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Legal considerations – from spreadsheet to deployment legal implications Maria Connolly Head of Real Estate and Energy & Renewables, TLT

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Energy storage: overview of current activity

!  EFR (4 years) / FFR

!  Capacity Market auction (up to 15 years)

!  Standalone

!  Co-location alongside existing installations

!  Co-location alongside proposed installations

!  Behind the meter

Capacity market auction - December 2016

1.5 GW pre-qualified battery storage projects 501 MW battery storage projects awarded contracts

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National Grid: EFR / Capacity Market

!  200 MW of EFR contracts awarded across eight projects

!  Provisional Capacity Market auction results – aprox 500 MW of battery storage projects have been awarded 15 year contracts

!  Over 1.4 GW of Demand Side Response projects received one year contracts

!  Clear indication of the crucial role battery storage will play in the future of the national grid

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Project Structures

!  Option Agreement

!  Form of lease (or transfer if acquiring freehold)

!  Title due diligence

!  Negotiation of key documents with suppliers

!  Corporate structuring

!  Tax structuring

!  Fundraising - debt v equity

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Standalone

!  Number of sites received planning with plenty more in pipeline

!  Greenfield and brownfield sites as well as conversion of solar option agreements for storage

!  Life after 1.2 ROC solar projects that aren’t built out

!  New grid connections

!  Capacity Market

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Co-location

!  Existing project structure:

!  Ownership !  Funding constraints !  Do sufficient rights exist for storage?

!  Shared grid connections‎ and other infrastructure

!  Mitigating risks arising from a temporary loss (de-energisation) of the shared connection

!  Termination of arrangement

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Behind the meter

!  Benefits: arbitrage, connection costs, Triad avoidance, uninterruptable power supply.

!  Revenue streams: ancillary services to the National Grid

!  The challenges:

!  Storage doesn’t fit within current UK legislative & regulatory framework !  Potential for double charging of system uses charges !  Is planning permission required? !  Lack of current health & safety standards !  Issues where BTM storage is connected to a constrained network !  If BTM is co-located, this can impact on renewable incentives !  Short term nature of ancillary services contracts

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Co-ordinating revenue schemes

!  Complex rules for each revenue stream – how will they interact with each other?

!  Capacity Market agreements can be held with FFR contracts !  Conflicts require prioritisation of FFR over the Capacity Market obligation !  EFR and FFR contracts cannot be held simultaneously if there is any

overlap between the contracted delivery times

!  Overlapping deliverables need to be reviewed carefully to identify potential conflicts

!  The CM Rules “may” be amended to allow for the provision of EFR ahead of the next Capacity Market prequalifying round

!  Ofgem will notify the market of it’s decision Spring 2017

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Co-ordinating revenue schemes cont…

!  Procurement timing

!  Contracts are procured at different times and for different periods of time, making it difficult to line-up different revenue streams.

!  Wider system co-ordination risks

!  Will services procured by National Grid be consistent with services procured by DNOs?

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Structuring projects

!  Legal structure can provide revenue certainty

!  Contracted payments can provide core revenue certainty !  Risk of construction and delivery penalties can be backed-off against

EPC and O&M contracts

BUT

!  Wider risk of uncertainty

!  New revenue schemes relatively immature !  New revenue schemes are still reacting to market changes !  Future changes could impact on eligibility and / or competitiveness

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Conclusion !  Secure land rights (and prior exclusivity) !  Careful legal structuring around co-location projects !  National Grid tender requirements !  Capacity Market auction !  Increased activity in Scotland, NI and ROI !  Future proof project documents for funding (and sale)

Maria Connolly Head of Real Estate and Energy & Renewables, TLT maria.connolly@tltsolicitors.com Direct Dial: 0333 00 60109 Mobile: 07909 967322