Following on from our look at some of the takeovers of promising or already-prolific energy storage companies in the last edition of PV Tech Power, which included Wartsila’s acquisition of Greensmith Energy, Aggreko’s purchase of Younicos and Shell’s swoop for Sonnen, here’s an exclusive interview with Convergent Energy + Power CEO Johannes Ritterhausen.
We reported last week that the developer, active across North America, has been acquired by private equity and credit investor Energy Capital Partners. ECP has some US$19 billion of assets in its portfolio across everything from oil and gas platforms to residential solar companies like Sungevity and Sunnova, the latter of which has incidentally just filed for its own forthcoming IPO.
Convergent meanwhile, finds its sweet spot in the ‘mid-market’, CEO Ritterhausen said, developing energy storage projects in the commercial space worth around US$2 million to US$25 million each, with around 50% in Ontario’s booming commercial and industry and the rest in various territories of the US.
In terms of individual projects, Convergent may not be the biggest (although the company has deployed Ontario’s largest C&I ESS to date, at 20MWh), but there have been many announcements of new projects and financing. How is Convergent getting its projects into the ground and getting customers signed up?
Johannes Ritterhausen, CEO, Convergent Energy + Power: While we would consider some of those big huge projects that are about 6% cost of capital and [require] enormous synergies and very high development cost on land and interconnection, we can’t compete with the NextEras and First Solars of this world, that’s not our game.
We offer our projects primarily as a contract, we put in the upfront capital and sign a long-term agreement, everything from five to 20-year customer contracts in our portfolio.
What’s the value of acquiring Convergent going to be for ECP? With US$70 million put into more than 120MW / 240MWh of energy storage assets so far (70MW operational), what are some of the higher value applications for that and what were your investors most interested in?
JR: We do large industrial systems and smaller distribution connected systems for utilities. The primary applications are demand charge and electricity procurement costs savings that are based on higher peak rates, for large loads and for utilities, its infrastructure [spending] deferral. So, we’re seeing quite a large market on the industrial side, obviously in Ontario but also now in regions throughout the States.
There’s an enormous amount of customers that pay high demand charges, have large loads, and the growth potential is huge here, especially if the costs continue to go down rapidly. We’re seeing there are opportunities in all of those opening up in North America.
On the utility side, pretty much all of them have some non-wires alternatives (NWAs), it’s just a matter of how far along in their thought processes they are in using distributed energy resources (DERs) to address those problems.
The unique thing we bring to the table is really around managing the whole development cycle. You’re understanding a customer’s particular needs, their particular demand charges. You can have customers in the same utility area, right next to each other, that are paying different rates.
There’s a lot of customisation in the lead generation and customer engagement process. Then, obviously you have to design a solution with the customer effectively, be very responsive to that customer’s need and then we offer financing – it’s a shared savings type contract so the customer doesn’t take the risk.
When they sign that contract with us, we’re still there on the other side. We’re not flipping that project to a bank, or selling that project – we’re still there, it’s our equity, our risk. They will be working with us for a long time and we manage the asset.
A lot of the value of energy storage technology is just beginning to be realised, while we wouldn’t expect you to reveal numbers at this stage, can you give us an idea of the expectations that ECP might have?
JR: As you know, energy storage is a dispatched asset, if you don’t turn it on and off at the right time, it’s a paperweight. So, we’re there, managing the operations and the assets and that’s value for the long term. So that integrated value proposition is what ECP is investing in. We put the deal on the board and then we stay there for the process, creating value for the long term.
We think that’s the right model in this early stage. Five to 10 years from now, pieces of that will get commoditised, just like in solar or anything else. But right now, to be integrated is extremely important to project success.
What I can tell you on the numbers front is that this is a relatively small transaction for ECP. They’re a multi-billion dollar fund. Last year they took Calpine private. Buying a 70MW operating pipeline and then a bunch of future prospects, is not their typical sized transaction but the reason they did it and spent so much time working on us – this deal took a while to put together – we got engaged with them early last year.
They see exactly what you’re saying, they see that growth, they see the potential to put hundreds of millions of dollars into this company in the next three to five years or whatever the time period is. That’s why they’re investing, because they believe in the growth and they believe they’ll have a place to put that money.
What technologies go into your projects?
JR: We’re a technology-neutral developer. We have everything in our portfolio from six-minute flywheels to six-hour, lead-acid batteries. We didn’t do that, just for that tax break by the way, that’s just how that ended up.
The primary stuff that we’re building now are two- to four-hour lithium-ion batteries, and we typically buy those through large integrators. So we’re not an integrator ourselves, we’ll contract with a GE, an IHI, a Lockheed Martin or Mitsubishi or, whomever the integrator is to put together the AC-DC system and we’re purposing that from the integrator.
We manage the construction typically, so in the EPC equation… we do the C and purchase the E and the P!
We’re the largest owner-operator of flywheels in the world, by far, we’ve 45MW of flywheels in our portfolio, so we’re very comfortable with that technology.
Do you see a lot of flywheels happening these days? We’ve not reported on many in the past couple of years at all, although we're aware that the technology has again advanced, with Amber Kinetics touting a four-hour duration flywheel recently.
JR: I will never say, no, or claim it would never happen again but I think it’s pretty clear now if you’re building an asset now it’ll be lithium-ion to do frequency regulation. Then again, if you had asked me a couple of years if we would be owning flywheels in our portfolio we’d say no, but here we are, and we love them, they’re great.
This article has been amended to clarify that Amber Kinetics is the known provider of four-hour duration flywheels, not Ambri, a battery company as previously stated.