JULY 30, 2019 GTM
“Everybody’s been talking about this, but this is it,” Engie Storage CEO Christopher Tilley tells GTM.
Storage developers can get paid for letting Engie bid their batteries into New England’s wholesale market.
Engie Storage has formalized a much-discussed but little-practiced revenue stream for energy storage projects: wholesale market value-stacking
Under a new product offering, Engie won’t just design, supply and operate energy storage plants for customers. The company will also pay developers upfront for dispatch rights to use their batteries in the ISO New England wholesale markets.
This gives storage developers and their financiers an additional source of secure revenue, while shifting the tricky merchant risk onto Engie, which feels confident in handling it.
This is not the first time energy storage has entered wholesale markets. Utility-scale batteries piled into PJM’s frequency regulation market years ago, and at least one storage facility is diving into Texas’ competitive ERCOT market. (Some storage technically participates in CAISO via California’s Demand Response Auction Mechanism pilot, but that is, in fact, a pilot).
In the past, developers built merchant battery plants, but that all but dried up when PJM’s storage market cooled off. Major battery plants these days need solid, contracted revenue streams to line up financing; if they can sprinkle in a little merchant activity, that’s great, but it’s gravy.
This means that the famous ability of storage to perform multiple tasks has not extended as far into the wholesale markets as is technically feasible.
“Everybody’s been talking about this, but this is it,” Engie Storage CEO Christopher Tilley told GTM. “This is real, and there’s real value-stacking that can significantly improve the economics of projects.”
Unpacking merchant risk requires certain competencies that Tilley’s team has access to as part of French energy conglomerate Engie, with a trading desk and experience managing the full range of energy assets. Its recent acquisition of Genbright, which aggregates distributed energy devices for wholesale market participation, further expands the tool belt.
Using those internal resources, Engie will take on the risk of projecting years’ worth of future market earnings, then cut a check to the developer based on those calculations. For the developer — Engie’s customer — this turns merchant risk into contracted revenue.
The developer gets paid upfront, financiers don’t have to worry about merchant risk messing with their payback, and Engie takes responsibility for dispatching the plant to make good on its predictions.
This isn’t just a theoretical announcement. Engie has a first customer in private equity firm Syncarpha Capital, which signed up for the full offering for six community solar plants paired with energy storage, totaling 19 megawatts/38 megawatt-hours. Those projects, expected online this year or next, will claim the Solar Massachusetts Renewable Target incentive and the federal Investment Tax Credit.
On top of those two incentives, Engie is paying Syncarpha to use the batteries for the ISO New England markets for capacity, reserves and frequency regulation. Tilley declined to specify how lucrative the wholesale payments are, but said they represent “a substantial amount of money.”
In practice, this requires balancing several sets of compliance requirements and then pushing for additional revenue.