“There are certain major milestones to hit until a utility scale battery energy storage system is ready to support the grid and be a major contributor to the #energytransition. Financial close is certainly one of those,” the developer posted.
As reported by Energy-Storage.news in April, the company’s Hirohara BESS project will be a 30MW/120MWh (4-hour duration) asset in Oazu Hirohara, a region of Miyazaki Prefecture on the southern Japanese island of Kyushu.
It appears this site jumped the gun a little in reporting that previous announcement, assuming that financial close had already been achieved at that time, but as the post on Friday clarified, that is now the case.
Eku Energy said the financial close is a ‘major milestone’ in preparing a BESS project to contribute to balancing the grid, and that the latest development showed the developer is ‘on track to hit all future milestones as planned’.
Offtake deal with Tokyo Gas
Perhaps most notable about the project is the claimed “first-of-a-kind” offtake deal within the Japanese market that Eku Energy has signed for it, with utility company Tokyo Gas.
Tokyo Gas has contracted for full operating rights over a 20-year term to the Hirohara BESS, which Eku Energy will own. In April, the utility said in a Japanese-language press release that the project marked its first steps towards full-scale entry into the grid battery storage business.
Tokyo Gas would use its experience in energy trading markets to use battery storage to contribute to stabilising the grid and enabling greater integration of renewable energy.
At the same time, Tokyo Gas will also leverage the control capabilities of behind-the-meter (BTM) battery storage systems installed at customer premises, which could include commercial and industrial (C&I) facilities.
It is also a first in Japan—although not a first BESS project internationally—that Japanese bank MUFG has participated in project financing for. The bank is becoming somewhat prolific in the sector, particularly in the US, where last week Energy-Storage.news reported its involvement in a US$515 million finance raise by developer Eolian, and US$258 million secured by esVolta.
Eku Energy also said in its LinkedIn announcement that construction partners on the Hirohara BESS include integrated systems engineers Kinden Corporation, renewables specialist Looop and Fortec Architects, all Japan-headquartered companies.
‘Multiple commercialisation pathways’ for BESS in Japan
At the Energy Storage Summit Asia 2024, held last month in Singapore and hosted by our publisher Solar Media, Eku Energy’s APAC technical lead Nick Morley said that having started his career in clean energy working at a solar panel testing facility in Yokohama, Japan, he was “very excited to be working on a BESS project in Japan now”.
Eku Energy has only been around in its present form for about a year-and-a-half and has projects under construction or in development in Australia, the UK and Italy.
Japan’s BESS market is in its relative infancy, and a lot of interest has been created recently by the Long Term Decarbonization Auction (LTDA), a new capacity market opportunity through which batteries and pumped hydro energy storage (PHES) projects were awarded a combined 1.67GW of 20-year contracts.
However, speaking in a panel discussion on Japan at the Asia Summit, Eku’s Nick Morley said that developer “knows for sure that the LTDA is not the only way to commercialise projects in Japan”.
Morley said Eku believed its Tokyo Gas deal to be the first of its kind in the market.
“One of the things that’s attractive about Japan is that there are multiple commercialisation pathways there. It’s not completely dependent on the LTDA,” Morley said.
Yet, it is still early days for many of those pathways and Morley added that mechanisms like the LTDA coming from the policy space, as well as those “multiple commercialisation pathways” would both be beneficial in making Japan an attractive market for investment.
Fellow panellist Ross Bennett of German state-owned bank NORD/LB said that the LTDA is not the only way to finance a project or “the only way to obtain debt finance on a project” in Japan.
“We are also seeing other markets in long-term corporate offtake solutions. In Japan, there are several very large and strong credit-worthy players,” Bennett said.
Meanwhile, Bennett said, different types of contracts and financing which could include different blends of long-term contracts either with corporate offtakers or underwritten by government schemes, along with merchant revenues, will likely take some time to evolve in Japan, as has been seen in other markets. Once that takes off, it could happen quite quickly Bennett said.
Morley said that if the diversity of commercialisation strategies in the country increases, lenders can also become more comfortable with a degree of merchant risk exposure.
For Eku Energy, and perhaps others, like Pacifico Energy, which delivered Japan’s first two BESS projects trading in the wholesale power market, there could be an advantage in being early in entering the market.
“There is a kind of incentive for greater risk-taking behaviour from developers in the storage business. In many markets, time and again, we see that there is a major first-mover advantage,” Morley said.
Energy-Storage.news Premium subscribers can read the write-up of the Japan panel discussion from the Energy Storage Summit Asia 2024. For more information on next year’s Asia event, see the official website: ESN Premium subscribers can enjoy special discounts on tickets.
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