Market players

A number of different project structures - and therefore participants - are typically involved in on-site power solution projects.

On-Site Consumer: The starting point for on-site projects tends to be an energy consumer (or group of nearby consumers – “collective self-consumption” is, for example, a particular feature in the French on-site sector) with a significant level of demand, such as industrial processing facilities, large commercial developments or the transport sector (including, increasingly, electric vehicle charging). 

As discussed below, to the extent the relevant consumer(s) will not own the relevant generation/storage facilities, power purchase arrangements need to be put in place for the sale/purchase of the electricity being consumed on-site and recognition given to the extent of the relevant owner’s reliance on the ability to export electricity onto the grid in various scenarios.

Generating/storage facility: As noted above, it is common for on-site power solutions to be owned and/or operated by a third party rather than directly by the relevant consuming organisation. This can allow for the commercial, regulatory and technical risks associated with running such on-site power solutions to be to some extent “outsourced” to specialist organisations.

Alternatively, various models exist for the ownership/operation/usage to be split to apportion practical and regulatory responsibilities or to provide for structures (such as the “energy as a service” model popular in Poland) that reduce regulatory obligations and requirements.

Ownership or operation by group companies of the relevant consumer(s) is also sometimes used in order to ring-fence the activities associated with the generation/storage of electricity. While often necessary/desirable, separate ownership/operation of the on-site power solution can bring complexities in terms of the contractual interfaces, regulatory obligations, and inter-dependencies.

In some jurisdictions, a regulatory frameworks exists which allows special forms of legal entities for the joint production, consumption and/or sale of energy. For example, in Austria a renewable-energy community can be established by private companies, public organisations, and private individuals. These legal entities can own the generation and distribution facilities, hold the regulatory licences, receive subsidies and enjoy advantages like simplified grid connection. In such models, consumers share the commercial risks and are free to sell their share once their need for energy changes irrespective of its current members, such joint vehicles can contract service providers to fulfil the regulatory requirements.

Private wire distribution of electricity: As well as production of electricity, on-site projects will generally involve the “distribution” (i.e. conveyance on a low/medium voltage line) of electricity. Generally, such distribution will be carried out by one or both of the entities that are producing the electricity and/or consuming it (although a structure involving the creation of separate “gridco” entities is also possible). However, as explored in more detail below, it is important to identify who is distributing, as distribution is in itself a regulated activity. From a commercial perspective, how/whether the entity providing distribution services will charge for such services (for example as a separate “use of system” cost akin to a regulated network company or built into other charges) requires interrogation.

Supply of electricity: in addition to production and distribution, on-site projects with multiple parties generally involve the supply of electricity to the ultimate end-consumer. Clearly the commercial arrangements associated with this (including pricing, any obligation to apply particular levies/taxes to supply, any commitment on volume levels, the transfer of any “green benefits” associated with renewable generated electricity) need detailed thought. In addition, such supply may represent a regulated activity (in itself, and separately from generation/storage and distribution) and as a result careful analysis needs to be undertaken regarding those entities who could be deemed to be “supplying” (including following the “chain” of supply through to the ultimate consumer, if ownership of the electricity passes through different hands).

Licensed grid operator: The premises on which on-site generation takes place will generally still require a connection to the grid, to:

  • import electricity where the on-site assets are not sufficient to meet demand and/or to charge battery storage assets; and
  • export surplus electricity from the on-site generation, where the project includes this as part of the commercial arrangements.

Such connections will usually be to the relevant regional licensed distribution network (or, in comparatively rare cases of very high-consuming sites, to a high-voltage transmission network). This interface with the relevant licensed network operator often requires scrutiny in on-site power projects for three main reasons: 

  • the relevant connection agreement is almost always held by a single entity, yet on-site projects frequently lead to more than one party relying on use of the relevant connection;
  • generally, the introduction of on-site power solutions will lead to a material difference to the site’s use of the grid connection, at the very least requiring review of the existing connection agreement and at times agreeing a variation/consent with the network company; and
  • ensuring a robust ongoing right of connection to the grid will generally be crucial for the consuming entity (i.e. to give a fallback position where the on-site generation is not delivering either temporarily or on a long term basis) and frequently also crucial to the commercials of the on-site power solution itself, in terms of giving a route to market where electricity is not being consumed on-site.  

Licensed electricity supplier: as introduced above, where an on-site power solution is being used:

  • in tandem with electricity being imported from the grid; and/or
  • with surplus electricity being exported onto the grid; 
  • arrangements for the relevant sale/purchase of electricity from/to the grid will need to be entered into with a licensed supplier. 

A number of different structures (of varying complexity) can be used for this. Consideration also needs to be given to existing electricity supply agreements in place in respect of the site. Generally, the interface with a licensed supplier in respect of electricity generated at the site will be limited to the electricity not intended for on-site consumption, as the moment units of electricity are apportioned (even notionally) to sale to a licensed supplier on the grid, they risk attracting the levies and network charges that the use of on-site generation is often designed to avoid. Thus, it is usually a prerequisite that any electricity consumed on-site is not taking place on a licensed supply basis – although as noted above it is important to review at the outset whether the envisaged scenario/structure is permitted on an unlicensed basis in the relevant jurisdiction