Strategic location for three 500MW BESS projects
Copenhagen Infrastructure Partners (CIP) reached financial investment decision (FID) on its Coalburn 2 and Devilla battery energy storage system (BESS) projects last week, following FID on Coalburn 1 in December 2023, all three of which are 500MW/1,000MWh projects.
“These projects go a long way to supporting the UK’s ambition to net zero and to reducing costs for consumers and shore up energy security,” Paterson said.
All three are transmission-connected and will help solve one of the biggest constraint issues on the UK grid, namely the mass of wind power in Scotland which often cannot all be transported south of the border, as Paterson explained.
“Location is the key bit for batteries that are transmission-connected as these are. They are at a sensitive location, on the B5 boundary. There aren’t local markets as such, but instead of curtailing wind the National Energy System Operator (NESO) can now charge our BESS via the Balancing Mechanism (BM). The BM and intraday trading will be the main routes to market (RTM) for the projects.”
Devilla meanwhile is close to a former power station allowing for connection to the grid via existing grid infrastructure.
Coalburn 1 is already under construction, set to be completed in late 2025 for commercial operation date (COD) in early 2026, while Coalburn 2 is targeting a late 2027 COD and Devilla one in early 2028.
The projects were consented under the Scottish Section 36 process with full environmental impact assessments (EIAs) undertaken.
Procurement, project partners and financing process
The firm has gone with e-Storage, the BESS integration arm of large solar PV manufacturer Canadian Solar, for all three projects, while the commercial solutions arm of utility SSE will optimise the projects in the electricity market.
“We were working on a procurement exercise for most of 2024, tendering for balance of plant (BOP) and BESS supply and delivery. We were testing the market as you do, going to all the tier 1 suppliers and understanding where they are in terms of cost, performance, service offerings etc,” Paterson says.
“We had a detailed discussion and diligence with Canadian Solar, on ESG and health and safety considerations – all the standard stuff for a construction project. It’s worth noting there is not an exclusivity agreement with them, we just liked what they were doing and were happy to go with them three times. It’s probably more difficult than it is easy to be with one party.”
When asked how the procurement exercise was different this time around compared with the Coalburn 1 process, the time between which has seen big BESS price falls and an increase in BESS suppliers, Paterson said: “We engaged with a similar number of players in both procurement exercises. While we saw several newer BESS suppliers entering the UK market in 2024, we felt more comfortable shortlisting more established suppliers with significant track records.”
OCU will provide BOP engineering, procurement and construction (EPC) services for Devilla and H&MV is providing BOP EPC for Coalburn 1 and 2, which are co-located. Contract manager for all three projects is Wood Group, a Scotland-based consultancy. “We are committed to using Scottish and local workforces wherever possible,” Paterson added.
The procurement process then brought the company to taking forward investment approvals to final internal approval in late 2024.
“There are two £400 million (US$488 million) projects and so got a lot of scrutiny and questions. It can at first appear like hassle and a challenge, but it should never be easy to spend £400 million,” Paterson said.
The company hasn’t disclosed exactly what form the optimisation deal with SSE entails. The UK optimisation is moving from a model of risk-sharing revenue-share deals to one of fixed price tolls. Paterson gave an answer to this question which indicated the company has opted for a toll with SSE.
“For projects of this size, we are taking a fairly conservative approach to offtake and want to ensure that offtake structures are palatable to lenders. We engaged with several offtakers on both floor price and tolling structures, with SSE offering best alignment with the project requirements,” he said.
We then asked the pair about whether there was the space and firm plan to augment the projects, which would typically happen three to five years after deployment.
Paterson replied: “We like the sites in that area and good development relationships in that space. An augmentation is not precluded but nor is it designed into the project’s as such. but it is not designed as such. The sites sites could expand but it’s not in our designs currently.”
UK market reform
We also asked about the firm’s view of the Review of Electricity Market Arrangements (REMA) and grid connections reform.
Jones said: “CIP is cognisant of the very real issue of system constraints and the likelihood that this technology outpaces the grid buildout. There is a real appetite across the industry to scale up this technology.”
“These reforms are somethig all investors need to actively monitor and we understand and welcome the need to prioritise projects that are needed and ready and to eliminate speculative projects.”
“The extent to which a ‘draining of the swamp’ is needed is open to question and we need to make sure that market reform is aligned such that investment in BESS continues to be attractive. We need to settle these questions very quickly, and BESS is one of the technologies that needs to scale up the quickest.”
The government is considering limiting access rights for new energy storage projects as part of REMA, which could entail giving non-firm grid connections. Paterson said that in principle this could make sense for BESS but that it would need to be evaluated on a case-by-case basis.
“For example, investors may be amenable to non-firm connections initially to be replaced by firm arrangements on the understanding wider grid upgrades will ensue. Investors are increasingly familiar with Active Network Management schemes and the associated constraint risks on distribution connections. We envisage similar principles as potentially workable at the transmission level,” Paterson said.