IEEE Power & Energy Magazine - November/December 2021 - 43

Financial Considerations: Investment
Risk and Hedging
From investment and financing perspectives, the value
of hybrid resources comes from three sources: reduced
variance, higher-value services, and risk management and
option values. All three can be a major part of commercial
investment decisions, but many aspects are largely missing
from our usual methods, tools, models, valuations, and
definitions. Reduced variance from hybrid resources plays
to a major strength of RE projects: the resources' ability
to deliver energy at a fixed long-term price unaffected by
the vagaries of fuel markets. To the extent that the revenue
stream for a renewable project is known and not subject to
fuel price risk, the project can obtain lower-cost debt financing
due to the predictable returns.
The ability for storage to further dampen variation in
renewable output and lower the risk of curtailment means
more of the energy can be delivered in this tier and financed
more cheaply. While hybrid resources may have different
costs compared with colocated resources (in terms of capital
cost, necessary analytics, and sophisticated operations),
they can facilitate higher dc/ac ratios and provide even more
stable energy output and availability. This is done by leveraging
additional energy production that otherwise would never
be deliverable to the grid. In addition to reduced variability
and increased certainty, hybrid resources can offer a highervalue
service. For example, one way to increase the value of
delivered energy is to shift some of the transfer into higherdollar
hours. A combination of technologies can also more
easily deliver ancillary products, such as regulation, ramping,
and reserves. Again, there are tradeoffs between hybrid and
colocated resources. The former may be technically able to
deliver more value at the point of interconnection with the
bulk power system but perhaps at a higher cost that buyers
and investors will have to consider on the bottom line.
Beyond these considerations, there are additional advantages
for hybrid resources that buyers and investors may
value. For vertically integrated utilities that manage their
resources, in the hands of a sophisticated system operator,
the co-optimization of separate technologies and colocated
resources within an overall portfolio can extract a lot of
value from each technology. However, these system operators
might still rather receive simpler packaged services
from a hybrid resource, enabling them to better focus on systemwide
dynamics and other issues. In an organized wholesale
market, each grid service must be able to meet defined
standards of performance.
A hybrid resource is more likely to satisfy such requirements
than can many technologies that are separate or within
a colocated resource. Today's markets also expect specific
performance from unique resources and rarely allow a portfolio
of resources to participate as a single market resource.
Current work in the United States on Federal Energy Regulatory
Commission Order 2222 for aggregations of distributed
energy resources may change that, potentially permitting
november/december 2021
such aggregations to participate in a way that looks very
much like a hybrid resource. Thus, hybrid resources can
become more attractive than colocated ones and traditional
independent technologies due to the relative simplicity at
their interface and their ability to provide a wider range of
ancillary services.
When it comes to risk management and option value, it
is useful to further divide advantages between operational
and planning time frames. In the operational time frame,
combining technologies makes it easier to manage basis
and production risks while offering a means to be more
opportunistic in the face of a changing operational context.
As simple examples, a project can deal with the effects of
a passing cloud or gust of wind by using coupled storage,
which enables it to maintain less headroom for a given level
of ancillary service provision. Once again, hybrid resources
can do all this better than colocated ones, at a cost, because
they may have more capability behind the inverter, particularly
with the higher dc/ac ratios in dc-coupled solar-plusstorage
hybrid resources.
In the planning time frame, the plasticity of hybrid
resources provides valuable risk management and optionality
features to buyers. This enables projects to evolve and
be repurposed as system and market conditions change.
For example,
if full capacity value accreditation initially
requires an ability to sustain maximum output during a
certain 4-h window, but the window shifts or the duration
becomes longer, a hybrid resource may more easily be able
to add PV panels and batteries to meet the requirements. It
may be able to add these panels and batteries on the dc side
without needing to change the inverters or electrical characteristics
as viewed from the grid's side of the point of interconnection.
Project sponsors can factor plasticity into their
financial calculations by modeling cash flows under different
future scenarios (with ambiguous probabilities) and
applying some risk measures.
Another possibility is for a hybrid resource to directly
integrate loads behind the point of interconnection and even
electrically separated from the grid by connecting the loads
on the dc side of the inverters. In Germany, some hybrid
resources and microgrids include hydrogen electrolyzers
and fuel cells. This is not just a closed-loop alternative for
electricity storage, as hydrogen is also produced for sale
and used for other industrial and energy purposes. Hybrid
resources and other virtual power plants may come to be
viewed as the grid-facing facet of broader " energy factory "
concepts that serve many purposes and provide diverse revenue
streams.
Technological Considerations
Perhaps the most distinct attribute of most hybrid resources
is that they take advantage of state-of-the-art software, power
electronics, and analytics. These attributes enable them to
provide a variety of fast and accurate services at the point of
interconnection as well as to emulate the operation of many
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IEEE Power & Energy Magazine - November/December 2021

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