Recording and presentations: Building the financial business case for battery storage projects in America

23 January 2020

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Automated transcription (it may contain errors).

Belén Gallego 1:36
Good morning and good afternoon ladies and gentlemen, welcome to this online session. We are not going to begin just yet. We’re literally going to take a couple more minutes to allow people to come into the room. But in the meanwhile, I’d like to welcome you here, you’re in the right place. We have all of the speaker’s here with us today and I’ve already introduced myself using the chat and I ask of you to do the same with your name. You know, just introduce your name where you’re joining from, and this is willing gazebo. I am the moderator of this session and I am joining from Madrid in Spain was beginning literally in a minute and a half. Thank you

Okay so we’re gonna Morning Good afternoon ladies and gentlemen. Okay if you are in the US, especially in the West Coast is going to be good morning for you. But I can see there are people from all over the world and is good evening for us here more like in Europe, and more so in India or in South Africa like we’ve seen. So today we’re going to talk about building the financial business case for battery storage products in the US. battery storage and storage in general is at the moment, very popular is going throughout the world and is very much needed. The more renewables you have in a system, the more batteries you need to make sure that the grid stable. We are seeing here in Spain, for example, that in the next decade, we’re going to have something like 30 gigawatts of solar 20 gigawatts of wind and also five gigabytes of storage going to be added to the grid and we are not the only ones anyone that are looking at increasing renewables have to be looking at battery projects as well. So the US presented A very important opportunity for us to learn from a country that is ahead of the wave. And they’ve already seen a few projects, a lot of projects actually compared to other parts of the world. With us today, we have three experts in the topic of building financial business cases for battery storage projects. And this is a great opportunity for us to learn from them. So I’d like to, to ask them to introduce themselves. Daniel, please, if you can unmute yourself and introduce yourself.

Unknown Speaker 5:29
Absolutely. Thanks so much. My name is Dan Foley. I’m the head of global energy storage for what you can see.

Belén Gallego 5:39
See, it goes wrong even I forgot to unmute my button. Thank you very much. JOHN, Please, could you introduce yourself?

Unknown Speaker 5:47
Hello, Brian. And I work for Siemens financial services in the United States. project finance, specifically energy group. And with that, it’s really senior secured lending.

Belén Gallego 6:00
Thank you very much, john. And last but not least, Matthew, please. Could you introduce yourself?

Unknown Speaker 6:05
Yeah. Hello, everyone. I’m Matt Schultz. I’m a business development manager for Duke Energy. And I focus on developing battery storage projects and micro grid projects inside of our regulated service territory.

Belén Gallego 6:16
You know, I actually like to ask you guys as well, where are you guys? Where did you join him from today? We’re in the US just

Unknown Speaker 6:24
here in Charlotte, North Carolina.

Unknown Speaker 6:24
Charlotte. Okay, what about you then?

Unknown Speaker 6:29
So I’m based in Boston, Massachusetts, but I’m from a small state of Rhode Island originally.

Belén Gallego 6:34
Excellent, john.

Unknown Speaker 6:36
And we’re based out of New Jersey, but coming from New York City today.

Belén Gallego 6:40
Excellent. We actually can’t hear you twice. JOHN. I think we need we kind of hear an echo, too. We’re going to need to do something there might be that you have to talk.

Unknown Speaker 6:53
Hopefully, well, maybe we’ll spread it out. But the the issue is that we’ve got a camera that works on one on one and speakers or works on another, but today,

Belén Gallego 7:02
you guys, the technical issues, Okay, no problem. Okay, so first of all, I’d like to ask Daniel to prefer his screen. If you can prepare your screen Daniel, and you will begin to be our first presenter. And today, you guys whilst down, refresh the screen. You’ve been here before, you know a lot of you have already watched webinars with us. So the way it goes is you hear a presentation from each of the speakers, and then we’ll have some time for questions at the end. So please send us your questions through the q&a box at the bottom and we’ll take them we’ll take as many as we can at the end. And just line you know, important to say this because I get a lot of questions every time we are recording this session, and then the recordings will be available together with the presentations for you to download in a couple of days. Then, go ahead, finish your presentation.

Unknown Speaker 7:53
Thank you so much. I just confirming Can you see the presentation. Okay.

Belén Gallego 7:56
We can thank you very much.

Unknown Speaker 7:59
Excellent. Thank you. So much and thank you once again for hosting me, seeing everybody post in the chat real diversity of geographies and sort of business models that I’m seeing, they’re really excited to sort of share insight into the US market. So I thought what I would do for the first 12 minutes here is provide a little bit of a broader context into the US energy storage market, where it’s been, where it’s going, and then leave playing time for questions as well. Quick note on with Mackenzie, we are a global energy and power consulting firm including oil, gas, renewables and power My team is in sort of the Power Team, and we sort of leveraged this global footprint in order to provide Research Services and one off consulting opportunities as well. So happy to talk about that with anybody who’s interested. This will be a quick presentation on where the US market has been where it’s going. And one of my favourite ways to talk about this is by showing the actual deployment slides. This is a graphic showing since 2013, the quarterly deployments that we track in the front of the metre and behind the metres base for the US energy storage market. And it really does an excellent job of showing the story of how the US market has evolved. If you look at the 20 1415 timeframe, you see really big spike there when the frequency regulation market in a large, deregulated market, the PGM interconnect in the United States opened, a lot of players started to get their feet wet in the US market in that space. This not only made them a good amount of money, but it also allowed the technology to really be demonstrated to the broader industry. From there, that second spike that you see is the point where the US market I think, starting to emerge into maturity. That was the Aliso Canyon natural gas, Aliso Canyon natural gas leak procurement. There was a large gas leak at a storage facility in California, and energy storage was brought on line to meet a potential shortfall from peaking capacity there. There was about 100 megawatts of energy storage associated with that procurement. It was implemented in less than a year. In fact, between the announcement of the Chairman and commissioning, there was six or eight months for these projects. This was really an opportunity that for energy storage to step up and say, not only can we do this, but we can do it for longer durations, we can provide capacity for our systems, not just, you know, ancillary services. And then from there, the market has begun to scale up dramatically, not just in the front of the media space, but in the last year or two, we’ve seen the residential market start surging, we’ve hit records past two quarters for residential deployments, more incentives are emerging for those markets. The same graph looking at it from a megawatt hour term in terms of not only the capacity but also the duration of batteries really shows how the market is continuing to scale up. You see the smaller blip from the PJM market, those are very small 1520 minute duration systems, so they don’t make as big of a splash in the megawatt hour standpoint. And then from there, you can see that as we scaled towards capacity applications, you can see the Aliso Canyon procurement big spike in 2016 into 2017. Now we’re starting to see that market grow into scale. Quick note on Some of the key markets this is happening in residential, non residential California and Hawaii are still the leaders. But Arizona places like Arizona, New York, other markets are emerging in the behind the metre space due to incentives or project economics. And then in the front of the metre space, it’s still very nascent market, there are only a handful of projects coming on each quarter. So a single large project, such as what happened in Massachusetts can really drive a market to the top of the quarter.

Unknown Speaker 11:25
What’s driving this? The biggest thing is, of course, cost. If you look at what technologies we see installed in the US market, with the mind is not only the majority or predominant, but it’s pretty much exclusively the technology that’s being installed lately. We’ve had about 95% of the market, comprised of lithium ion technologies since 2014. And that’s simply because lithium ion costs have declined so much. We have pilot programmes and other technologies as well. But this story is really right now about lithium ion in five or 10 years. I think that there’s going to be a lot of opportunity for emerging technologies To operate in the market, but really lithium ion fills that gap of two, four hours, which is where we’re seeing the value proposition for storage right now. So we see that continuing over the next five years or so, those costs of clients have been dramatic, and they’re only continuing, the cost declines for front of the metre energy storage systems since about 2013 have fallen dramatically. This slide shows you a range of prices that we’re seeing now for fully installed energy storage systems. For for our into our systems, this doesn’t really represent the best in class, but more of a range of what you might see in the market if you’re entering the US space. And as you can see, just over the next two years, there’s going to be about a 15% price decline in this market. We had this really accelerated phase of price decline, and then in 2016 1718, and even it’s 19. Slow down a little bit, because there were supply chain constraints, questions about commodities, things like that. And, you know, Principal has been able to keep up with that. So it’s a bit of a transitional phase. From there, we’re going to get into this sort of steadier phase where we start seeing five or 6% price declines year over year. So still steady price declines, but nothing nearly so significant. For 30 minutes, systems, prices are declining as well. Not as much though because we’re seeing fewer 30 minutes systems being installed. The market is much less focused on ancillary services and other short duration mechanisms, and is now more focused on longer duration systems. That projects I mentioned in Massachusetts and then eat our system for lithium ion battery. That’s a real exception to the rule, due to the unique nature of the location works installed on an island off the coast were running a new transmission line or running diesel generators is very expensive. But we still see much more of the two to four hour range. But again, across the board prices will continue to decline. And that’s going to open up more opportunities moving forward. A note on what sort of driving this I include this slide and I’m not going to cover everything here the slides will be available so you can go through and read this. This is also available as part of our Resource Monitor where we go From these policies in deep till front of me, but I want to highlight a couple of things on the front of the metre and behind the metre space. There are massive numbers of drivers in this space. And what I’m beginning to see is that this really is a national trend. One of the reasons for that is that it’s not following the path of solar and wind where you’re really constrained by resource availability. Is there a good wind resource? Is there a good solar resource for those technologies to be installed early in the market? Now with technologies improving in those markets, we see them diversifying, of course, but with energy storage, it can provide such a range of values and use cases that it really has become a national trend. We see utilities investing in solar plus storage outside of any sort of conventional energy storage mandate or any kind of incentive programme. We see massive increases, which we’ll talk about in a second in interest in deregulated markets, which the Federal Energy Regulatory Commission has ensured our network Going to be eligible for energy storage. in states where there are incentives California, New York, Massachusetts, some of the coastal states, we do see things accelerating. But even in the southeast utilities are starting to see the value of storage and in particular solar plus storage. This is not just a red state blue state Democrat, Republican political question for this resource is providing enough value and that value is being recognised by all the different players in the space that’s beginning to be a national development. Of course, there’s a lot of upside in areas where there is more direct utility engagement with energy storage, more recognition or track record of it. But increasingly, as we see Integrated Resource plans coming out from utilities, as we see interconnection queues surge for energy storage, it’s clear that everyone across this market is really diving into it.

Unknown Speaker 15:48
And then behind the metre space, we are still relatively constrained to the markets that have direct incentives, simply because without as much scale with customer acquisition costs and the market economics behind this are not as clear What is the value of a potentially solar plus George’s backup generation is difficult to put a real pin in that that’s not slowing down the market so much in the states where we haven’t sent us the self generation incentive programme. The value distributed energy resources in New York, the Massachusetts smart programme, those markets will continue to drive energy storage moving forward. And in the behind the metre space. What I’m excited about is potential movement on aggregation of distributed resources into a single sort of entity for bidding into markets. I think that could really accelerate the kind of metre space. going quickly through a few slides on the pipeline that we’re seeing. Just to show you this remarkable acceleration. We’ve we’ve been tracking the energy storage pipeline all announced projects, PR filings, utility RFP results, interconnection requests, and what we’re seeing is a clear cycle that as the quarters pass, we’re seeing increases in the pipeline. Generally in the pipeline projects will fall off or they’ll be cancelled, etc. Well, the energy storage pipeline, you can really see that there is exponential growth here. There was a 15% increase to the pipeline quarter over quarter. And compared to a year ago, we have 2.4 times growth. So there is surging interest in this market. This pipeline captures everything, including interaction through requests and such. So we really only anticipate a small fraction of these being installed. If you look at the geographies of where this pipeline is, you can see that it’s beginning to diversify significantly. Back in 2015, you were really mostly focused on the California market that represented more than 70% of the market, simply because there’s so much interest in it due to its first mover status as an incentive state and mandate, state, etc. Now we’re seeing that there’s incredible diversity in where these projects are located. The interconnection queues for the Southwest power pool, Texas, New York ISO New England, utility engagement in the southeast and the Pacific Northwest and the mountains is everywhere. California is still of course a leader in the space but it’s live Status even as the majority of the market, there really is coast to coast interest in the United States and beyond why I will ask as well for energy storage, wrapping all of those things together policies, improving the economics, the pipeline that we’re seeing the interest. All these things are signposts that point to a surge in market. This is our latest forecast from our q4 energy storage monitor showing where we see the US market moving over the next five years. The forecast here you can see shows a dramatic spike from 2019 into 2024. In fact, we’re going to reach 5.4 gigawatts annually by 2024. These are annual deployments not cumulative. There’s going to be a huge spike in 2021. As we see a lot of large scale utility procurements come online. That’s not to say there have been setbacks. There have been issues about safety that have caused delays in markets such as Arizona, there have been questions about project economics, the pg&e bankruptcy, that sort of pushed things from 2019 and 2020 into 2020. wanted more. And then finally, to put this in sort of a dollars perspective for you, this is going to be a $5.4 billion market by 2024. That’s a pretty large pie. But already, we’re seeing stakeholders start to slice it start to reserve their own portion of that pie, with the hope of really capturing some of this massive value that’s being created. All of this is really discussed in a lot more detail in the energy storage monitor and the research services as well. So again, I could spend probably three or four hours just talking about these slides, and I happily will someday. But for this one, I want to set the stage so we can talk more about financing, how is financing going to work as a mechanism for players to actually move into this market and capture that surging value going from 500 million to 5 billion, that’s a huge growth and it’s going to require a massive influx of cash. And then of course, there will be a massive amount of value created from that. So yeah, with that, I think I’ll pause I’ll stop sharing there and I’ll hand things over to our next presenter. Thank you. Happy to answer questions as well.

Belén Gallego 19:57
Wow. That was like all wrapped up. You don’t even need Well done. Thank you very much for that information, you know, and it is interesting. I love hearing you guys and I would have a million questions for you. And once in a conference, we had this speaker and Sarah can talk about storage all day, you know, my husband, kids are sick of hearing about it. So So ask your questions here. You know, there’s Daniel wants to talk about it. All right, next person that will be young, please, john, if you can share your screen. We do have a few questions guys over in the q&a box. If you want to have a good answer in some by text. We try pick some of them up alive as well later. Some of them particularly very interesting now I’d like to discuss them. JOHN, we can see your screen perfectly. Talk for me so that I can see if I can hear you. Yep.

Unknown Speaker 20:45
I’m also turning down the other volume. So if we don’t get too much of an echo,

Belén Gallego 20:48
yeah, that’s perfect. Great.

Unknown Speaker 20:51
So john Brian, Siemens financial services and the deck group. Just a quick overview of who and what Siemens finished Services does. We’re an investing arm of the German conglomerate Siemens. And we invest particularly in my in my world and senior secured debt or power projects. Bad weather thermal, renewable, and in this case, battery storage. We’ve been investigating the market now, since 2015 have invested in two different battery storage projects in front of the metre standalone and currently kind of going through the process with with two additional ones. So hopefully, fingers crossed by the by kind of mid year, we’ll have two more deals completed in the standalone battery space. I have other slides that I think are the general packet that a bit more of a kind of a Siemens ad, but I’ll feel free to look at that later but did just get into it. And again Dan does a fantastic job in terms of setting Stage, I’ll provide a little bit of context in terms of what I saw in terms of what it what it really means and and being in it since 2015, kind of the top quadrant, what what you see is that, you know, there’s been a, as Dan mentioned a spike in terms of a lot of utility scale that I went to CNI and residential. And I think that was really the kind of theme of 2016 2017 is where’s where’s battery storage going? It’s going residential CNI, things like that resilience,

Unknown Speaker 22:33
peak shaving, things like that. And I think the reality hit, which is customer acquisition costs, you know, a customer acquisition is difficult, and it’s high cost. So a lot of that’s been pared back and a lot of that’s been met with a lot of incentives and policies at the state level, and at the ISO levels, to drive utility scale grow. So that’s kind of where we’re seeing a Lot of it now, you know, outside of Ontario and maybe some in New York and Massachusetts, we’re not seeing too much in behind the metre and everything is growing on the utility scale. shifting over to the, to the right. You know, again, Dan mentioned again the declining declining cost of battery storage and I think what what that really says is what it will be a lithium ion battery game for the foreseeable future. That’s a very popular question. It’s what other technologies can you finance or are you willing to fans which is interesting because there’s probably been about six battery storage financings anyway they’ve all been lithium ion. So let’s get a few more about lithium ion batteries. Finance before we worry about the next thing, but the reality is is if you look and you see the declining pricing, right, the battery costs themselves are getting closer and closer to that of up gas plants. So you know the ideal Pico replacement scenario for batteries is getting Closer and closer to reality. I think the other thing to note is, is again, how the duration, you know, four years ago, the thought was, you know, battery really can’t go with 30 minutes. You know, then you go you tweak the chemistry, you do a little more r&d, and then you get to an hour, then you get to two hours, and now you’re at four hours, you know, so the question is, and I don’t doubt that pretty soon, we’ll be out to about a six hour lithium ion battery at a solid cost curve, you know, anything over six, you know, at this point, anything, you know, four to six or over six, you’re thinking maybe we need a flow battery or something a little bit longer duration, but the reality is, is that the markets at this point, unless, as Dan mentioned, you know, that Nantucket, kind of a micro grid, which really was meant to, you know, power, the island itself, there really isn’t a lot of market incentive for anything over four hours. And even today, the real driver for our batteries is that that is kind of where a lot of the Icos are coalescing in and around what are you in order to receive capacity payments? What is what is kind of your hour duration and that’s kind of coalescing around four hours. pgn is kind of an outlier at 10. And, you know, that’s to be debated, but generally, you look around and that, in my opinion is what’s driving the movement to for our batteries. I think the markets themselves are still dominated by frequency regulation. Energy arbitrage is not doesn’t really make a tonne of sense at this point. But frequency is you’re going to see projects even if they do have a capacity payment, even if they are four hours still run in the regulation, whatever it is deemed in that particular market reg breakdown reg D. That is where the batteries is most likely going to play with a four hour battery, you can do a few other things like Black Star or spinning reserve and they didn’t do that and then have the capacity to handle it. And then also in the extremes handle your capacity requirements. And that’s kind of how the basic value stacking is coming up right now, it’s still generally just a frequency game. But there are little bits here and there where you can pick off a little bit of value. I guess going back down to the lower left side again, it’s like I’ve stolen Dan slides. But you know, that’s where we’re seeing the markets where it’s we’re seeing the drivers right now, a lot of California, New York is just gotten really active through both the NYSERDA block grants that are coming up and and the recent content and origin Rocco and RFPs.

Unknown Speaker 26:38
Taxes itself is also growing, because the market is there and there are a lot of renewables. So there’s a lot of opportunity. I think we’re kind of what we are seeing is that there is a herd mentality sometimes. And and kind of the idea to you know, we will, we’re not equity, so we’re not going to be looking too far in advance. We’re going to look at what’s here in Now, but I’m talking to developers and people who are trying to develop projects. Part of the issue that you’ll see is, you know, these markets where you do have an economic return for a battery are fairly thin. I mean, we’re talking a couple hundred megawatts at the most. Some of the markets are a little bit bigger, but too many assets flood the market, and you’ll have you have issues, right? It’s not too dissimilar to having four wind farms tie into the same distribution line and a high wind region that you’ll easily get curtailed. But in this case, because the markets are bigger, and you’re not going to get curtailment, but you’re going to cause issues with the local power prices you’re gonna be dependent on. So just to kind of slide over to the commentary section, you know, a little bit of an FAQ people ask, you know, how, you know, if I’m a developer, what do I need to make something financeable and clearly the first thing everyone always talks about is version of revenue. Clearly that’s an issue and a lot of the market has to kind of get comfortable with it and find market. I mean, the lending market, the reality is is, is that there has been a lot of time and effort and an ink spilled in terms of describing store storage ppas. But storage ppas, for all intents and purposes are how they were envisioned four years ago, never really came about, you’ll have so many in and around solar projects and doing more of a firm load. But the reality is, is that you’re going to end up participating in some sort of merchant market, you know, even to the even to the effect that the recent connot RNP all but alluded to the fact that you have to take some sort of merchant exposure in order to win. So, you know, that’s something that I think it’s inevitable for you, the developer, and that’s something that we as lenders are going to have to get comfortable with. On the flip side, Where you could help out and to minimise my work if I’m going to have to learn the market and get comfortable with merging exposure, type things out in terms of the necessary consultants, you know, be sure the idea is signed up and reputable and is investigating everything we would need in order to lead so that would be, you know, the standard contract reviews of you know, what is your own strategy? What is the hva cm, fire suppression, things like that. So, take it off, kind of take that off my plate. Obviously, have a reputable market consultant to give me estimates, tie out the model and then also make sure that your contracts are bankable, make sure that you know everything is defined well so that that is kind of incumbent to also get an experienced attorney that to help you out with these contracts. So you know in general, the key really is to minimise My efforts so I could focus in on the biggest risks.

Unknown Speaker 30:05
I think that you know, we’ve tied it out in terms of what are we comfortable doing? That’s another popular question that instead of what the mind is really the main one, and then also where how many acid you know, how many revenue streams are you willing to finance on the value stack and the reality is that there aren’t a lot of revenue streams, but will be willing to entertain an optimization case. But we will also need to sensitise it so that it that’s also brings back kind of the market consultants or being in a market right now that that is dominated by one particular revenue source one one business case. So once things start getting more complicated, and maybe only 50% of your revenue comes from frequency and then you know, then half comes from black start and then or half goes from frequency and then 25 quarters each other Black start or you know, energy arbitrage, they start getting a little difficult in terms of optimization. And I need to show my credit committees what, you know what happens in the downside, and it does get, you know, we have our own particular ways of looking at things to make sure credit. comedians are comfortable. But right now, we haven’t been able to get that I think we’ll have to address that in the next year to three years, as the markets developed, but, you know, something we haven’t had to deal with too much. You know, be more than happy to during the q&a period to go in a little bit more detail in terms of kind of our thoughts in in around, you know, what, what is palatable structures for lenders, for immersion projects here in the US and kind of what we’re seeing. So, looking forward to the q&a, and then we’ll, I’ll kick it off my view and send it off to the next.

Belén Gallego 31:58
Thank you very much. I think I’m going to have a question myself about all these revenue studies that you guys were going on about because they seem really unclear. And it doesn’t seem like the business cases any clearer than it was like three, four years ago. But we can get to that during the question time. Matthew, go ahead. The view the utility, right.

Unknown Speaker 32:27

Belén Gallego 32:31
Yeah, perfect. Go ahead.

Unknown Speaker 32:34
Excellent. So, yeah, Matt Shelton with Duke Energy. Like I mentioned before, I’m going to do a little bit more of a deep dive on onto guarantees approach to energy storage as opposed to the kind of high level overview. So given the international audience, I’m really glad I’ve included this slide. So I’m on to Kennedy’s regulated team, which means I focus on our regulated service territory so our service territories are in Florida, North Carolina, South Carolina, Indiana, Ohio and Kentucky. And just to you know, from this point of this map, we really have projects that are developed, you know, under development everywhere, the vast majority of our projects are kind of under, under commissioning, under constructing kind of construction or in that contracting phase, but we have kind of pilot projects are pilot programme, you know, pilot programmes or pilot projects kind of under, you know, moving forward and all of our states that were active in. So, you know, we wanted to cover kind of how we, how we develop our projects, how we think about them, we really kind of partner with our distribution, you know, planners to identify potential projects and kind of work with them kind of hand in hand. We’re working to move toward a more data driven approach to make sure we kind of see all the potential value products that are out there on our system, and kind of, you know, don’t let any slip through the cracks and kind of formalise the projects as we kind of move into the next step. So, you know, and that’s some folks are alluding to, I think, you know, we’re looking at large business ambition upgrade costs, and sometimes it really requires special terrain. You know, as well as reliability projects that are a little bit unique or conventional solutions, you know, aren’t easily able to solve the problem. And then we’re also looking at capturing market value. So typically ancillary services, potentially some capacity, depending on on the states that we’re in. So here, we are really just an illustration of that stack value that folks had mentioned before. If you compare the cost of a battery project just to a traditional transmission or distribution project, it may not make sense from a cost effective perspective. But if you add capacity value, if you add those ancillary services values, the battery May, you know may make the most sense and those values really depend on the jurisdiction that you’re in and the markets that you’re in and where you’re able to, to find that value.

Unknown Speaker 34:55
So here I kind of wanted to walk through, you know, all of our service territories you know, in the Carolinas It’s a vertically integrated environment, there isn’t any market. So we’ve looked at some projects where there’s mountainous terrain or distribution, we’re conducting, you know, expenses are really high or it’s hard to put a second feeder into an area. We also have a lot of solar in the Carolinas, which some folks are familiar with. That being said, we have a couple of gigawatts of pumped hydro storage in the Carolinas. So some of that value that you think storage could capture you in the Carolinas, if you look at the data is already being captured by the really large pumped hydro facility. So if you’re from outside the state, you know, it’s a big solar market, you assume it’s gonna must be a big storage market, you have to know that that pumped hydro is there and it’s already kind of, you know, capturing some of that value. And again, once again, it’s challenging and, you know, outside of the market, you know, context to know what the generation values are particularly around capacity and ancillary services. So that’s something that could could develop in the future. On Florida similar to the Carolinas. It is vertically integrated. Without a market, we found some projects kind of around capes and islands that are kind of more of a challenge to serve with your traditional distribution wires solutions. Also, I think hurricanes are driving the need for resiliency around there. So some of our projects are geared toward helping serve critical customers with resiliency needs. In Indiana we’re looking at we’re in the micro markets and the massive frequency regulation market there is something we can participate in. It’s not as strong as pgms market, but there is still value there on the capacity market could be shaping up to be a pretty good value there as well. And some of our projects are geared towards a big, you know, kind of more rural area. So we have some of these long rural radio theatres that aren’t really interconnected with the rest of the grid. So if there’s an outage on that feeder, could take a long time to restore and could have a lot of folks at town to the theatre without power. So we are looking at citing batteries kind of on the end of feeders for some towns, I don’t know and able to provide you know, reliability by either I think that project in addition to potentially stacking those myself against regulation and capacity values there. In Kentucky, we are vertically integrated. And we are in PGM. To know, everybody knows the TGM frequency regulation market, and we’re also looking at, you know, some distribution, you know, how do we stack the BGM frequency regulation with either distribution or or transmission asset deferrals there? In Ohio, it’s it’s a bit more of a challenge for us. We’re a distribution utility there and then that is in PGM. So we have to have a distribution focus for our project. So once again, asset deferral and resiliency are the main drivers there. And then we have we had the potential to have to say the frequency regulation and PGM, if that’s Authorised by the hoteles Commission of Ohio, so it really depends on what state you’re in and where we’re able to find that value. So this is one of our first projects that we developed and it’s in service now. The relatively small you know, micro grid project 10 watts of solar 95 kilowatt hour battery. And this was really just the perfect test case, it’s a small communications tower, literally at the top of a mountain. So very, very small feed, had a very long distribution line that that was feeding it. And, you know, what we were able to do was essentially replace that distribution line it was ageing and hard to maintain with a battery and solar solution. So there, it’s really no longer a grid type project. We designed the, for the project to be able to for the battery to be able to serve the load, they’re kind of over two weeks without any solar and so far, it’s been a success and it’s, it’s operational. So it’s really a unique setup, circus, unique set of circumstances there, we’ve kind of been been able to kind of completely remove the the distribution tie and kind of return some land to the park, the National Park that that this project runs through. So the next project is under development. It’s the hotsprings micro grid project. So it’s really just a much more scaled up version instead of instead of powering a small team indications tower we’re going to get we’re going to power a small town if there’s an outage, so it’s a two megawatt solar facility, four megawatt four megawatt hour battery storage system. I think we’re looking to kick off construction of this project pretty soon but it’s a rural town that has some had some reliability issues, it’s hard to beat to serve it from a redundant feeder, so have a second wire kind of going into the town that’s toward the edge of our system. So we’re going to say the battery and the solar system out there and if there’s an outage is going to be able to kind of you know, power the entire the entire town and give time for our distribution folks to clear any followed and kind of restore the grid type connection to the town. That’s a great project that we’re that we’re looking forward to once it’s completed.

Unknown Speaker 39:42
Here’s a similar project that’s in in my So here, we’re not looking at us at a small town in here we’re looking at, you know, a critical customer so we’re working with an internet and National Guard Base and Indiana. So we’re going to say the solar facility for 4.75 megawatt solar facilities. five megawatt battery, kind of at the National Guard Base there, the vast majority of the time, it’s going to be participating in the the myself frequency regulation market, potentially providing, you know, capacity as well in the future but in the event of a grid outage, we’re going to be able to provide backup power to some of the critical loads there for that and after that, a national embark facility. So once again, kind of getting back to that, you know, that value stacking story that folks here with storage a lot on this last project is in in Florida, this is the cape San Blas project that is under development currently. Essentially, we have this you know, it’s kind of it’s kind of a vacation area peak once a year around the Fourth of July vacation for for a single week. And it was be we’re gonna need to have, you know, essentially replace a transformer at a larger transformer there and do a really long 12 mile conducting project that would have been, you know, very expensive. So the solution here is to side a battery there to reduce the load on that circuit. And that battery is really on you to reduce the load, you know, one week out of the year. So the rest of the time, you’re going to be able to provide, you know, generation services to the market. So, as we’re kind of getting into the weeds, I mean, a lot of folks are coming from solar and into storage. So I wanted to kind of highlight some, you know, potential challenges that that we’ve seen as we’re developing our projects. So the storage industry is not as plug and play, as you know, as a saurez. There’s the battery management system, the inverter, a local controller, and maybe another control system. So all those are not plug and play. So you may want to have a single platform to simplify your operations. But that’s really going to limit your vendor selection. So there’s a lot of trade offs there and you determine strategy. Excuse me. Another lessons learned is, you know, the batteries are capable of providing an island in service. So the technology is there. But, you know, integrating that into distribution operations can be a challenge. I think you know, getting around, you know, financing this if you’re having these flexible operations performance guarantees are tough to to come by sometimes. And then finally, you know, keep it focused on fire safety as the standards are really evolving and America’s for the technology. So that’s really all I wanted to cover and I’ll a wrap wrap things up there and turn back to questions.

Belén Gallego 42:41
Thank you very much, much. uk. Sorry, you’ve you’ve spoken a lot. So

Unknown Speaker 42:45
you’re not doing okay. It’s cold and flu season here. I

Belén Gallego 42:48
know. Right? Okay, see if you can take the screen off. And thank you very much for sharing so many actual case studies. I always love to see those. You know this when you start to see how things actually work. And the technology actually becomes something real rather than some abstract concepts that we’re that you engineers are so fond of. So so it was good to see. I was particularly fond of seeing the micro grids, which, obviously, you know, it’s a very, I suppose compelling case for using this technology. And I, I am actually doing a lot of work on micro grids. And we always talk about micro grids, we never really talk about renewable micro grids. And precisely because the backup power isn’t so easy. So the more that this market evolves, the easier is going to become to have new micro grids. So we have a bunch of questions. I’m going to start reading them reading them out, we’re going to spend about 10 minutes answering questions, then we’re probably going to say goodbye. But before that, I would like just to ask about this revenue stacking in different revenue streams. It seems to me like I’ve been hearing about how we need to build a business case, you know, in a financing case for for butters for a long time. Yes, we’ve seen you know, a number of very obvious cases. You know, in the So what Matthews has shown, but it is really a very big challenge, you know, here, they’re everywhere. So it doesn’t seem like there is a clear business model yet for how this industry is going to. So I just wanted to take, I suppose your opinion, Daniel, john and Matthew also if you want to chirpin that how do we accelerate this so that it becomes essentially easier to standardise? You know, the projects, the financial case, all of those. And, you know, we become more efficient as an industry and I’m talking about obviously storage here particularly, then did you want to start?

Unknown Speaker 44:37
Sure, yeah. standardisation would be fantastic. That was really one of the key mechanisms towards scale. But right now, it’s incredibly difficult. When you build an energy storage system in different states, as john Matthew mentioned, if you want to get yeah capture all of the value, you’re providing capacity market services, ancillary services, market services, potentially arbitrage potentially you are in an area That’s providing resiliency to a National Guard Base or potentially relieving transmission constraints. There are so many values that standardising them across all these markets is incredibly complicated. That’s why we’re seeing a lot of players in this in these markets start to enter in a niche application, maybe in just the New York market or the Northeast or solar and storage in the southwest. What we can do to make that better as an industry is already happening for 841 is not standardising participation models because all the ISOs organised markets work differently, but it is encouraging at least a level playing field. From there we’re starting to see even divergence in terms of what mechanisms are in play, whether it’s the self generation incentive programme in California, Massachusetts has a first in the nation clean peak standard. Then you have all these different mechanisms. I think that standardisation for now, it’s going to be a little further down the horizon. What we really My advice for somebody getting into the industry would be established cities in specific markets within the US and then branch out from there, build your experience internally build your track record internally, because that’s what all these players are going to be looking for. Just because you can instal a great system in upstate New York doesn’t mean that you can really do a great solar plus storage system in Arizona completely different mechanisms, players, markets and structures. They’re not to throw cold water on it. And there’s a lot of players that are doing things across the country, but it does require a lot of institutional knowledge within an organisation.

Belén Gallego 46:29
Civilization. Yeah, absolutely. That john

Unknown Speaker 46:32
and also echo what Dan said, which is that standardisation is pretty far away, it’s gonna it’s going to take some time because I think it’s all just going to be a market mechanism anyway. It’s something that exists in the US with the various ISOs and the various wholesale markets. So a California power project will be different than a PJ and which would be different than an or con. So there’s always a lot of local expertise that needs to be handled. So I think you need to go region, by region understand the rules. You know, I think putting together a good battery project. It You know, that’s a skill, but I think it’s going to take a lot of time and makes a lot of sense for everyone to just focus in on one or two or three particular markets, do they, you know, what well, and I also won’t discount the fact that the market rules are changing so quickly, that being a part of that change will be very valuable to you as a developer. So by getting into the market, even if it’s on a small scale, and you become a stakeholder, I think that becomes very valuable. And just to kind of maybe extend that out to a financing point. I think as an institution, we’re very hesitant to go out more than five to seven years and and i would say on a fully advertising basis on alone. And I would argue that that is is basically directly as Result of how the PJM market has changed and frequency, a lot of early movers got burned, maybe not burned, maybe maybe like the second or third movers got burned because they had to shorter duration batteries, and they changed the signal to a longer. The early birds certainly didn’t get the worm, there were some very high pricing. But what that does say is that whatever market exists today, as more batteries kind of flood into it, what’s going to happen is that there’s gonna be a lot of unintended consequences or things that no one has ever thought of. I’ll even say developers with project level issues come up today, every project comes, every developer is hearing something new and that has to look at in their project. So the markets are going to have to evolve and that kind of will also further delay the staff decision.

Belén Gallego 48:50
Five to seven years it is a short, long time demson for payment, but I mean that’s where the industry supposed is going. Okay, Matthew, please cover your Do you want to answer that you do you want to add anything to that answer?

Unknown Speaker 49:04
Yeah, I just don’t think out as I think for for for a 41 is really rolling out in all of the markets and 20 screens I think that’ll help me to stay focused on on those proceedings that that will really open up more value really clarified and opened up more value streams for for batteries to capture in the market and I think the most standardised market out there is going to be the solar plus storage we really able to kind of piggyback on that PPA model that that’s prevalent in the solar industry.

Belén Gallego 49:32
So now I ask you to cover your ears which you did it is that you think are most pro storage you can go on Danny I think you like this kind of a question you

Unknown Speaker 49:42
can energy Why can I Why can I give him some credit there they’re investing 300 million in it and

Belén Gallego 49:48
it was like a grandfather job you know that?

Unknown Speaker 49:51
Absolutely. I get it. I’m I’m a dad. So I did the jokes myself. Let me share my screen real quick. This is from a slide deck that I presented at our energy storage summit. Utilities earlier. in this space and they’re doing it in very aggressive, exciting ways. This is a quick map showing states where utilities are procuring 300 megawatts more or more of energy storage. These are some of the leaders in the space, la DWP with a massive 300 megawatt procurement. Arizona public service accelerated their integrated resource plan. They plan on 500 megawatts of storage through 2032. And then a year and a half later, they announced that they were going to procure 825 megawatts by 2025, effectively doubling the amount of energy storage not quite but close and having the amount of time they were going to do it. And that’s how quickly this is developing Pacific Corp release their IP eigrp that they were going to do the same. Just two days ago, Indiana, who’s your energy announced they were retiring a coal plant replacing with natural gas, wind, solar and storage. If we look at where these utilities are sort of operating at any level, it’s practically a map of the vertically integrated markets in the United States. The Northeast PJM SBP, Meisel archive Sort of our the regulate the deregulated markets. And then of course, there’s a lot of utilities in these deregulated markets or next to them such as El Paso and Texas, etc. They’re all looking at this space, and they’re all very much leaders in the space. A lot of this I do want to mention is driven by solar plus storage, that’s a huge market incentive. In the US, we have the investment tax credit, which is effectively gives you a break on your taxes, which we sort of model as equivalently equivalently, taking off 30% of the cap x of a project, that tax incentive is declining, but utilities are moving now to capture it, because when you instal storage, it qualifies for that tax incentive. So I hope these utilities in the southeast that you’re seeing are installing solar plus storage. I would say that there are a lot of utilities are very much leading in this space, but trying to narrow it down beyond that is is a bit tricky, because every time there’s an integrated resource plan, utilities are announcing more and more energy storage, the cost benefit analysis Just makes too much sense.

Belén Gallego 52:04
Thank you very much than that was a very I wasn’t expecting the graphical accompaniment, but awesome. And you know, since we’re here, I think we should do kudos to Duke Energy as well, for the good work you guys are doing. So unless you want to add anything

Unknown Speaker 52:20
uh, yeah, no, I think we’re, I mean, we’re really pushing forward, you know, storage right now I think it’s all about for us it’s getting our products in place, you know, proving that they work, you know, it engineers are, you know, they like to hear about things but they even more so they like to see things working in action. And that’s kind of the the next step for us. And then kind of improving the value all across the value strictly about the value chain from distribution, transmission and generation and getting that going. So that’s where we are kind of pushing things at this point.

Belén Gallego 52:47
But you see, like storage is one of your main strategic lines, if you like for the future. Yeah,

Unknown Speaker 52:52
absolutely. We want to make sure where we’re in Word expert in that and then we’re able to you know, know the technology capture the value and really integrated into our into our operations.

Belén Gallego 53:01
There is an interesting question here says what limits lithium ion battery to for our maximum duration. So this is something we’ve seen across, right, we’ve always seen up to a maximum of four hours. So who wants to take it down then go on.

Unknown Speaker 53:18
Nothing’s limiting lithium ion to four hours. But Nantucket project that I mentioned is made our systems it comes down to cost. It’s the intersection, if you see sort of the cost declining, I’m going to use the webcam here and then you have the value increasing. Where’s that intersection point? For the Nantucket system, the value is so high that you can go out to eight hours, you can spend a lot more money. For most projects, the value evens out at about two or four hours, there just isn’t a need for anything beyond four hours in most markets right now. That’s so I would say nothing is limiting with the mind you can instal a system that’s hundred hours if you want, if the value is there, but at that point, maybe start seeing other technologies start to compete. Really the only reason we’re seeing for our generation systems right now is Because that’s what the market wants. That’s what utilities want. That’s what’s necessary to participate in a lot of incentive programmes. That’s just sort of the sweet spot. As we get more renewables on the grid, more energy storage on the grid, expect that duration to start increasing, how quickly depends on the incentives how much we’re aiming for. 100% renewables are clean, how much solar or when we get on the grid, then you start seeing longer durations being necessary but for right now it’s really just watching us in the market is two to four hours

Belén Gallego 54:30
Okay you guys go into the the question so there’s everything we have more than we’re not going to be able to go through everything so if you want to answer one of them specifically then please you know encourage you to just let me know the one the one question that I am mashing up a few here together there are people asking you know about blockchain distributed Ledger’s, you know for for storage and there are people asking about different technologies really and I was just wondering, you know, the EV you know, how the DVDs you know, mixing all this you know, how Do you see commercial deployment of energy storage to support EV demand charge rates in key states? So, you know, since they’re very specific and kind of wide, let me I was just wondering how you see these markets kind of mesh together and maybe, you know, change or or send them in different directions affect those, I suppose that’s the right the right word was markets who wants to answer this question? I mean, is it a bit like all but like, what are they? I suppose what are the new innovations that you see affecting this market? JOHN, go for it.

Unknown Speaker 55:33
I think was was always interesting and always amazes me about this storage market is that people are constantly asking what’s next. And I would argue that we’re not actually there yet. So let’s focus in on getting the appropriate markets established to facilitate additional renewables to reduce costs or the consumer things like that. And then we can focus in on on other things. So, you know, time of use rates are going to be, you know, probably sometime in the future, but I view that as being very far off, it’s a complicated thing to handle EV unnaturally, what that would do is, is shift the peak times of the day. So maybe they’ll be a little bit more of a levelling off, or maybe they’ll be even more demand right as people clearly are trying to have more energy efficient homes and buildings. You know, overall energy usage has been flat over the last say 10 years. But you know, with TVs I think that’s the hope of utilities and power generators that that adds a spike. But what that also doesn’t do is necessarily lead to clean power growth, because let’s just say eight o’clock at night when you come home and plug your car and that’s not really the good time for you their solar or wind. So if you really are driving towards a 5075 or 100% renewable Target in your state you’re going to need to have batteries to fulfil that. You know that niche so I think perhaps what you may see is the curve normally get steeper but maybe level out to be a little bit longer into the

Belén Gallego 57:14
guys wouldn’t add anything What should I go to with another question and then have a look and see if there is any specific there is one here. It says the predictions for market growth, look at the projections for market growth look impressive, but currently bank bank in financing ability seems one of the biggest hurdles and what are the critical changes that are needed to facilitate the process of financing? Don’t

Unknown Speaker 57:37
Alright, well, I think the key is there hasn’t been enough projects recently. So when you take a look at when you when you take a look at what projects have come online, a there’s a lot of solar plus storage. There’s a lot of utility ownership on that’s just not really getting financed through the debt markets was probably put in rain base. Solar plus stores in is probably Much easier to handle. Also, when you take a look at the overall cost of what it what used to be considered a large project, you know, 20 to 30 megawatts used to be huge, enormous projects, even then that was still very small in terms of being get financeable. I think we’re seeing now that there’s enough projects inside individual developers portfolios that that there can be portfolio level financings which provide a whole host of other complications but I think you’re removing that and I think the other real key is is getting banks comfortable with with taking worship risk. We’re not generally not in the in the business of taking Richard risk. We’ve all grown up doing ppas. But the reality is that across the board energy we’re not taking we’re not taking any kind of real contracted assets anymore. Even even the solar assets there’s certainly asked being made of taking post PPA merchant risk given the useful life of a solar project. So across the board, we’re taking merchant risks. So battery itself is Yeah, they’re just accelerating it and and I would say the reason why is is that either there are fewer PDA so though there are ones that are coming but the other thing is that the markets are just so small there aren’t there really isn’t an ability to effectively hedge your revenue so the only way to really easily do a project is to let it be fully merchant that’s something we just have to get comfortable with.

Belén Gallego 59:33
Thank you very much. I don’t know if you guys want to add anything let me know what we actually don’t have that much tech worker. Did you look at questions? Is there anything you guys want to answer specifically? There is one here about Duke as well soon for my team. We can hear you now. Okay, do you want me to read it?

Unknown Speaker 59:53

Belén Gallego 59:54
It says has you look at subsidised residential and commercial and industrial Energy Storage System integrated as bbbs, thereby partly funded by private sector with certain run command options to have distributed energy storage as opposed to a more centralised utility scale energy storage.

Unknown Speaker 1:00:15
Yeah, I mean, we’ve we’ve looked at some residential and some CNI stored, we don’t see that adding a lot of value right now. But that could be something we look at in the future. I also think it’s challenging from a controls perspective as well. You know, I think if we did something like that, we would want to have a really standardised solution. Where are you? We’re picking the batteries, we’re picking the control system and the platform and blending it because it’s just technologically minus ending is that it’s just not, it’s not plug and play. Or you can just hook up a bunch of different batteries all over the place with a bunch of different controls platforms and software and make them all work together. My understanding is that technology is really, you know, not not there for that. So it’s something we’re looking at, but it’s that’s kind of more in the future, and not Not a near term focus for us right now.

Belén Gallego 1:01:04
Excellent. Thank you. Questions about that. So then and it just seemed like to answer.

Unknown Speaker 1:01:09
Yeah, just sort of wrapping together a couple questions on software and value and merchant risk, etc. I use the analogy of the California Gold Rush. During the the gold rush of 49, about $15 billion of gold was extracted from the ground, and that’s in today’s value of gold. There was a guy there who took some fabric and started making it into jeans and jeans were born Levi Strauss and Levi’s annual revenue was about 5 billion a year, which means that every three years Levi’s, Levi’s is making more money than the entire California Gold Rush. So the legacy of these booms is not necessarily in the boom themselves. So we’re having an energy storage Gold Rush right now. There’s really no denying it. The things are going to scale up dramatically. Who’s making the genes in that market? What’s going to happen is we’re going to have all this energy storage on the grid that’s doing very specific things and then new needs are going to emerge. value is going to be possible for the storage systems who can capture that value in software providers who will be able to aggregate it up and provide services will be able to maximise the merchant revenue created from these projects by bidding intelligently predicting things, working in weather forecasts, etc. Whether that’s blockchain or something else, I, you know, if I knew that I would be making a startup right now instead of chatting with you guys. But there’s tonnes of opportunity for software to be a major piece of that puzzle, which is why so many software companies in the space have been acquired over the past two or three years. So I would say keep your eyes out, understand the energy storage is going in the ground. It’s a spectacularly exciting market, but five to 10 years from now, the storage systems are going to be there, and they’re going to be potentially doing more than they are today or tomorrow. So keep your eyes on that.

Belén Gallego 1:02:47
Excellent. Well, thank you very much, john, you had mark that you wanted to answer a question if you do it. Certainly. Then we can do it. We cannot hear you it was about I can find it.

Unknown Speaker 1:03:01
I was just having an answer in terms of chemistries. LFP versus NSC. And, you know, I think there’s obviously certain, you know, the rationales between for both, you know, fire, fire issues being one of them to choose and LFP, maybe over NMC but I view them as being complementary and being competitive to each other rather than kind of one eating into the other. So I think the question was, is do you envision LFP batteries eating into NMC and I think only Yes, because it provides a competitor to the existing and MC players.

Belén Gallego 1:03:45
Thank you very much. Okay, so they’ve attained a gold rush. we’ve answered a lot of questions today. Thank you very much, john, Matthew and Dan, of course, I think it’s good to see markets that are like so much further ahead than others. And you Learn from one others. That was great. And thank you very much for your time and to all of the participants as well. And we’ll see you in the next webinar. Hopefully. Thank you

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