Capturing the value of grid-connected battery energy storage

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Key Capture Energy’s non-wires alternative project for Orange & Rockland in Pomona, New York. Image: Key Capture Energy.

The US is set for a huge wave of battery storage coming onto the grid. According to the US Energy Information Administration, developers have submitted plans for 10,000MW of new large-scale projects to come online within utility service areas between 2021 and 2023. All being well, by then the US will have a 1,000% increase in the amount of batteries on the grid deployed since 2019.

One player in that transformation is Key Capture Energy (KCE), a developer, owner and operator of battery energy storage system (BESS) assets headquartered in Upstate New York. Founded in 2016, the company already has several hundred megawatts of projects underway in New York and Texas and others in development elsewhere in the US.

Earlier this week, Energy-Storage.news reported on a 150MW / 600MWh BESS that KCE wants to integrate into Excelsior Connect, a new underground transmission line proposed by network and renewables company Avangrid to bring renewable energy into New York City’s urban demand centres from Upstate. 

While speaking with KCE CEO Jeff Bishop and New York development director Taylor Quarles for that piece, we thought we’d take the opportunity to ask the pair about their strategy for approaching the energy storage market and how the industry is developing in the US as the clean energy transition accelerates.

Let’s start with New York, where KCE completed the state’s first large-scale battery project in late 2019. From that first project, which was 20MW, and a recent project for utility Orange & Rockland which was much smaller but allowed the utility to save significant sums of money on distribution system upgrades, I gather much bigger things are coming? 

Jeff Bishop (JB): As a company, we start small with projects, 10MW, 20MW-sized ones. From that, we get to learn and apply all those lessons into the next iteration of projects. 

For instance, we will be breaking ground this year on KC New York 6, which is a 20 megawatt / 40 megawatt-hour project, just south of Buffalo. The reason we’re focused on doing that project is because in 2023, we plan on building a 200MW / 400MWh project just north of New York City. 

We’ve learned a tonne so far just on the two projects that we currently have in operation. As the largest owner-operator of battery storage in New York, this gives us a lot more understanding on what batteries can actually do versus what they can theoretically do. Going in, doing the small projects, learning, incorporating those lessons and iterating, making the project better, and then going much bigger. 

Our 2023-2024 expectations in New York — we’re probably looking at 400 – 500MW total projects under construction in those two years. And all these lessons accumulate and build off one another.

The state appears very receptive to energy storage, with a 3GW deployment target by 2030 included in its Climate Leadership and Community Protection Act (CLCPA) legislation. It sounds like its already reaching the stage where single large-scale projects can make a dent into that target…

JB: The real key thing is that New York City still needs capacity and as they are retiring these thermal plants that are in environmental justice communities — that probably never should have been built — but you know, it was a different time, 40, 50 years ago. 

They still need capacity, and offshore wind, it can do a lot, but it can’t do everything. So really, energy storage has to be part of the New York City growth and really, we’re the only resource today that’s able to provide what the grid needs.

Decarbonisation means using all the resources available

Your project with Avangrid pairs batteries with a new transmission line. There’s sometimes a perception that there’s a competing business case for transmission and energy storage. It’s clearly more complicated than that, but where do you see the role of energy storage within the transmission network?

JB: We need it all. There was a New York Times article recently that tried to make it competing, either transmission versus localised behind-the-meter, solar, storage, etc. In reality, it’s not a competition, we need it all. 

At this point, there’s probably not going to be a single operating coal plant in 10 years, anywhere in the US. There is going to be a huge electrification of the transportation sector, we’re already seeing that with America’s favourite truck, the F 150. Already 15% of its expected production in 2022 is going to be electric. 

We need it all. There’s absolutely no way that we can achieve the decarbonisation goals of the country and the world without large scale transmission, without batteries, without behind-the-meter solar, without aggregated demand response, etc. So it’s not a competition. 

Instead, it’s just a question on how does everybody get paid for the resources they provide? And so FERC right now is out in front saying that, batteries as transmission, it may be able to be rate-based. 

There’s been a lot of movement in New York to try and do something about the use of peaker plants. We’ve seen recent progress on a 400MWh project between utility Con Edison and developer 174 Power Global to build a battery system on what used to be the state’s most polluting power plant. There are still several gigawatts of peakers in New York City and on Long Island, which studies have shown can be replaced by battery storage and combinations of renewables and energy efficiency. 

JB: We announced a few weeks ago that we’re partnering with (independent power producer) Talen Energy — which has about 15,000MW of projects across the US — to put a battery on a coal plant [site]

Going from thermal [generation] to storage, we see that opportunity everywhere. That’s pretty key. In New York specifically, we do target either being adjacent to existing peakers or being in the electrically similar locations.

Upstate, we have one project adjacent to a kerosene peaker in South Cairo (Greene County, NY). That 20MW BESS project, it’s to take the place of the kerosene peaker. It’s complicated because there’s ownership structures, the entity that owns the existing peaker and weird stuff that goes around with that. But it’s clearly something that we’re actively trying to be in front of.

Taylor Quarles (TQ): Through nitrous oxide emissions regulations which are kicking in in 2023 and 2025, the state is proactively putting in place more stringent regulations, which are seeking to require plants to close down, or install emissions control. The plant in Cairo is moved to close under those regulations, and then our battery will be able to be online concurrently or prior to that closure.

Long Island is the area I’m most excited about right now, in terms of the projects that we have in mid to late stage of development. There’s well over 3GW of various fossil or peaking facilities across Long Island that are currently under contract. Extremely expensive resources, the costs being passed on directly to the ratepayer. Those contracts are coming offline, coming to conclusion, this decade. 

They’re spread across a variety of plants across the island, largely sort of at the periphery of the island, where you can site a large fossil facility. But the beauty of energy storage is that we can target their specific locations. So we can also site our storage more flexibly on the Long Island grid, after considering all the different loads and power flows of the grid.

The ultimate end goal is not to do a one-for-one replacement, we’re not going to put a gigawatt of storage, necessarily, where there’s a gigawatt of peakers. Instead, we can more realistically and efficiently site a couple of different batteries, where needed, closer to load, just due to our, lower visual impact, noise and footprint. 

So you can design the electricity system the way it should look, for now and the future, rather than relying on the paradigm of how the grid was designed nearly a century ago? 

TQ: We’re really designing for the next decade, because our market operations team is modelling what the grid will look like once we have 5GW of offshore wind coming in, where we are going to need a battery after the peakers have retired. So we’re informing siting decisions based on those future scenarios.

KCE TX7, one of several 10MW systems the company built in Texas before embarking on much larger projects in the state’s ERCOT market. Image: Key Capture Energy.

New York is clearly a focus for Key Capture, and we’ve heard about some sizeable projects in Texas that you’re doing too. That Talen Energy project you mentioned is in Maryland: where are the markets you’re really excited about at the moment and what sort of activity do you foresee coming in those regions the near future? 

TQ: New York and Texas are the two markets that we really know, and where we have really great teams and development pipelines. That’s where the bulk of our new builds will be over the next few years. Outside of that, we aim to be in the markets that will be dominant in three to five years. 

Hence, we like Connecticut, and started developing there a few years ago, and the state just announced a 1GW energy storage target by 2030. That’s the type of market that we like, where it’s going to be a huge market, but other people are overlooking them. 

In terms of up and coming markets, parts of MISO (Midcontinent System Operator, the wholesale market and transmission operator which spans all or portions of 15 states and the Canadian province of Manitoba) are very attractive. We have 600MW of projects that are currently under development there. 

It may take two to four years before those projects come online but we have to start cultivating those markets years in advance, before it’s time to actually build. I can’t tell you which states yet, but MISO in general, we’re bullish on.

What is it about MISO that affords that opportunity? 

JB: Broadly speaking, unlike PJM Interconnection, where places like Pennsylvania and Ohio are sitting on shale reserves and so CCGT plants can produce power really cheaply and provide capacity fairly cheaply, MISO does not those same natural gas resources. 

Whenever you’re going from a market that historically has been a whole lot of coal, a fair amount of nuclear — that’s baseload that can’t ramp up and can’t ramp down — combined with ever increasing amounts of wind, ever increasing amounts of new solar, that creates opportunities for us. 

Especially in those states that are rapidly retiring coal plants — which is all of them at this point. They still need capacity. It’s a similar argument in New York City, as you retire these thermal peakers.

The answer is, wind can’t do it alone. Solar can’t do it alone. So for capacity, it has to be batteries today and for the next five years. Something else may come up after that, but really for the next five years, energy storage is going to have to be the capacity replacement for all these places.

Getting it right as an industry

Jeff, you recently joined the board of the US Energy Storage Association. ESA has been pushing for the introduction of the standalone energy storage investment tax credit (ITC) for some time, and that might happen this year. What are you views on that, and what next for energy storage advocacy? What else needs to happen? 

JB: The wind and solar industries were built because environmental advocates in the 2000s really were able to pass state Renewable Portfolio Standards (RPS) and that laid the groundwork. Once there were very clear targets and very clear ways to monetise projects, developers come, prices drop, industries get created, supply chains exist in the US, all that good stuff. 

We’re in a similar spot today for storage. We are now up to nine states that have energy storage targets that are in place, with the two newest in places that we’ve developed, Connecticut and Maine

And as we go from nine states, up to 30 states, suddenly the entire US is open. You combine a federal standalone storage investment tax credit with state public policy that says, “We want some form capacity that is not [carbon emitting]”. 

Suddenly, the entire industry is just going up that hockey stick curve that investors like to see. That’s the exciting part for me, it’s really at the state level where everything is done.

TQ: It’s been a tremendous opportunity to partner with different utilities in New York and Texas and and soon to be other states. It’s a learning process for everyone.

But ultimately, we need the incumbent stakeholders who have the deep knowledge around how the grid operates today — whether that be fossil or utilities. To come over and see the full value stack opportunity of storage. 

I think that’s really done on a day-to-day sort of ‘ground game’ kind of basis. What Jeff said earlier, getting into a state three-plus years before we think it’s really going to be there, because we need to be on the ground, talking to folks in the State House, talking to the utilities.

Not actually about even specific projects, but just about, what is the value proposition of storage, and turn that into a relationship versus a single one-off transaction? 

JB: How we approach that is, sometimes we don’t necessarily do what’s best for the company. There was one state that was trying to pass legislation that just didn’t make sense. Like, they’re a relatively poor state and, you know, they should probably wait, two, three, four years until the cost curve comes down. 

I actually got to tell the governor’s energy storage lead: “Don’t do this, this doesn’t make sense for your ratepayers right now, wait”.

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