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SunEdison yieldco sees ‘attractive returns and strong growth’ in energy storage

SunEdison will jointly develop and finance the storage systems with Advanced Microdgrid Solutions. Image: SunEdison.

Terraform Power, the renewable energy investment vehicle launched by SunEdison, the world’s biggest cleantech developer at present, is set to make its first acquisition in energy storage, SunEdison announced yesterday.

Terraform Power will acquire 50MW of energy storage which will be jointly financed and developed by SunEdison and storage developer Advanced Microgrid Solutions, which has recently been in the news for agreeing to procure up to 500MWh of Powerpack commercial scale battery packs from Tesla. This week Advanced Microgrid Solutions revealed that it has secured US$25 million in a Series A funding round, which included a contribution from actor Arnold Schwarzenegger.

The 50MW of batteries will be delivered for utility Southern California Edison, under the terms of a 2013 local capacity requirement (LCR) solicitation, through which the utility awarded 235MW in total of battery storage projects. In part the LCR was intended to help the network cope with the decommissioning of a nuclear plant and the imminent retiring of a number of gas power plants.

Analyst Dean Frankel of Lux Research pointed out at the time in a Guest Blog for PV Tech Storage that this was “significantly higher” than the amount of storage – 50MW – that SCE was required by the state regulator to commission.

“…SCE's LCR procurement is an unexpected near term boost that validates energy storage's role as part of the utility grid planning process,” Frankel wrote.

The utility is contracted to purchase capacity from the Advanced Microgrid Solutions installations over 10 years, with the first of the systems scheduled to come online next year in Irvine, California.

Terraform Power is a so-called ‘yieldco’ which is the aggregated collection of a number of assets into one investment package. Some, as in the case of Terraform Power, contain only renewable energy generation but others such as NRG Yield, include a mixture of clean energy and conventional generation.

SunEdison has already made some tentative first steps into storage, acquiring Solar Grid Storage, a company which co-locates solar and storage facilities. However, it is thought that as Solar Grid Storage’s business model is predicated to an extent on participation in the competitive market for grid-balancing frequency regulation services in the PJM Interconnection area of the US, which sees storage providers bidding on a short-term basis for contracts, its projects were not suitable for rolling into the yieldco.

SCE's LCR procurement is an unexpected near term boost that validates energy storage's role as part of the utility grid planning process."
Dean Frankel, Lux Research

SunEdison yieldco sees ‘attractive returns and strong growth’ in energy storage

Actor Arnold Schwarzenegger is among the investors in Advanced Microgrid Solutions. Image: Flickr user: Neon Tommy.

Since the acquisition was first made public, SunEdison has been reluctant to speak about the Solar Grid Storage deal and has so far politely declined PV Tech Storage’s requests for comment.

The new deal appears to be more to Terraform Power’s taste. The yieldco’s chief executive Carlos Domenech described the storage systems as “a new asset type that provides both attractive returns and strong growth prospects”.

“TerraForm Power anticipates acquiring these systems once operational, making them the first storage projects in our fleet. These systems fit well with our contracted clean power generation fleet, as they have long term capacity contracts with SCE, a leading utility and customer with a strong balance sheet and credit rating,” Domenech said.

SunEdison’s Tim Derrick, general manager of the company’s Advanced Solutions division, praised its partners in the deal.

“AMS’ energy storage solutions are truly ground-breaking,” Derrick said.

“With these systems, the utility will for the first time be tapping into energy stored by its own customers to provide grid support during times of high demand. SCE deserves great credit for being the first utility to issue local capacity contracts for behind-the-meter, aggregated battery storage.”

Yieldcos appear to have been the runaway success in solar financing in the short time they have been in existence. A report on funding activity in solar in the second quarter of this year from Mercom showed that yieldcos drove a substantial portion of that period’s corporate solar funding.  Meanwhile, Deutsche Bank analyst Vishal Shah has predicted a compound annual growth rate (CAGR) for yieldcos of 50% for the next five years, outpacing the 30% CAGR of the global solar market in the same period. Terraform Power, SunEdison and many others will be hoping that success can be replicated using storage assets.

Tags: utility, local capacity requirements, lux research, sunedison, yieldco