Q&A - Sonnedix: Overcoming hurdles to co-located battery projects

Renewables developer Sonnedix sees solar co-located battery storage as vital to achieving the energy transition.

However, regulations in several countries make such projects difficult to get off the ground. inspiratia speaks to CEO Axel Thiemann about the challenges co-located projects face and the regulatory barriers that must be removed to make them more widespread.

Sonnedix has a total capacity of close to 9.5GW, including a development pipeline of more than 6GW, across Chile, France, Germany, Italy, Japan, Poland, Portugal, Spain, the US, and the UK. The company has completed several high-profile deals over the past 12 months.

For example, in May [2023], it signed an offtake agreement with Statkraft linked to some of its new solar capacity in Italy. The pay-as-produced 10-year PPA deal will see Statkraft offtake power from two solar plants built by Sonnedix, with a combined capacity of 34MW. The projects are currently being built in Lazio in central Italy.

What factors does Sonnedix consider when identifying new investments and projects?

We have historically focused on two things. The first is fundamentals, so scale, power, demand, irradiation, availability of lands, and regulatory framework to allow to build.

The second is infrastructure, where stability and predictability are key for us. We invest most of the money at the very beginning, and then we hope that over the next 25-30 years, that pays off.

If these two fundamentals are there, then the last factor, to a certain extent, is opportunistic. Windows open and close based on competitive situations, like how crowded the markets are, so we have to look at whether it is the right time to go there. We typically look at these things when deciding where we want to invest next.

Then on a project-by-project basis, there is a clear set of criteria that needs to be ticked off. We live in a multi-technology world- solar, wind, storage including hybridised. We are dealing with a much more volatile environment on the regulatory side. Last year was extreme in Europe, and I don't think we are going to see the end of that yet. Over the last couple of years, our criteria have become much more granular in terms of locality, what conditions we can enter, and at what point in time.

Despite this volatility, do you still consider solar stable and predictable?

There are two parts to that question. I do believe that, firstly, the energy transition has much more political support than it has had at any point in the last 10-15 years, and I believe that there is intent to take it further.

However, there is volatility in how countries are driving the transition because it is dependent on regulation. The big factors creating volatility are interconnection transmission built out; the ability to interconnect; how grids will be able to deal with it; what degree of regulatory flexibility is going to be there; and how regulators will remunerate flexibility that comes from storage.

Overall, I believe last year was a turning point in terms of political support and public awareness.

Sonnedix has a large presence in Spain. What is driving investment in the region?

We start with the fundamentals - stability and opportunity. Spain was a country that was very active in the first wave of European development, and then it had wobbles, regulatory instability, and retroactive changes. But the nation has been very consistent since, and right now, it is the most advanced country in Europe with regard to the commercialisation of renewables. It benefits from a lot of sun and land, and the government has encouraged PPAs and provided the right loans for that. Therefore, Spain has been leading this second wave of European development starting in 2020.

Are there any other regions that you are particularly interested in scaling up over the next few years?

All of them. We try to deepen our presence where we have scale, local relationships, and market knowledge. We are also investing a lot of time and money in European countries like the UK, then Poland, followed by Germany, as well as in the US.

How important is battery storage to Sonnedix right now?

Co-located storage is important to us. From a technical perspective, you should put solar, wind, and storage together. A large part of our development strategy is to develop multi-technology and co-located projects.

In some countries, regulation right now penalises it. For example, in Poland, there is no efficiency. You need to permit the pipe for solar and separately for wind, and separately for storage. So colocation right now doesn't bring any benefits because it's a separate process, and you need three times opacity. That's what I mean by the kind of regulatory action needed to accept the new technical reality and convert that into something that makes sense.

What kinds of regulatory changes would make co-located projects more viable in all these countries?

In principle, it is really about allowing and supporting co-location over single technology; making it easier for you to interconnect if you actually provide stability to the system.

It should be easier to get a solar, wind, and storage project onto the grid than just a solar project, and in most countries today, that is not the case. Then a remuneration scheme for capacity, stability and flexibility is provided by storage, so that you can make that investment with some payback. Those are the main drivers of regulatory activity that we see and assess as beneficial.

inspiratia's research has noticed a shift towards merchant projects. How does Sonnedix view the merchant vs PPA debate?

For renewables, at the beginning, everything was very simple and relatively generator friendly. For example, tariffs, PPAs, 20-year government guaranteed take-or-pay. If I had the choice, that is what I would still like to see.

We no longer have that option, so we construct our portfolio to provide a balance. That means we have projects that are very highly contracted, projects that are less contracted, and we have some complete merchant projects. At the moment, we have more merchant capacity in the portfolio than we had five to seven years ago, and I don't think that is going to change. It is just how we time the contracting that is really the question from our perspective.

Another thing we like is contracted capacity, and we are adapting the portfolio level to have the right kind of risk profile. Ultimately, we like certainty, we are an infrastructure player, and we make investment decisions to hopefully get returns back over the long-term.

PPAs have also seen a significant growth in the first half of the year. What has contributed to this?

There are not a lot of alternatives to PPAs at the moment. There are some options in France, and some limited options in Italy, but really, it is limited in terms of other contracts. It is a mix of where power and PPA prices are and how many projects are ready to build.

We have seen a big acceleration in available projects. We see right now a price level where a lot of countries are interested in signing contracts, and there are enough projects to match that demand. I think this is a continuing trajectory, and the EU intends to further that ability to contract with PPAs and CfDs, to provide stability for an efficient and speedy acceleration of renewables deployment.

Are there any other trends in the PPA market that you find interesting at present?

The customer segments have shifted, particularly last year, which was a big wake-up call for many energy-intensive and semi-intensive offtakers.

For some, the cost of power has jumped from 5% of the overall cost base to 25% throughout 2022.

That has made many companies realise that power is not necessarily as available and stable as they thought. That has really opened a whole new customer cycle for offtakers.

More people want to contract us and want to lock in prices for the long term, and they want to buy green, clean, renewable electricity. I think that is the most relevant drive in the market. We are expanding our customer base beyond our traditional utilities, trading entities, and large multinational clients.