inspiratia speaks to Tom Vernon, chief executive officer at Statera Energy, about the revenue challenges BESS projects are currently facing, along with the best approaches to solve the UK's energy storage needs.

What does EQT's acquisition do for the next phase of Statera's growth strategy?

This acquisition is very exciting for us as a business, and we are really happy to be partnering with EQT. It is great to have them on board and supporting us in this next phase of growth.

They have bought into the vision of Statera as a developer, owner, and operator with the flexible assets required to balance the high renewables power systems of the future.

Right now, we are focusing on battery storage and flexible generation with 1.3GW of operational or under-construction projects and a pipeline of 16GW. We see it as a case of all things energy storage to balance the power system for the future, and EQT has bought into that vision as well. So, for short-duration batteries, mid-duration pumped hydro storage, and then for the longest duration seasonal storage, we see hydrogen having a role to play in balancing.

It sounds like you're addressing various durations in the energy storage space?

I think it's important as batteries on their own are critical, particularly in the UK, but they are not the whole solution. A range of storage durations are required. In particular, this is more acute in the UK because it is a wind-led power system that gyrates not just on a daily basis like solar, but on a multi-day basis. Therefore, to maintain the balance of power and decarbonise effectively, we need a range of energy storage solutions.

Could you tell us more about Statera's strategic partnership with Statkraft?

We have been working with Statkraft since 2018 and have a strong working relationship with them on trading and optimisation services. They provide optimisation for all of our assets and also firm up the debt case for our projects through long-term power purchase agreements. It was initially a 1GW partnership, but we have already delivered more assets than was originally envisaged under that partnership.

Any plans for expansions in continental Europe?

UK and Ireland have definitely been the canary in the coal mine with respect to the issue of flexibility by virtue of the fundamentals, which are the high penetration of renewables and relatively low levels of interconnection versus other markets. We do expect to be represented in other markets as they develop and that is absolutely something that we will be looking at over the next few years.

What kind of factors would you consider when exploring new regions for investments?

Since the battery business model is mainly a merchant business model, there are no explicit government support mechanisms, so it really comes back to the fundamentals that drive the attractiveness of the market. What is the penetration of renewables on the market? What is the expected rate of closures of conventional thermal plants that historically have been providing flexibility to the grid? What is the power demand going to look like in the future? What are the levels of interconnection? These are the factors we look at, and the markets with the most favourable fundamentals will likely be the most attractive in the medium to long term.

Over the past year, there have been concerns about BESS revenues being lower than anticipated. How do developers navigate such concerns?

Revenues have come down, but they are no lower than where they were pre-energy crisis, and this is something that we have always had to provide for. The underlying fundamental for the market, i.e. the higher penetration of renewables, is still very strong. What we have seen recently is CapEx and the cost of battery cells come down very significantly. Those are favourable dynamics and we expect it to further battery investment going forward. So, while revenues have come down, and we are going to see season-on-season variability in revenues, we still think the underlying drivers are very strong.

We absolutely believe in the medium and long-term fundamentals of battery storage, not just short-duration batteries, but longer-duration technologies as well. In the UK, we need to quadruple renewable wind installations through the rest of this decade and we are going to need very significant increases in energy storage on the grid to be able to balance that increase. Under a prospective Labour government, there is the potential for a stronger drive there for battery storage investment.

What kind of factors do you consider when making sure that you have attractive revenues from BESS projects?

We want top performance across the whole value chain. So that includes the highest value sites and best locations on the grid, where you have a premium for flexibility. We also look for the lowest-cost project and low grid connection costs. We deliver our projects in-house, meaning we avoid value leakage to third parties during the construction process, which reduces the cost of construction. We also have an in-house O&M team that reduces the cost of operations and maintenance and have partnered with Statkraft for best-in-class trading services. We see it as maximising each step of the value chain to improve the overall investment case for the project.

Are there any specific changes you'd like to see implemented by the next UK government?

We want greater visibility and strong signalling on targets. For example, how much pumped storage is needed on the power system?

We are reviewing all of the manifestos to understand what the landscape will look like depending on the outcome of the election. The more clarity the industry has on a target, the better, as there is significant upfront investment required to develop projects to meet these ambitious goals we have for decarbonisation.

In particular, we have initiatives already in motion from a policy perspective that we would like to see come through, such as a continuation of the hydrogen strategy in the next allocation round. Also, the government's commitment to bring forward long-duration energy storage by the end of this year will be a catalyst for those projects as well. We expect that under all scenarios these should continue.

While we spoke of pumped hydro and hydrogen as long-duration storage solutions, there have been conversations around BESS projects shifting to longer than two hours duration. How does Statera view this space?

Clearly, we believe in long-duration storage as we are developing pumped storage and hydrogen. But the investment case for long-duration batteries is also improving. A range of different technologies and durations are required, and we fully expect over the coming years the average duration of new batteries to increase.

But how will long-duration BESS work in a market like the UK, with two clear peaks during a day?

The longer the duration, the lower the cycle typically. We believe that the market can sustain a much longer duration of energy storage and that is why we are developing pumped storage and hydrogen.

When you've got wind operating on the power system with really high penetration, then you need that longer duration response to balance those multi-day gyrations in wind outputs. With a solar-led power system, you would typically need up to six hours in energy storage durations. But wind gyrates on a 24–48-hour basis, so much longer duration technologies are required. We see batteries having a role to play and potentially up to six to eight hours of storage, while pumped hydro can have maybe 15 to 25 hours of duration.