De-risking Renewables: Co-location, Hybrid PPAs and Battery Storage | Jean-François Steels, Yuso

So good afternoon everybody my name is Jean-Francois steels I'm the head of business development and origination at USO and I'm the only one who got the memo about the dress code for today so it seems so I will talk to you a little bit about how we view hybrid assets so co-location or managing a portfolio of renewables either solar or wind together with batteries and how we can make them bankable but Before that the team at Montel allows me to do a quick introduction about who we are at USO so I will go quickly through that if you want to know more about ourselves I will be happy to engage with you guys at the end of the session I also have two colleagues Elin and Bart who are there to be able to talk to you I have also been asked to talk a little bit about what we have seen in the markets over the last couple of years in terms of market developments managing and revenues of batteries so also talk a little bit about that So at USO we are a short term power trader PPA provider and battery optimizer we are a team of about 60 people most of them located in Belgium and we cover all those countries that you see in blue with expansion plan for the countries that are depicted here in yellow we manage around 500 megawatts of PPAs mostly solar and 750 megawatts of grid connected battery battery storage turnover turnover about 85 million euro for the first half of this year the company was started in 2012 and we actually operated our first battery in 2016 here in the Netherlands 10 megawatt won our best I think 10 megawatt would probably fit like the containers would fit in this room that project back in the days was probably one of the largest in Europe it would probably fill the whole building but that was our first venture actually in battery storage These are the assets that we currently operate across Europe so one hour two hour for our assets Benelux UK and recently as well in the Baltics Our team is a good mix of people with utility backgrounds myself I worked at Engie with the founders very long time ago in the early 2000s some of us even before the market got liberalized so we understand you know the physical nature of the physical nature of the physical nature of the assets what is behind those numbers flashing on the screen so a battery for us is not just you know bids and offers and market prices on a screen there is a real physical asset behind that there's you know tens of millions of euros that have been invested by developers and asset owners so we take that quite seriously we also have you know trading background I worked for 18 years at Mercuria in commodity trading and then over the last 10 years or so we've added the technology stack humans you know the amount of data that we need to process every second every minute I think it's about 2000 price signals or information signal that we get in baked weather data grid data the asset data and prices that need to be ingested treated and then translated into trading decisions obviously you know myself with a mouse on my computer will be way too slow to actually trade in those in those markets so the technology stack is actually quite important in there what do we do well we provide what we like to call a full end-to-end solution we call it from the metro to the bank account so for every asset that we optimize every country where we operate we have trading or supplier license if they're required we're registered as a BRP BSP we're a member of Nordpool or IPEX for for trading and will generate revenues across all the available revenue stream be it and service service FCR AFR MFR wholesale markets so trying to buy low and sell high even in the Netherlands the ex post imbalance market thanks to the dual dual pricing which is becoming quite important given the amount of stage two regulation that we see we were seeing a lot you know very few of that few years ago but it's becoming a lot more important but also a lot of new revenue stream voltage regulation redispatching congestion management with which are going to be important for owners of the best everything that we do is developed in ours in terms of algorithms and deal execution same thing for renewable so if you have large solar farms and want to trade it on a merchant basis we'll happily do that with you help you you know nominate your own forecast curtail manage intraday rebalancing intraday of your position to minimize imbalance so that's a little bit about what we do I'll pause here but feel free to engage after this this session so what have we seen over the last two three years in the Benelux so I take kind of four four kind of trends so first of all first of all the battery build out has increased quite significantly I think we were operating in Belgium the first 75 megawatt of of grid connected storage we're now according to Alia about you know 828 megawatts so obviously you know a lot more supply that has an impact on prices as you can see here the blue line being the revenues expressed in thousands of euros per megawatt per year of one of the four hour assets that we operate at Yuzo the dotted line being the index from Montel this Montel market price to practice benchmark so yeah obviously you know revenues have come down and serious price have come down but spreads have started to come back up as we see here this year but generally yes more supply means you know you know higher number of people fighting for the same revenues and serious service market also start to saturate so this is one revenue stream that was actually very profitable a few years ago if we look here this is for our asset that we managed another one is a tune up to our asset the line actually everything which is in yellow were revenues from ancillary services so you see that the the share of those revenues have you know were representing close to 60 percent at some point in time for a four hour asset they're now 20 25 percent so revenues are now being generated in wholesale trading for a two hour asset which is more kind of you know power intensive and less energy intensive that percentage is is still relatively decent but again those markets are shallow more assets coming online more people fighting for the same revenue so revenues have to be generated somewhere else the good thing is we've seen spreads widening so there's been discussion about these tb spreads so the numbers you see here are the spread between the four most expensive hours on a day ahead basis minus the four cheapest hours so kind of mimicking a four hour battery what a four hour battery could make on a day ahead basis overly simplified because it doesn't take into account round trip efficiencies and sequencing if if those cheap hours come before the expensive hours it now stands here today uh 2026 at 125 euro per megawatt hour it was 75 euro per megawatt hour i think two years ago um and it was as low as 25 euro per megawatt hours back in between 2015 2017 so that of course is a result of um renewable uh deployment um you know steeper uh duck curves but also um higher flat price um you know the high absolute price level uh is also supportive in in that sense um and the fourth um element um i think it's especially important for the dutch market is the importance of grid fees um and grid conditions uh in belgium large-scale projects that secure their grid connection before it's july 2026 are exempt from any grid fees it's not the case in the netherlands and those grid fees can actually uh eat up a very significant portion of revenues if not all of it in certain uh certain case i think the 190 000 euro per megawatt is a number that was shared by a project developer at a recent conference um so you know the way to fight for that is obviously um time of use um no special conditions for good condition um good connection also managing your peak uh your peak offtake which is something that we can do to help reduce that but that number um if you compare that with you know the next this slide where you see kind of trend of revenues um it has a huge impact on on profitability of uh standalone battery so people we need to find solution about that and we need to see those grid costs um kind of retrace so i talked a little bit about that um in terms of market what's interesting also is um this the shift to um more wholesale trading and more trading around um the battery is there's a lot of volatility most of the volatility actually happens uh within last two hours preview uh prior to um uh delivery um so this chart well something prepared by roquant that they told me the only message you need to look at is these blue kind of bars it shows you that the volatility so the difference between kind of two trades is actually the highest as you get closer to delivery and so this is where kind of the the algos robots come into play to make sure you can capture actually those those price variation that that volatility um i think as as a result of that what has changed in the business case is that we've moved from uh earning revenues through uh reserving or offering capacity uh to the grade to kind of having to um generate revenues through uh trading and so the importance of having an optimizer that can actually operate across all revenue streams um and so this is an example of what we do with one of our assets i think this one is in the baltics um where basically this is an example day on the 7th of october the thing to look at is every different color on this chart is a different source of revenue so this asset was dispatched in their head those are the blue or the dark the black so the bar charts charging here discharging here um it was also trading in intraday it was reserved for fcr fr and mfrr it was activated the the red dots in mfr up um at the same time you needed to manage its state of charge to be available to answer any call from the tso for future activation and then any spare energy that had in the tank instead of sitting idle would be uh was available for trading so it's actually that stacking um which gets you that you know extra revenue and which makes the difference in between uh capable uh operators and and and optimizers so that's what people will need to do and to develop now uh to uh to maximize revenues from um from assets um well grid fees uh we talked a little bit about that uh apparently in project irrs uh with full grid fees in belgium so they're exempt right now but if full grid fees were to be applied we have a eight percentage point impact on rr so this is actually massive uh if you think about it um contracted revenues versus merchant models when when we started uh operating the first batteries in 2016 and 2021 in in belgium no there were no you know nobody was forecasting battery revenues it was very kind of uncertain people saw the potential um and so a lot of these projects were equity finance or with low sort of leverage so they were all built on a on a merchant model which was highly highly profitable uh back in um 2023 24 or even at the peak of the the russian crisis with very high price but now with more assets coming online with cannibalization and cilleries the banks are getting a lot more prudent there so we've moved from a full merchant model to um structures that need to guarantee revenues through uh floors and tullings um and then finally uh also um solar um revenues from solar have been impacted capture rate for solar today around 50 ish percent in belgium belgium netherlands the capture rate in 2015 was north of was slightly above 100 so solar was earning more than than base load it was around 70 in the 90s between 2015 2007 19 19 to 20 22 23 was around 75 percent we're now down to 50 percent so huge pressure there on solar standalone but this is what brings me to sort of the next um section of presentation is how actually solar and um and batteries work well together so if we take a bit of a of a step back and if you own a standalone renewable asset in this case a solar you're exposed to many risks but if we focus on the ones uh related to uh energy prices or power price you have three main risks the first one is what i call the flat price level so the absolute sort of power price the absolute basal price the higher the better uh your second risk is the capture rate how much of that do you capture we discussed this you know very high percentage 10 years ago 50 sometimes even less uh more uh recently and the third one is imbalance so you've got to forecast how much energy you're going to be injecting uh and then you've got to pay for your deviation because the grid needs to um to manage and make sure that the grid is always sort of balanced so you're going to have to pay for your imbalance because the case so will be activating um assets through ancillary services and and the balancing market to um correct for that um and actually a battery can solve for risk number two and risk number three so we can see that um here let's see if that works a battery actually loves a very deep um duck curve because you can buy cheap and sell high and it likes it when there's a lot of imbalance a lot of volatility in real time because it can provide those services and be um remunerated so this is what we see um here here we've got revenues um for solar setup of standalone solar the revenue for a battery storage every little different color is a one of the montel scenarios so high commodity low commodity high renewable low renewable and central scenarios so this is something that we've ingest in our in our models and the the purple cross is basically like a manual scenario so what you can see here is the higher the absolute price level the better it is for the solar the battery is actually some somewhat indifferent to that you could even say that it's probably even a bit negatively impacted because of the round trip efficiency it needs to charge more power than it can discharge later on so there are some losses there um and then if you look at the uh if you play with with the that's not going to work um if you play with the with the duck curve you can see that those two actually work opposite to each other so what is beneficial so a very you know something like that very good for the battery you can buy low buy cheap sell high very punitive for um your um your um your solar uh standalone solar um so that's what we discussed here further i mean i discussed i mentioned the uh the capture rate around 50 percent but that's even before paying for your balancing cost and you know your ppa fees and whatsoever um so that comes and in addition to um to that so yeah so revenues behave in opposite direction they're quite synergetic because we've hedged those risk number two entry that we discussed so here is an example of a the revenues from a standalone solar pv and the best in belgium it's 100 megawatt of solar and a 50 megawatt for our best again across the four um market price scenarios from our friends from from until and what you see there um on the merchant basis is the the revenue distribution is on an annual basis 4.3 million euro wide so if you go to your shareholders or to the banks they're probably going to say well this is quite risky which one is it going to be they're going to be very prudent they're going to pick up the lowest one and they're going to take a haircut to that and they're going to lend you money against uh the low case scenario probably even lower than that which obviously has an impact on your leverage and therefore also on your on your um equity return and most of that is because we we haven't sold for risk number one which is the absolute price level so what we do here is we actually um sell baseload power um against um the setup baseload power is the most liquid uh power product in the market um you know there's dozens of of people that can trade it uh power trader utilities banks industrial companies hyperscaler data centers are all looking for um that sort of power it's a lot more difficult to sit to find people that can buy ps produce ppa or do battery tollings battery floor but if you look at um trading baseload power there's a much wider population bigger population of counterparts that can trade that so if we sell baseload power at fixed price um obviously we lose money in the high commodity scenarios we've sold fixed price let's call it 70 euro the price goes to 100 euro we lose 30 euro per megawatt hour but on the other hand our solar is making good money and so now if you sum up um those two you know the hybrid setup your baseload power this is what the revenue distribution looks like so a lot more predictable the spread is now 0.3 million euros per year versus 4.3 million so you've reduced a lot of the distribution what i want to maybe caveat here is obviously um you would also want to take into account volatility uh because what we get from montel are day ahead i think some intraday and ancillary service uh prices forecast for the long term but you could also have a view on volatility um and so baseload will help you against the absolute price level if you believe nevertheless if volatility is going to collapse i guess one way to hedge for that would be to set on top of that some of these tb uh products so we we can again also you know stress that those kind of scenarios um this is the same um structure but for a project we're doing in belgium it's a seven megawatt onshore wind project coupled with uh five megawatt for our best two megawatt baseload hedge against um you know smaller numbers but nevertheless um 680,000 euro between the high and low revenue uh scenarios that is reduced by a factor of six with the um with the hedging hedging baseload i mean hedging renewable with a baseload is not something that we would recommend on a standalone basis there are a lot of horror stories around that i mean obviously solar you're under hedged when um you're overproducing and so all that surplus will be sold at very low prices and on the other hand you're under uh under hedged over hedged sorry um during the night and the evening peak so you need to buy back when price tend to be to be higher on the other hand if you have a battery that is something a lot more manageable um in simplistic terms you could think about it that i'm gonna i'm gonna store my excess supply in my battery and then discharge it uh during those um sort of off-peak hours in reality um you probably if you do that you're under utilizing your battery your battery can do a lot more than just simple time shifting uh it can do virtual cycles so it can take positions on the dead head unwind them in intraday reopen positions it can participate in the serial market or it can stack all those revenues but conceptually um it is safer to sell a base load against um a hybrid than it is to sell it against a standalone renewable uh same thing wind um people that have wind assets in the nordics also had were quite a bit in trouble with baseload hedges against uh wind portfolios uh we've talked a little bit about the benefit of of that which is liquidity the the number of people that can trade those so you've got a much bigger again population of of of counterparts that can buy that uh baseload power from you the bid ask rate is going to be much much thinner it's a very transparent market um but also you it will be easier to get duration i.e you know trade seven uh ten years depending a little bit in which market you're looking at um which is then beneficial for you know when you go and talk to um to the banks um so how how do we look at this at user well we we've developed this tool um here no that's not the one yeah so we've developed this um this tool where we can you know for each in every country where we operate um based on the size of your wind or solar or a combination of both um work on the duration of of your battery so helps you determine what is the right sizing depending on the site size of your side and what is the right uh hedge because you might want to retain some upside in exchange for keep some downside so under hedge a little bit but also very important um everything is actually quite specific depending on sites we've seen in the netherlands for example uh co-located assets were that have restricted uh offtake capacity for the battery so the battery can only charge um from the renewable um assets so all of that will be taken into account in the model and then result in in um in revenues uh scenarios so if you have if you're looking at these signs of assets we're happy to uh work with you and and and and do this kind of uh of um of simulation so just to conclude i think we're gonna see a lot more of um of um of these sort of setups in in the future well first of all because standalone uh renewable are actually challenging um to hedge into finance uh on on their own but also the grid connection queue um are quite lengthy and so if you're looking um if you want to build a battery storage it might be very well it might be very wise actually to go on and co-locate it with with an existing connection belonging to um a renewable so we see this trend in all the markets where we operate benelux um in the nordics poland romania where um you know assets are being developed uh together we think there's a little bit of education to be done with the financial institutions with the banks that are looking at these assets to explain them that you know hedging with such a product actually creates a bankable business case the banks want they prefer like easy solutions so you know pay us for do spill ppa or tolling makes their life easy but actually it leaves you know some money on the table for um for project developers and we've seen that with grid fees you know trying to go for the last you know that extra euro is actually what needs to um what you should be looking at so um i'll i'll stop here i'm happy to um take any questions now or after if you if you event if you have any thank you fantastic john francois thank you very much very insightful both from the use of perspective but also from the market perspective and i think that's very valuable certainly um it's been a sort of uh i wouldn't say golden age but certainly been boom time for batteries in the past whether that continues is is obviously open to questions john francois but and any questions from from the floor well i'd just like to explore that a little bit further because if as you mentioned you know you looked at the the owner of squid fees coming in there i mean 190 000 that's per megawatt that that's that's that's enormous and if you then look at you know cannibalization the saturation of the markets you know is are those is that boom time is it is is it over jean francois um i don't well first of all it's very difficult to say we've we've we thought it was over and then it it came back in the past i've been long you know long enough in commodities to know that you know these things go through cycle of kind of boom and and bust but um no again i i don't think so it's definitely going to have an impact but we also see you know tremendous growth in in demand in electrification i think gas prices gas usage coming off probably as a result of you know heat pumps uh being deployed so the electrification of everything is actually um sort of creating you know that demand for um uh for for more power uh solar is not about to um uh being deployed to to stop i mean we've you know subsidies were in there to get it started they're being phased out um because the cost of the of the of the hardware has come down a lot and not all countries are sort of created equal there are still a lot of places where um solar will need to be deployed um you know we just have to follow the sun somehow and go and go south um so we'll see you know cannibalization uh continue there and the need for um for batteries but i guess the revenue is shifting from you know ancillaries and more sort of predictable or guaranteed revenues toward kind of trading um and and sort of harvesting volatility what matters is really the volatility and whether it's in day ahead in intraday or in real time you've got to go and you know collect it where you can find it if you look at the from the the financing side uh jean-francois is it you know are banks increasingly looking to have some kind of you mentioned earlier actually you you know the tolling agreements in place and that kind of floor is that increasing becoming the the main criteria for to gain that the financing for these kind of projects uh it definitely is um i think you know the banks are looking at you know debt cover ratio and these sorts of things what is challenging though is we've seen revenues come down um and the people that can provide uh tolling it is quite challenging because there is you know you guys make prediction in terms of price levels you know you're taking coal prices oil prices all of that in installed capacity of all sorts of the the generation make and then you produce these forward curves what is more challenging is what is the there is no such thing as a forward curve for intraday power volatility and that is what actually drives the value of of of your best and so as revenues have come down you know for a four hour we're now around 200 a bit more uh sometime if you if you ask someone to take a position for 10 years um and toll your batteries for 10 years it is very challenging uh for them to put a price on that so they're not going to be very aggressive um everybody kind of if you're the first one to have your battery um you knew you kind of you were fishing in a pond right you would it was fairly easy to generate but now it's a lot more competitive everybody gets scared of the the cannibalization and so the tolling revenues are the tolling that are being offered in the market are relatively low um to such a point where um i guess some of them probably don't make sense for the the the project owners tolling revenues are so low that you're probably you know they don't get their rr um and so they've got to look for other other ways to get there so leave a portion merchant uh potentially co-locate with with a batteries to create that business case um but it's it is a definitely a challenging environment if you're a project developer you're looking to raise finance and you want to sort of lock in your revenues absolutely i mean that that intraday forward curve may not be there but in a sense what we're seeing this summer could be replicated in many in terms of the climate changes that we're seeing that extreme heat droughts and those intraday spreads they're probably not going to go away in a sense i mean that's what uh metro i'm no meteorologist but uh that's what's that no definitely and i guess it depends a little bit who you talk to i mean if you talk to a trader um you know they're trying to put a price on it they're looking at it more from a kind of fundamental um or you know to try to make their own curves in terms of prices and volatility on the other hand if you are someone that has a portfolio of renewable that has exposure either physically because you own the assets or you've contracted that under a ppa if you're google for example you've signed a lot of these solar ppas um volume wise you're fine but they're not providing you the green power at every single hour of the day plus you've got this imbalance position that that you need to manage so you're probably pricing that in a different way than a trader a financial player a hedge fund would look at it so there's still solutions and still players that are um you know interested in no it's a it's a fascinating market sector any any questions at all andre is that a half an arm forward or up or i was checking if there were others um well thank you for the interesting presentation um i have two questions so in the well in in the panel we discussed already the top to bottom uh spread there's a potential hedge um so now you have a baseload hedge um have you also looked at other products like gas or a top to bottom hedge and then the second related question is how do you deal with uh your credit risk in the end if you set up these kind of uh uh uh hedges with a developer and and and use on its own so um i guess first one so the baseload works well in the case of a hybrid setup a combination of of both assets as we see because naturally the battery offsets the the balancing risk in the shape risk uh from the standalone solar if you look at a standalone battery asset then the baseload is not is not of any help it actually introduces another risk but the tb swaps are definitely especially as we see you know revenues a big share of the revenue moving to wholesale instead of in series before so these top bottom swaps are definitely a very attractive proposition uh the fact i think that ex has listed what is it the tb2 i think as vincent mentioned since the beginning of the year um is is is is a very good proposition now day ahead only represents i think depending a bit on the market less than 50 percent of what a battery uh can make in the market i think you guys have a tool that shows that um so you're only it only gets you that far in terms of securing some of the revenues but it's it's a good tool um the people are trading it are very credit worthy entities you know utilities banks and commodity traders uh i think the the thing that is missing is the bank starting to recognize this as a tool uh and as a hedging instruments now i've heard that in the uk but also in other countries in europe i think in poland romania projects have managed to reach fid with uh such trucks in place so i think we're going to go to that place i mean if you think about it this is not much different from what we see for example in upstream oil a business where banks are financing upstream oil extraction activities against the the owner of the well selling some brent or wti swaps which are financial products not really representative of the quality of the oil that is being produced so the banks are familiar with this concept of hedging physical production with a financial product so it shouldn't you know for them to process and understand that and apply it to our market i think we'll get there uh i think that was your first question um the second one the credit risk oh the credit um so again i i think you know the benefit of that is you have if if you're looking at uh these sort of products um you're actually talking to very credit worthy entities so and if you split that financial hedge you sell your baseload you sell your utb swaps to the likes of you know goldman sachs citadel trafigura ng vattenfall whatsoever your banks are not going to have a any problem with that and then you're free to engage with an optimizer such as yuso one of our peers that you believe are the ones that are going to generate most of our revenues your credit exposure um on us is actually relatively limited uh because we will operate on a merchant basis your credit and your bank ability is going to be secured by the um by the bank or the sorry or by the by the trader the exposure you will have on yuso is sort of a month of of revenues which is a time that covers the period between the moment we we trade in the market we collect revenues from the tso from ancillaries or from the market and so one month of exposure tends to be relatively i mean we're talking for you know 50 megawatt 75 megawatt projects you know less than a million uh euros of of exposure so do you have a microphone service yes there's a microphone come here i think we mentioned it a bit differently i think the credit risk mostly is from the buyer on the seller where they say okay there's a mark-to-market risk you sold me for like a hundred euros per megawatt hour now i see the market price being 150 uh you're you're needing to put some collateral in place oh you're talking from the asset owner okay okay sorry yeah okay there was a there's a final question here stefan or there's the gentleman in the front here okay here okay how do you see the effect of uh congestion do you already see a locational effect in the assets you're operating and how you see this evolving in the future well i think to some extent also i think the benefit of the batteries is that you you're actually most probably going to be acting in you know 90 plus of the case in the opposite direction um of of of your assets so you're kind of solving uh for that um with batteries we're currently working on a project on the belgian coast which has um injection um limitations um but it's a connection point where a lot of the offshore wind is coming in so it is extremely unlikely that you're going to be injecting with your batteries at a time where you get a lot of wind coming in you're most probably going to be on the other side of that so we we think in the hybrid set of it actually works very well together um and in terms of other grid uh conditions or restrictions that you might have i think what we do for example with our customers in the netherlands is on a monthly basis we re-evaluate the max power offtake that we want to use for the next 30 days this way we can actually reduce quite a quite a lot of the grid cost by making sure uh you know we don't charge we don't use the full power uh for uh for charging that so that generates quite a bit of uh of savings as well i've had a question from the final question from the from you sir thank you sorry uh you're of green chase again um i was wondering uh uh especially the the base load uh hedge uh triggered me a bit um how do you view that in the dutch perspective because i think it it's mostly from a belgian uh perspective and uh uh our subsidy regime of course already covers a large part of this uh as for uh for solar or wind and and do you see any any other differences or what are the major differences from the from the duck situation um well okay so i would say in general if you've got two assets that are unsubsidized or you know they're kind of merchant from from as a starting point then that solution applies i mean we see it you know in in for some cases in the netherlands in the uk in poland romania and belgium now if you already have you know a form of subsidy or some sort of guaranteed revenues on your solar for example then you're no longer you know that that is already covered so you're actually now mostly looking at a standalone battery asset because your your solar might be covered with what is it the sde i think in um in the netherlands and so then you're falling back on you know finding someone for a floor tolling or potentially using the tb um the tb structures but we can again we can model that in our structure how much of your pv in in our tool how much of your pv output is already hedged at what price what ppa do you have in place because my understanding of um the sd structure is you're going to hedge up to a certain level below that you're exposed to market prices but happy to look at a specific case with you we'll we'll draw it to a close now john francois thank you very much for being so sporty as to allow us for 15 minutes of questions much appreciated please give uh john francois another round of applause please