Green Economy Journal Issue 62

ENERGY
ENERGY
Kearney Analysis
Hybrid project types and maturity
Kearney Analysis
Value proposition: driver tree and value levers vs standalone cases
Figure 2. Battery storage hybrids are proven at scale, while multigeneration hybrids show initial larger-scale projects. 1 Defined as indicative share of
hybrids of planned projects involving main generation technology. 2Due to evaporation reduction for hydro and panel cooling and resulting efficiency
gains for solar PV.
Figure 3. Hybridisation of projects can improve project values and accelerate the capacity extension. 1 Value potential in relation to standalone
business cases (eg what additional value levers does a wind + BESS project have against two standalone projects?)
Suitable sites with high energy
yields are becoming scarce.
Markets: how mature are hybrid projects, and where?
Hybrid projects are becoming common in Europe and the US. For
PV, wind and battery, the technology is mature and reliable at scale
(see figure 2). Governments are increasingly promoting this shift with
supportive regulations, simplified permitting and subsidies. The US
grants tax credits for onsite battery electric storage that amounts
to a 30% to 62% capex subsidy. In Germany’s latest auction, solar
and battery energy storage system hybrid projects benefited from
25% higher tariffs compared with standalone PV projects.
Value proposition: which levers support hybridisation?
Not every renewable project can or should go hybrid. To assess
the value, developers need to consider how much the move would
improve their key target metrics, such as the project’s profitability
(NPV/MW) and how much additional capacity per year the added
investment would realise (see figure 3).
Hybridising a project can boost profitability in multiple ways: by
achieving higher power purchase agreements (PPAs) through offering
a more stable generation profile, postponing electricity sales to higherprice
times and realising regulatory incentives for hybrid projects. Few
hybrid projects, as currently configured, are big enough to deliver true
baseload-level electricity in PPAs. But the hybrid combination still
makes projects far more amenable to what utility and C&I customers
need now. Both kinds avoid or soften the “duck curve” problem.
Project value is created by minimising curtailment (increasing
the total annual production volume) and by achieving a lower
specific (per MWh) capex through shared grid access. Indeed, a
hybrid PV + battery project will certainly achieve a higher utilisation
of its grid connection capex than a standalone PV and standalone
battery project with separate grid access points. Opex savings
are also possible, in technical management as well as operations
and maintenance, but require a critical size of technology types
and platforms.
Hybrid projects reduce imbalance costs by minimising forecasting
errors. A second onsite technology diversifies risks from unpredictable
weather, while storage irons out unwanted variable generation. Hybrid
projects may offer lower hurdle rates for experienced developers
through improved diversification.
As for capacity addition volume, hybrids enable capacity extensions
at existing grid access points (circumventing bottlenecks), allowing
developers to deploy more capacity in shorter time. Hybrids tend to
take less time to realise than two separate generating sites because
local stakeholders are known and developers can use their existing
talent in joint development. Hybridisation can help meet increasing
regulatory requirements. The hybridisation of renewable energy
projects thus presents a large value opportunity in both project
profitability and capacity deployment.
THE ROAD AHEAD
While the starting point is different for each developer based on
the maturity of technology and operations, the steps to a successful
hybrid project organisation are alike. Organisations should start their
hybrid projects journey with a view on opportunities, then build
capabilities and move deliberately toward excellence.
Phase 1: estimate the potential and set the strategy
A hybrid strategy starts with assessing how hybrid projects can
contribute to strategic goals such as maximising generating capacity
or firming up the portfolio. If there is a role for hybrid projects, projects
in the pipeline or portfolio are evaluated through a standardised
quick assessment. This covers, for example, factors such as the local
grid situation, the regulatory environment or the co-located resource
potential for PV and wind.
Finally, some strategic guidelines are set: is the company willing
to invest in building up capabilities in a new technology such as
onshore wind because it has hybrid potentials in the portfolio? Or is
the existing technology focus a core part of competitive advantage?
Which types of projects, which countries or regions and which value
chain roles are in scope?
Phase 2: build capabilities and a track record
First, select a pilot project with a lower risk profile. This can be a
smaller or brownfield project requiring repowering or one with clearly
favourable hybrid economics. Working with partners is a sensible
strategy for early hybrid projects. This is especially true for projects
using technologies that the developer has no experience with so
Hybrids are more than simply
adding on a second asset.
far. Using the right risk allocation and project entity structuring (for
example, around individual technologies) helps manage the cost of
capital for initial projects as both developers and financiers build a
track record and get comfortable with hybrid projects.
Phase 3: optimise operations
After gaining experience, developers should aim to industrialise
their hybrid project development. That can mean building out an
overarching competence centre for hybrids to overcome silos between
PV and wind development teams or building up differentiated
capabilities, such as in integrated project techno-economic modelling.
It means fine-tuning processes for hybrid projects, which might
struggle with different development timelines of wind and solar
PV, for example.
If done in-house, hybrid projects might also mean advancing
technology and capabilities of trading organisations working with
hybrid projects to capture as much value as possible.
Systemic change is happening in global electricity markets: the
rapidly growing share of renewable energy will cannibalise its
returns without flexibility, and markets are increasingly incentivising
flexibility. This will require renewables players to evolve their
development practices into hybrid projects to ensure value creation
in their projects. But doing so requires substantial structural,
technological and operating adjustments.
Hybrids are more than simply adding on a second asset. To realize
the true potential of hybrid and address the rising imbalance in
power capacity, developers will need to do more than pivot to
hybrid. They’ll need a broad reworking of investments, outlook
and practices.
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