
ESN Premium speaks with Chris McKissack, CEO of developer Fullmark Energy, on issues affecting the US market today and the company’s transition from its legacy business model.
“As an organisation, in some ways, it’s the ideal time to keep our heads down and work hard,” Chris McKissack says of the current market situation as the smoke begins to clear from H.R. 1, aka ‘The One, Big, Beautiful Bill Act’.
“The turbulence that has been generated by the administration changes the opportunity set a little bit, but it doesn’t eliminate it.”
Unlike wind and solar PV, energy storage got through the bill’s near-epic debates and amendments with its original tax credit timeline intact. Neither has it faced the same sort of post-bill wave of new red tape and regulatory snares.
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It was not, however, unimpacted and McKissack notes that the foreign entity of concern (FEOC) rules—whereby projects must feature lower than a certain threshold of Chinese-supplied components or investment—present new challenges.
This extends beyond procurement and development stage concerns into longer-term lifecycle topics like O&M, spare parts replacement, and augmentation planning.
Nonetheless, the CEO says that there are “still a lot of great opportunities out there”. While the current administration’s moves to protect US industry are so far more stick than carrot, incentives to onshore much of the battery storage supply chain under the previous Biden administration already bore some fruit.
“There was so much emphasis on electric vehicle manufacturing and production. I’ve always said that, unlike wind and solar energy, storage gets to ride the coattails of the EV industry,” McKissack says.
The subsequent pulling of the rug out from under EV policies by the Trump administration has left the country with manufacturers switching electric car battery cell production lines over to cells for stationary BESS applications—see AESC in Tennessee and LG Energy Solution in Michigan.
The policy changes for solar and wind, major drivers for the adoption of energy storage, present another challenge and the industry can expect to see a major buildout in the next couple of years of projects still eligible for tax credits, before a slowdown.
“It reminds me, relatively speaking, of the olden days, when we would have an ITC cliff every couple of years, and you would have these boom and bust cycles of the PTC with wind and the ITC with solar. We’re kind of back to those days,” McKissack says.
“We’re going to go through a boom, because everybody’s trying to build out while they still can, and then there will be a bust until either the rules change again or the system sort of resets to a place where it makes sense.”
Fullmark Energy is currently negotiating with suppliers on Chiquito, an 80MW BESS project in California. Long lead equipment had already been bought when a “little bit of delay” was suffered, while there were “a lot of unknown unknowns in how the policy was going to play out,” McKissack says.
“Now that we have certainty around the policy, we’re nose down, focusing on negotiating the supply agreements, and have suppliers that are going to meet all the requirements.”
The developer was already going in the direction of building up a more domestic supply chain, according to the CEO. Chiquito will comply with prohibited foreign entity (PFE) and FEOC restrictions and meet domestic content requirements for adders under the ITC. The latter is upside for Fullmark that helps deal with the additional cost of sourcing domestically, McKissack claims.
‘Goal is to become a self-sustaining IPP’
Fullmark Energy is a new name, but it is not a new company. It is the rebranded Hecate Grid, the energy storage platform spun out of renewables developer Hecate Energy and InfraRed Capital Partners’ joint venture.
As Fullmark, the company has recently completed two projects in a four-project California portfolio. They follow the first project, Johanna, which Hecate Grid brought online back in 2021, and the growth in the company’s operating base inspired the rebrand.
“The initial days of a business like this are focused on development. Now that we’ve gone from one operating project to soon we’ll have four operating projects, it seemed worthwhile to rebrand and refresh the image of the organisation as an owner, operator of projects and a constructor of projects, not just a developer of projects,” McKissack says.
“We are an energy storage-only developer, owner, and operator of systems and processes. The goal is to become a self-sustaining IPP, where we have a diverse set of revenues and projects that we own and operate across multiple markets and with different offtakes and revenue exposures on hand.”
Developing projects to own and operate means the asset generates revenues for Fullmark throughout their lifetime, but it’s also a far more complex proposition than developing projects and selling them on.
As we noted a few days ago in coverage of Fullmark’s new partnership with cloud-based battery analytics provider TWAICE, that means battery storage is not just a “set and forget it” system.
TWAICE’s data analytics offer Fullmark better visibility into project and portfolio performance, as well as battery health and state of charge (SOC), with software and telemetry designed to calculate those metrics more accurately.
On the market operations side, Fullmark has developed its own in-house dispatch optimisation software tool, which McKissack claims enables “a lot of iterations and flexibility in both development and operations.”
“The differentiator there is that we can build it for whatever marketplace we want to develop in or want to explore and run just thousands of simulations across different scenarios,” the CEO says.
“We still look at third-party optimisation tools and benchmark against them, and see if we can bring in an outsourced provider, because we want to have the highest return possible. But I think the flexibility we get from having a tool like this in-house is really great from every aspect of the business.”
Owner-operator risk profile
There are different categories of risk between pure play development to flip and sell on, versus owning and operating projects. McKissack says that the owner-operator model allows for a diversity of revenues and longevity of systems’ lifetime, which Fullmark found attractive.
“You’re putting infrastructure in the ground, so you’re looking at the return profile of assets that are 20- 40 years out in life. That allows you to optimise around your cost of capital and find lower sources of cost of capital and finance the projects.”
The stable revenues an owned portfolio would give a developer can also help pay for overheads and development costs, while McKissack also believes that ownership also de-risks against the fluctuations of market dynamics.
“We have definitely seen over the last 20 years that you go through phases of being a seller’s market, phases of it being a buyer’s market. That’s not exactly stable, and it’s not exactly a de-risked investment profile from my perspective,” he says.
“By having both development and operations, you de-risk the business, but then you can also take advantage of M&A opportunities for buying and selling assets as necessary to round out your portfolio.”
The business model perhaps also makes an owner-operator more attractive to financiers, McKissack suggests, claiming that developers looking to sell on might not get as good terms, as much participation or “the ideal match for cost of capital”.
“The marketplace has seen that before, and so as somebody that’s an established owner-operator, demonstrating our ability to construct projects, demonstrating our ability to operate them, demonstrating our ability to actually improve operations by taking a hands-on approach to operations may not make a hundred basis points of difference, but it may help in the financing and in closing on the financing.”
Data centres changing the utility game
Ultimately, McKissack’s perspectives and Fullmark Energy’s strategy and business model support the notion that energy storage for the grid is a long-term infrastructure play.
Policy, regulation and market dynamics shift and change—something our colleagues on the solar industry ‘Solar Coaster’ know all too well—and this year’s conversations at RE+ will sound very different to last year’s as they likely will from next year’s.
For instance, at RE+ 2024, challenges and industry bottlenecks were framed around topics like long lead times for heavy equipment like transformers, permitting delays and long interconnection queues.
While in the medium-term, McKissack expects to see some projects fall out of the interconnection queues given the turmoil in policy and challenges of connecting to the grid, he notes that one big recent change—the emergence of data centres handling heavy AI computing loads—could signal a bigger shift.
After years of US utilities telling developers of generators and energy storage how difficult and expensive it is to connect to the grid, data centres are now asking for the same grid connections and getting them “fast and cheap,” the CEO says.
“You can’t do one without the other. You can’t add these high single-digit percentages of load to the grid without adding generation or decreasing your reliability and resiliency on the grid. Utilities are going to have to find a way to use the mindset that they’re using to connect the data centres to speed up connections for generators.”