The devastating power crisis in Texas last month proved the value of the energy storage market, particularly distributed models, according to a panel of renewables investors this week.
Speaking during the virtual Energy Storage Summit USA 2021 event hosted by our publisher Solar Media on Tuesday (23 March), investors said that batteries have a “crucial role to play” in keeping the grid stable as states transition towards clean power generation.
Rebecca Chilton, director of project finance at investment group Leyline Capital said the winter storm, which caused days of power outages across the state, brought to light the “evolving use of batteries and the evolving importance of batteries in all parts of the grid and reformation of the grid,” although she added that it is still unclear quite how a cleaner, energy grid with more battery capacity will look in the years to come. “That’s still a couple years out”.
Texas faced a severe energy crisis last month when the winter storm left many power generation facilities unable to perform. Grid operators had to take a large amount of load offline, including domestic electricity customers, to prevent catastrophic failures of the grid.
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Aaron Klein, managing director of power and renewable energy at Cleveland-based bank KeyBanc Capital Markets, said that anyone owning a merchant project who charged a battery in Texas last month “definitely made hay during winter storm”. He said the bank is taking a “long” view on the overall storage market, but investing in distributed assets is “a lot easier” for the company to work with as a lender.
“When you look at Texas you need to value these assets and the benefits they provide properly,” he said.
Richard Braakenburg, managing director of investments at Swiss investment advisor SUSI Partners AG, agreed that investors would be “more comfortable” looking at distributed storage development, as opposed to entering a market like Texas’ “going large on a particular node”.
“It just reinforces our belief that where you’re looking at a single kind of power-based revenue stream, then you’re better off spreading your bets,” he said, “versus a market like California where there’s more revenue optionality where we might be more comfortable taking looking at much bigger assets. If nothing else, I think it shows that storage has a role to play in different ways.”
Market differentiation
While its relative novelty in the renewables sector has led to slower investment growth in battery storage compared to power generation, the sheer complexity of their revenue streams and how they stack up with each other is also making it difficult for investors to “catch up” with the technology, according to Patrick Norton, managing director of specialist investment banking business Javelin Capital.
Norton pointed out that battery energy storage systems can have dozens of high-level applications, which “spiderweb” down into different recovery times, meaning their uses “become pretty exhaustive”.
“It’s much different than solar,” he said, “and when you start from that area of fundamentally different use cases spiderwebbing down, it’s just going to take more time for the markets, equity and debt to catch up. The one thing that the industry needs to open the floodgates is an operating history in different markets and showing that this works. The capital is there. It’s definitely not easy to get capital, but it’s there.”
Believing that the ideal conditions, net-metering regulations,and other challenges for storage systems can vary dramatically from state to state, Chilton said that investors are more ready to work with a developer that understand the state they operate in fully, even if they “do not have everything in-house” to bring a project to life.
“I’d much rather find a partner that actually knows how to put these assets into the market that may not necessarily have everything in-house,” she said.
Braakenburg added that navigating the “alphabet soup that is the various different state wide incentives” and assessing the viability of different storage projects in separate markets is “mind boggling”.
“For us what is key is finding the right partners who have that relevant expertise, regulatory, but also the nimbleness to understand what opportunities there are in different markets.”
This article has been amended from its original form to correctly attribute a quote.
