Recording and presentations: Energy Storage in the US: Building the financial business case for battery storage projects

22 July 2020

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Automated transcription (it may contain errors)
right well i think it’s a
good time to uh start us any really so
once again uh to those of you who
arrived after my
uh introduction to a webinar welcome to
the webinar
energy storage in the us building the
financial business case for battery
storage projects
as you could probably tell by looking at
me i am not belen
gallego i’m carlos marcus i’ll be your
moderator
today and um yeah
so um right so we’ll have uh
you know three experts uh let us know
what they are seeing in the battery
storage market
in the us and uh especially you know
from the
uh financial point of view so it’s a
very good opportunity for you to
ask your questions and um as i told you
before we will be
recording this session and sharing it
with you after the
webinar in a few days time not
immediately after
and i encourage you to send us your
questions
through the q a box so
um valet if you could stop sharing these
screens we can start with a round of
introduction so well now we’ll get each
of our speakers to introduce themselves
and i’ll start in alphabetical order
with andrew
andrew would you please briefly
introduce yourself please
sure um so i’ve been with the cit bank
for about
uh 13 years uh covering
power and renewables financings and
prior to that
i was at a ge and also mufg
in in the same role and as the industry
has morphed you know
earlier on most of the power financings
were
gas and you know cold type financings
but now they morph more into wind and
solar and as well as battery storage
um so happy to be here and uh thank you
for
inviting thank you very much uh
andrew and uh chris would you uh please
say some words about
yourself sure um chris kumar
from e.s walton the cfo of es volta
joined the company about a year and a
half ago
the company has actually doubled in size
in in terms of assets
um i’ve been in the power industry for
over 20 years
prior to es volt i was an officer of nrg
energy
before that i was an officer at edison
international subsidiary called edison
mission
done a lot of wind and solar projects
for a long period of time
prior to that i was with a company
called
intergen and financed a lot of projects
internationally especially in latin
america and mexico
thanks for inviting me to this thank you
and last but definitely not least
jose if you could please introduce
yourself
sure thank you carlos i’m jose
i’m a project manager for the north
american development bank
the north american development bank real
quick is a u.s and mexico
government-owned
bank that finances environmental
infrastructure in the border area
i’ve been working on the renewable
energy team for
uh nine years now our team has financed
around
a little bit over three gigawatts of
renewable energy projects in the in the
border area of the us and mexico
and i was a project manager for this
particular project
that andrew led on the financing side
and that chris developed
so thank you for the invite well thank
you
um you know thank uh to all of you for
being here
so right let’s get the uh conversation
going so could you um please let us know
what’s
happening what’s the current situation
in the u.s
regarding the storage market
um i’m happy to start um carlos because
we’re were
a um developer and an operator of energy
storage assets
um es volto was formed by my ceo um
randy mann about three years ago and and
we have two
operating assets in california i’m sorry
one in california one in ontario canada
we have total of two operating assets
and they’re operating over three years
now um with amion
battery storage projects and we have two
under construction in california
and uh seven more projects coming um
will be going into construction later
this year or next year
most of these projects um or all these
projects are actually in california
because california as you all know has
had the head start in renewables
and they’ve met their 30 renewable
mandate and they’re now marching towards
50
um renewable mandate by 2030 and then
even further um so they’ve been by far
the most advanced in terms of um energy
storage
and the iso cali so it’s pretty advanced
in
in buying ancillary products um for
energy storage so there’s a lot of
activity in the last um five or so
years in energy storage um because the
battery storage cost
battery storage um costs have also been
coming down considerably in the last 10
years
um so pretty much the the
energy storage is experiencing a huge
amount of growth in california
but now um from this year or even late
last year what we started to see
is other states coming into
fray in in the energy storage space and
looking at
um especially new york new jersey and
texas and also other states looking at
energy storage as an alternative to gas
speaker projects
um so we’re seeing a lot more um
activity
in the entire um united states as
opposed to just
seeing only in california and that’s the
biggest difference we’re seeing in the
last
year or so especially this year and late
last year so i think we’re
we’re going to see unprecedented
um growth um in energy storage in all
the states
in the u.s basically because it
complements renewables
and it replaces fossil fuels and it
solves the intermittency problem
that renewable projects pose like um the
wind and the solar projects
are you know at the whims of god right
because they’re not
running um like a coal plant well um you
know when the wind blows the wind
project
when really produces power and the sun
shines
so you know the solar produces power by
the evening it doesn’t
so energy storage really plugs the gaps
that are left behind by renewables and
the amount of
energy storage right now in place
compared to renewables is very very
small
even though we have seen a lot of growth
in the last couple of years
it’s still very small you know compared
to like um
like i said 36 percent of california
generation is renewables now but the
energy storage is far
far it’s probably in single digit um and
it’s a total of generation
so uh we’re here to see a huge amount of
growth
basically where we are today is where we
were
15 years ago in solar um you know solar
panels were
new uh pv was coming into play
and there was a lot of technological
development so pv costs were coming down
significantly and solar has become part
of the norm today
i think we’re going to see that in
energy storage pretty soon
um throughout the country and especially
with
um with the plan the uh climate
um two trillion dollar climate plan we
don’t know if that’s going to go ahead
but if that goes ahead um next year
we’re going to see
even more on growth in the energy
storage so let me stop there and get
views from
jose and andrew and what they’re seeing
on from the lenders and the investor
side
um yeah i can second that that um
the the opportunities in the financing
space for
battery storage have really ramped up in
the last
probably last year or so i think es
volta
this financing really created an
opportunity where
we were able to get our hands around
the the risk aspects of a
kind of a nascent a very new market and
i think
as christian mentioned it’s very
complementary to
the the renewables uh the intermittency
of the renewables it solves it
it solves a a significant problem and
and again the costs have come down
significantly i remember
just about five years ago i had a
conversation with
uh some a battery storage uh
sponsor that also was doing a financing
that we we did
early on and that one the costs were
almost four times higher than
here so you’re definitely seeing lithium
cost the the
balance of batteries the costs are
coming down significantly so i think
more rfps are coming out in the market
that we are definitely having
a lot more opportunities and if this uh
2 trillion dollar
climate change plan does go forward
we’re going to see even more
uh more abundance of opportunities
especially if
if tax credits are allowed in the
battery storage space as well
um and to christian’s point as well the
the it’s not just centered in california
anymore uh there’s a high amount of
large amount of uh renewables as uh jose
and i can
attest to in in driving out in west
texas
and we’re going to see uh even more
growth especially with the with the
intermittency and the the balancing
issues so
and we are we are getting a lot more
inquiries so
we’re very uh pleased with the
opportunity uh be able to uh
help uh you know chris solve that uh
that may have a solution there and we’re
looking forward to many more
opportunities as well
i would just add to andrews and chris’s
comments a couple of uh
of data that i found from from from
bloomberg that
explains why we’re seeing this this
world i mean the u.s market
is not the the biggest market in the
world and it’s expected to keep being
the biggest market in the world for
energy storage
in the upcoming future the the levelized
cost of energy for example
is now around 150 dollars per mile an
hour for a four-hour duration battery
according to bloomberg that’s half of
what it was only two years ago
and that as chris mentioned that
actually puts it in right there to
compete with the peaker plants
so it’s now uh you know cheaper to
put batteries rather than than building
bigger plants and
of course it’s more environmental
friendly so uh that in addition to
just solar levels cost of energy of
solar is now under 30 ml
under 30 dollars per mile what hour that
is just a push towards
more projects and as andrew said we on
the financing side are actually seeing
a lot of these projects being uh built
and starting to be looked at
uh right now there’s there’s not a lot
of players in the financing space but
there’s definitely
a lot of people looking at it now i i
think uh you know
cit with this project actually led uh uh
it’s one of the first uh
and we can explain uh andrew can explain
it better
than me but this is definitely a first
for for many reasons
but we’re definitely seeing that now
there’s interest in the banks and
they’re starting to really take a look
into this
this sector because it’s just growing so
much and the costs are declining so much
so i think uh as a development bank
ourselves we’re we’re really interested
in this sector
it complements the the projects that we
have been financing
in the last eight and nine years uh and
it it just makes sense
and as renewables keep being part of the
energy matrix of
other states uh the need the actual need
physical technical need for for these
systems starts growing
and and thus uh there’s just more
projects uh
we we expect some policies also in place
uh in within different states and at the
federal level that will definitely push
the
the sector to to even growing more so
uh we we really think this is a great
opportunity for all the people involved
to push both more renewable energy and
the energy
the battery storage systems um overall
i’ll just add one more thing um just to
give you a feel for
you know why there’s we’re expecting the
growth why we’re seeing
a lot of the growth already is energy
storage
um especially lithium-ion battery
storage projects
can can be applied in many ways right so
some of our projects are to complement
renewables like we talked about
and that’s basically providing good
stability and specifically what we call
as frequency regulation in in california
is is providing essential service to
renewables
and the ramp up ramp down time that
energy storage can offer
is is seconds compared to a
gas speaker project that takes 15
minutes 10 to 15 minutes
so there’s just no comparison to what
energy storage can do
to complement renewables we thought you
know gas speaker projects were
a good um problem to solve good solution
to intermittency 10 years ago
but now here we are you know energy
storage can can plug the gap so
instantly compared to gas speakers
that’s one
second used for energy storage is
transmission deferral utilities are
finding ways
to defer billions or millions if not
billions
millions of dollars of transmission
costs
deferred instead it can have energy
storage
uh for the period of next five ten years
and solve the congestion problem
good stability problems and then worry
about upgrading the time
you know transmission 10 years later a
couple of our projects
are actually doing that um our project
called tierra robles in oakland
california
is um you know it has two contracts
one with the east bay um cca and another
one with the
pg e the contract with pg e is
essentially to defer
a significant amount of transmission
costs for utilities
so this isn’t just you know um the
renewables
transmission intermittency problem is
definitely one so the second major use
we find
is um utility’s ability to try to defer
um transmission costs two of our other
projects that are under construction
is also deferring on some transmission
costs at a distribution level
not at the utility level so
those are also providing essential
service
utilities that they want and the third
that a jose hit on
is the major use for energy storage is
it’s becoming a
because of the cost coming down it’s
becoming a viable replacement
for gas speakers um so that’s where a
lot of the utilities
in the rest of the united states even
the midwest and and
other places where renewables are on
there but they’re also
doing a lot of um what they call what we
call as all source
rfps basically all sorts of rfps mean um
any technology can compete and and bid
into the rfos
um so energy storage is invited more and
more
um to bid into even um
gas speaker type of projects uh where
that’s why you’re
expected to see large energy storage
projects
starting to replace gas speaker projects
and of course
you’re replacing fossil fuel plants so
there’s another
climate change type replacement
happening there so
renewables intermittencies one grid
stability
transmission upgrade a deferral of
transmission upgrade cost per utilities
the second major reason
and the third we see is um replacement
for gas speaker projects
thank you very much uh chris for um
outlining you know the uh
the drivers the of uh different drivers
to
the um storage market in the um
in the us so essentially you’re saying
that now
for what i could gather that and just to
summarize the main points you made that
we started with a strong market
in california and now that’s expanding
to other places like new york new year’s
new jersey and texas and you see
uh you know strong growth uh being
driven the
by uh the uh growth in renewables by
the decide to defer
investment in uh transmission
infrastructure and
also to regulate frequency and now we
have a number of markets here
that you know across the us and i’m sure
that more
will come on stream as well as jose said
you know the us
is and is expected to continue uh
being the uh largest market for energy
storage
in the foreseeable future but what are
the differences between those markets
and
what are the different ways in which
companies can monetize
the trans storage investments in these
markets
um i can start certainly um and then
have um
andrew and jose chime in so primarily
in california’s but like i said it’s by
far the most advanced
in terms of energy storage um so the
markets developed
um for different contract types some of
our projects have
capacity only contracts long-term
capacity contracts so basically
were required to the california
utilities were required by cpuc
to bring in energy storage capacity to
the market by certain dates by certain
time so they’re
what we call as the cpsc mandates so the
utilities
um sign these long term capacity
contracts from players like us like es
volta
and providing um basically we get paid
uh capacity payments for bringing in
energy storage capacity for
for a long period of time in addition to
that
um we’re allowed or we have the
flexibility to
bid into cal iso markets which is
ancillary services market to provide
frequency regulation services
you know what we call as regulation up
regulation down
spinning um reserve um black start
um and all of those voltage support all
of these services can be um
provided and there the products are
pretty well advanced
in the cal iso market um so that’s one
type of contract structure
another type of contract structure is
very similar to what you’ve seen in the
gas
markets or even wind and solar
primarily the gas market is what we call
as a tolling contract
one of our projects has a long-term
tolling contract
so that basically means that you’re not
only contracting your capacity
you’re also contracting the dispatch
rights and the energy
or transmission service whatever you can
provide with energy storage
you’re basically providing contracting
all services to the utility
in a in a fully wrapped tolling contract
so basically you’re not allowed to go do
you know sell
any other product to outside the utility
that you contracted with
so that basically is a fully told fully
contracted asset with the utilities
that’s the second type of contract you
can you can enter into
the third that’s very popular
increasingly
is what we call as ccas
community choice aggregators in
california they’re basically
backed by cities and municipalities
have been mandated by the state statute
to procure um energy storage for the for
the particular cities and
municipalities um in
and they can contract with with players
like es
and and complement what utilities are
already doing
um this is really ways to ramp up um
energy storage and they’ve been doing
this um in solar for quite
quite long time at least for five years
that i can see
uh so we see a lot of um activities from
ccas um so basically you know a bunch of
cities and
and municipalities acting as procurement
agencies for those
cities and municipalities and
contracting with uh with
energy storage companies like us so
that’s another way
but if you that’s california but if you
branch out to
orcot we don’t have a an established
capacity
market yet but there’s a lot of talk
about uh markets coming into play
uh it’s a different type of market it’s
merchant market and and the energy uh
market essentially um
energy storage projects will play in
more of an energy arbitrage role
um you know taking in energy and at a
certain price
and putting out energy back to the grid
at a certain price obviously you want to
buy in loan
and sell high so it’s more of that
market
um developing fast um pjm
um they do have a demand response market
um bjm has this 10 hour
requirement so the energy storage is is
difficult
to play in that market but it’s also
changing fast
new york new jersey um is is coming up
with
with the market standards you know very
fast um so we’re gonna see
huge um the um the market dynamics in
new york pretty soon and there there are
projects already being
built um based on the merchant markets
um so it’s it’s it’s um and there’s also
state level incentives in new york
um that’s helping energy storage quite a
bit uh by nyserda
so there’s there’s different um ways
um the these markets are developing and
it’s hard to predict which markets are
going to go faster than what
certainly california has made a lot of
um
headways and other states are catching
up pretty fast
i think kind of to elaborate on uh
krish’s
market comments um you know well early
on when we
look at the as volta financing
really give a lot of credit to chris and
his vaulted team
for seeing a market disruption where
there was a need with the duck curve in
california
for frequency rag and other um ancillary
services
opportunities and so uh when he came to
us and presented the
opportunity uh you know cit we pride
ourselves in doing
things that are a little bit more
nuanced and have a little bit more um a
little bit more of a
merchant or market um a risk exposure
because you know frankly
if we wait and do more of the plain
vanilla
items or plain vanilla type financings
uh i think a lot of other lenders who
jump in fairly quickly
on those opportunities and also really a
lot of
credit to those uh the nadb as well as
the
the other lending uh the other lenders
in this financing
for getting there on the the structural
elements of the market and being able to
find uh not just looking at just
contracted
uh strictly contracted revenue streams
of being able to get the hands around
um you know the the frequency rag
opportunities and
and seeing how how that that that
revenue stream can be fairly sticky so i
think there’s
there’s definitely uh that’s how part of
how we got there
you know we pride ourselves in looking
at the contracted plus the merchant
element
of a of the cash flow stream and being
able to
find a solution there um you know where
we’re seeing in
other markets now in texas and in pgm is
you have you know frequency lag and also
as
christians mentioned energy arbitrage uh
there are ways to do risk around that we
are seeing other
uh you know like hedges and and some
other uh
opportunities that people are are
looking to to
put it on place and another restricting
factor
in the uh kind of battery storage space
is in a solar
project you may have a 20 15 to 20 year
contract
that you might be able to amortize over
what one of the bigger restrictions on
the
on the battery storage is is mainly the
battery degradation and
you know it tends to be much shorter
term
um and i think that’s where we’re trying
to get our hands around on the
technology
and strictly speaking this is all
lithium-ion at the moment we haven’t
really seen anything else evolve
just because i think lithium-ion is
known and it’s proven
and i would just jump on that last
comment from andrew i think they’ve
explained pretty well how the different
products that the batteries can offer
i i think one of the biggest challenges
or or for for
just the battery systems themselves is
that all of these products sometimes
compete with each other so if you’re
delivering one product
you cannot deliver another one so
getting the the
best mix of which product you should be
offering
depending on which market you are at and
uh which
uh you know how how the the value of of
those products you’re looking at
you expect them to be that’s that’s a
very interesting and very complex
thing to determine i think uh you know
yes volta’s actual hands-on
experience with two projects already
made the lenders feel comfortable that
they understand
this complexity of the markets and how
they can take advantage of the different
products
uh so i think that that’s important to
understand from the lender’s side
uh this is not uh you know you get this
uh
usual energy and you get you get this
price and if you don’t pro you know
you have a p50 probability of producing
x it really gets very
very much more complex in terms of the
revenue streams um
but jumping into the specific uh
technology
part because i’m seeing a lot of
questions here regarding you know
other technologies as as as
as andre just mentioned uh 99 of the
projects
today being actually built are
lithium-based
and uh it’s it’s it’s a mix of uh
both that energy storage is is being you
know
done because this is the proven
technology but you also have all these
electric vehicle
uh technologies that are based also on
on on
lithium ion so that’s driving uh
that’s creating a lot of demand that’s
driving the prices really down and then
you even have you know
more uh fine-tuning and better
technologies even inside these
lithium-ion batteries so in the
foreseeable future at least from the
lender side i think
uh bringing in new technologies adds an
additional layer of
risk that lenders
might not be ready to take uh when you
have all these other projects that are
actually
being done and being built with
lithium-ion
there’s a lot of opportunity for sure
and i think it will get to a point where
it will depend on the specific need of
the battery as i as
as we said there’s there’s a lot of
products so uh in in
in certain areas uh a certain technology
for a very short duration might be
enough and might be cheaper and so that
might be the best
fit in other areas like chris said you
know pj am has a 10
a 10 hour uh criteria right now that is
tough to
to meet with lithium ion batteries
but there will be technologies that will
do 10
20 um you know hours uh
so uh it will get to that point where
probably a lot of technologies will have
a
a place to to play uh but i think we’re
still kind of far away from that and
lithium will will continue to dominate
the market
yeah it’s a good point to say i mean i
see a lot of the q a about you know
will the lithium ion batteries have
extended
duration i mean the longest i have seen
or yes volta’s
is actually it’s either two hours four
hours or eight hour duration
um so eight hours to charge in and eight
hours to charge out
that’s the maximum obviously eight hours
will cost a lot more
because you you need a lot more battery
cells right
so um we’ll will are the other
technologies
um you know i’m not really qualified to
talk about a lot of the other
technologies because we don’t do we
specialize mainly lithium ion
but certainly what i’ve heard is other
there are technologies
that can you know provide longer term
duration than lithium ion can
but i think the real question is is is
it proven
is the scalability there um can you
build
um you know a um
on a commercial scale that’s needed um
for the utilities
and certainly pumped hydro has been
around for a long time
and you know this there’s there’s
debates to be had
but certainly if we stand where we stand
today like jose said
um lithium on is definitely a safer bet
right than anything else
right well you know looking at the
project pipeline it definitely
looks like uh looks that way um
talking about something slightly uh
different but
related is that we’re obviously now in
the middle of a
uh of a crisis you know uh
brought about by covet 19. um
is uh financing available to
what’s how has that affected financing
for
uh storage projects in the us
i could take that i think cover 19
has impacted financings
overall but i think from the renewable
space and energy space
it’s actually been pretty consistently
uh
stable i think there’s a lot a lot of
deal flow i know in the solar space is
still
going pretty pretty good i think
on the battery storage side there’s
still we’re still seeing quite a few
opportunities so i think that the only
um
impacts that they’re having is mainly
um and chris could probably elaborate on
it is more uh
having equipment shipped from china
might be there might be delays
but i think overall i haven’t really
seen volume
in terms of loans go down because of
coco 19
or any um projects being cancelled
maybe maybe some of the smaller
developers might be having more stress
because
they would have to have more cash flow
to be able to uh
kind of uh i guess
make their way through this uh through
the storm uh
through the through events of defaults
or
or just having um uh just this time to
be able to cover off but i think overall
uh we have not seen uh volume actually
drop off so i think in that sense
i think the financing market is still
the financing market in general for
battery storage has always been
a bit more uh smaller in terms of
not not a big array of lenders as
there’s there’s more
market more structuring elements
involved in it
so it’s not as middle of fairway so i
think in that sense
that’s gonna that’s gonna drop some
players but
i think overall the ones that are
currently in in play
are still there um and so unless uh i
mean jose could also elaborate on that
if they’re
if he’s seeing any drop off but i think
from our perspective we are
we’re seeing quite a quite a bit of
activity still
from i can speak to from from project
development
and sponsor perspective right we closed
our first financing with cit net bank
and other banks
um in february and then kovit actually
hit the us
pretty hard since march and
so we have actually added um another
project called black walnut
to our portfolio um it’s with the cca in
california
and we’re also looking to add two more
projects by end of the year
um so has covet really you know
changed the market dynamic energy
storage i don’t think so
um so here’s my experience um in in
through the business cycles we have seen
in great recession
and you know in solar wind days in the
last 20 years
as long as there are um good projects
the capital uh providers will be would
always be willing to lend
right and as long as there’s there’s a
um favorable regulatory landscape
um encouraging renewables i mean i think
i believe renewables are here to grow in
terms of cost competitiveness and also
from a regulatory standpoint
and even when there’s renewables there’s
going to be more need for energy storage
and as long as utilities are mandated
and required to produce you know
to sign additional projects more
projects are to come
into into the picture and as long as
there are good projects with good
contracts
um the capital providers like cit net
bank will always be there
for for the right projects um the
having said that i wouldn’t say
everything’s rosy um
in terms of you know project development
and stuff
it has impacted um from a short-term
perspective
like andrew mentioned the supply chain a
lot of the battery cells are
manufactured in asia so you can imagine
um asian countries were hit pretty bad
and covet and also the
transportation and the us in california
and and getting um so there are a lot of
supply chain disruptions we’ve seen with
inverters transformers
and getting the battery cells shipped to
here
and we have also seen construction
delays because of
shelter in place you know energy storage
is considered to be essential but there
are contractors that don’t want to do it
when the things were really really bad
in california back in
april when there was a shelter in place
because you don’t want to put people’s
lives at risk
building a project so you’re
experiencing delays um so i would you
know
certainly say that um there are
impacts by cobit 19 but um
over the long term um just like in any
other industry but this industry i think
is a lot less impacted
in terms of need for energy storage um
so the
short-term impact in the impacts that we
have seen are mainly short-term
i would just add to that i think i i
would stress
as chris mentioned if you have a good
project uh
you will find the resources there there
is liquidity
in the market for for this type of
projects
as andrew said there’s not a lot of
players here i’ve seen city is one of
the leaders here
so uh not bank is is restricted
geographically just to the border area
but we are definitely interested in the
space and as a development bank we want
to see this this
this sector keep growing um
and in addition to that i think uh
you know as as chris mentioned uh when
you have the regulatory framework uh
in place i think that that’s also very
important it will be very important for
for the upcoming projects just trying to
touch here a little bit on
several of the questions here that we we
are seeing i think
those regulatory frameworks are not
there in in uh
for example in many developing countries
so definitely
an uphill battle there for developing
countries to really start
a storage market in the in the short
term at least
i think uh you know uh developing
countries might have
uh arbitrage opportunities for the most
part
but other than that you you might not be
seeing any additional revenue streams
and that might
that itself might not be enough for
projects to
you know be built being built um but
there’s definitely
uh i think a trend overall in the world
to start using these systems more
i do think again because uh the way
things
are in terms of both of the regulation
and
actual penetration of renewables in in
the in the matrix i think uh
the us is still uh gonna be the the most
important market
well thank you uh very much uh jose for
that that point there i think that
um you know by hearing some of the
points that you are you’ve been making
so well kobe
uh 19 maybe he’s has played some
short term delays and some projects but
actually
um good projects are still uh going
ahead like solid projects
and uh that’s what you think will keep
going on for the foreseeable future so
uh it seems a fairly stable
uh industry um and um
you know there are a couple of uh
additional points we uh
have planned to cover here i think chris
you’ve actually
uh touched upon some of these but i can
see more and more questions
about these uh these particular topics
so um
which is about the uh off-take uh
structures
for the different services provided by
uh storage products so could you
please like provide an overview of those
yeah i think i
covered it earlier i mean i’m happy to
um go over that again
um like i said the um you know
california by
being the most advanced there are
different types of contractual
structures right
one is providing a capacity only
contract with the utilities
and then able to sell energy and
ancillary services primarily frequency
regulation to cal iso market so that’s
one type of structure and the advantage
of the disadvantage of that structure is
the advantages
all of the revenues are not contracted
right so you have the capacity contract
that’s
that’s contracted with the utility but
we the ancillary services contracts are
uncontracted
um i wouldn’t they’re um calling it
merchant because it’s really not a
merchant
um play like um
like a long term you know gas play in in
bjm or a cold play in our card like
looking at a dark spread of spark spread
and taking a projection of
how the cash price is going to look 15
years from now that’s really not what
this is this is providing essential
ancillary services to the grid of
providing good reliability
so the ancillary services market are
uncontracted in some ways
but they’re not same as merchant
revenues
um so so that’s one type of contractual
structure where you have a mix of
contracted
and uncontracted revenues and a lot of
our projects do
have that and there’s a second type of
contract where you are
fully contracted what we call as a
tolling contract with the utilities
um that’s essentially a replacement for
gas speaker
type project where utility wants to take
all of the
um the services um and the capacity
so where you have hundred percent of
your uh revenues
from the project are coming from the
utilities um
or uh from um from large trading firms
and corporations
um it’s you know i want to note that one
of our projects is actually fully told
with a large um trading company which is
also
i believe is the first in the energy
storage um so it’s you know
we’re starting to see non-utilities also
coming into
this market um so that’s the second type
of contract which is a fully contracted
told project either with the utility or
with the trading counterparty or with
large corporations and the third
is is a mix of um you know
either 100 merchant and taking advantage
of demand demand response type projects
but those are more behind the meter type
energy storage
assets which es walter doesn’t do we
especially specialize
specifically on utility scale front of
the meter type projects
but if you have behind the meter
projects like in bjm
or california you can participate in
what is called
demand response um type of products
um the contracts um where you’re
basically asked to
um when the prices peak at certain point
when the isos ask you to um to shave the
load
you’ll be willing to reduce the load and
get paid
pretty high prices for those um
high demand or very high load hours in a
year those are only a few hours
but if you’re there to provide that peak
shaving service
um you get paid for that so there’s a
lot of behind the meter type
projects um that take advantage of that
type of um
contract so those are primarily uh what
we have seen
we also see large contracts
um including obviously solar plus
storage
that’s another space we don’t we don’t
play um that’s combined with
um the um so existing solar or new solar
projects
adding energy storage to it that has a
long-term contract um in addition to a
long-term
off-take with solar contract and that
comes with tax incentives
um so solar plus storage i view that as
a very different
world within the same sector even though
it’s it’s energy storage but it’s got
advantages and disadvantages with it um
so there’s
you know depending on what type of
energy storage um you’re looking to
build is it standalone
is it front of the meter or is it solar
plus storage
um there are different contract
contracts structures that i’ve just
walked you guys through right and
the you know based on the on the
projects that you have developed
uh chris what are the lessons learned
there
um it’s it’s important to have a mix
um you don’t want to do obviously fully
merchant projects you want to have a mix
of um what we call as ras in california
which is a mix of contracted and
uncontracted assets
because you want to be able to
participate in market upside should
there be
market upside and you also want to
have a projects that have reliable fully
contracted cash flows which is like the
tolling contract that i mentioned
and um so it’s a it’s important to have
mix of those cash flows
and that’s that’s one type of um
diversification you want
the second level of diversity or
diversification that we’re looking for
is moving into other states other than
just california
so different markets different utilities
exposure as opposed to only california
utilities
and the third would be
different um technology within the
lithium ion
space there’s different chemistries
within lithium ion space
which we we may look at in the future uh
although we’re very specialized
within the lithium ion technology we use
what is called lfp chemistry
uh there are different chemistries
available if you want
um higher density energy storage
with um with slightly higher price
uh higher cost i mean but it provides
you with more density and more
um power um that’s that’s possible
which we haven’t really gotten into um
so those would be
areas we’d be looking for diversifying
in terms of contract
contract types diversifying in terms of
different states
and diversifying in terms of different
chemistries within the lithium ion space
i i would just add from the lender’s
perspective i think i mean
we’ve covered all the financials but uh
we also definitely need to take a look
at you know
who’s who’s playing in the in the
project and i think
russia’s team was able to to get a very
good team of
companies involved you know better
integrators
that the actual sales were who who’s
producing the sales what theirs
what’s their track record how they’re
safe to record etc
uh and i think uh it’s there there’s not
that many players right now that are
uh that have sufficient you know
projects on the ground
to uh make lenders feel 100 comfortable
uh but i think chris chris worked with
uh with quite a few that that do have
the proven
experience and so um there’s definitely
that
that aspect to consider too because
there even in
within the same technology there’s
there’s different providers and there’s
providers that are just starting and
there’s providers that are a little bit
more experienced so
i think that’s another important point
from the lender’s perspective
yeah i mean i could further that
sentiment with jose i mean
uh you know proven technology is
definitely key so
uh unless unless like like fly wheels or
anything else you know
if elon’s willing to put it in his cars
and we could see that go for a
duration of time that works hey hey
we’ll we’ll look to try to finance
but otherwise yeah i think i think we’re
sticking the lithium ion
that’s why these gigafactories are being
built right
right so um you know we have a question
here which i think is interesting for
the
uh well for all three of you actually
which is uh what is the biggest
financial risk
in a battery energy storage system and
um any tips on mitigating uh that
risk
um carlos can you repeat that i think
you were cutting out
yes the question is what’s the biggest
financial risk
in a battery energy storage business
um there are three things when it comes
to energy storage that you want to focus
on
um the engineers look at it investors
just look at it
we look at it as a sponsor um that
the first thing is these batteries don’t
live forever
right so these batteries degrade
and the so what is called degradation
curve
you want to look at how fast these
batteries degrade
and in in theory and in real life this
could be a little different
and the the second
so the degradation is very important
that something independent engineers
heavily scrutinize
which is why you know our operating
projects that we have
three years of operating history which
demonstrate what level of degradation we
have experienced
and why why is it more in the first year
and then it’s slow you know the
degradation slowing down in this
future years and all of that is very
important so that’s that’s an important
risk
to consider when you build lithium-ion
batteries
the second is what we call as efficiency
ratio
so every megawatt hour that that goes in
does not mean you get full you know
megawatt hour that comes out
so there’s efficiency ratios um range
between a
you know low 80s to high 80s percent
of these battery storage projects you
want to look at
how the efficiency ratio works in a
specific technology
or chemistry that you’re talking about
in the project because that’s
that’s real dollars right um because
that translates into
um if you’re losing you know 40 of the
power that you take in
that you can’t put out and that’s a huge
problem right
so the efficiency ratio is a second
third is a lot of the operating
characteristics
um like temperature um the battery cells
um you know don’t perform beyond
a certain level of extreme temperatures
you want to make sure that there’s
enough cooling around
the projects the cooling systems and you
want to maintain certain depend of
temperatures for the cells to perform
within normal levels
so when you enter into a contract you
want to make sure
degradation efficiency ratio these
operating characteristics are properly
reflected in your contracts and you have
sufficient warranties from the from the
vendors
to stand behind those and the
third is what is called um augmentation
is a very famous um term within energy
storage world
as the batteries tend to degrade
typically below 70 percent
you want to replace them and augment
them with with the newer
um battery cells and that
it’s pretty much like your car i mean
you your battery doesn’t go on forever
after four or five three years you want
to replace your battery right so
that they look at the degradation and
and the capacity level
i want to call it state of health soh
and replace that
i mean all of these are technological um
issues or parameters that you want to
keep in mind
but those turn into investment risks for
not only for sponsors but also for
lenders
right so those i would say are primary
factors you want to consider and the
fifth and actually i don’t want to um
you know this is the last thing i
mentioned but actually it’s very
important
is uh fire risk and there’s a lot of
concern about energy storage
and the fire risk and you know obviously
it
has to do with what chemistry use and
within lithium ion
and how the um the software
works when you know one one cell catches
fire you want to make sure that it
doesn’t
um go um it doesn’t
transmit to other cells the software’s
ability to capture that
and shut it down is very important and
ability to have
um fire mitigant systems is is very
important
so those those are um real issues
to consider and keep in mind and you
need
experienced engineers experienced
lawyers and contractual commercial
people to make sure that
you understand what you’re getting into
because those turn into a huge financial
um risks andrew
yeah i think uh just to expand on that
as well the
degradation uh is one of the big areas
that we look at on these batteries um
you know it to um and as volta’s case
you know
we looked at um degradation in a sense
of you know there’s the cycling
we’ve also done um we did a battery
storage deal that was behind the meter
that cycled a little bit less than
asphalt but in other cases
we’re getting inquiries from people that
are
using them more for energy arbitrage
opportunities and those are going to
cycle
up and down quite a bit so a lot of
discussion now is moving from
the degradation as well as augmentation
so you know to be able to
you know augment the the batteries to be
able to
offset some of that uh degradation
that’s going to be key in some of the
financings here
and you know obviously if the technology
does improve where
we don’t have sole reliance on
lithium-ion and
there’s some chemistry uh you know
breakout
then then i think that would be a game
changer but for now
we are restricted to seeing these uh the
degradation and
augmentation and to also christian’s
point fire insurance has been
pretty hard to come by as well so that’s
that’s been very key
um and i don’t know i think fire
insurance has definitely gone up
for for future projects and especially
california i think that they’ve been
they’ve been hit with you know the
wildfires and whatnot so
that’s been an issue
so well i think you’ve mentioned uh
there are a number of uh
risks so you know i’m sure the person
who asked the question is uh
he’s happy really you know to hear all
um all of these uh outlined um
you know there’s another question which
was about and we’re actually coming
you know we’re kind of running out of
time here but i think we have time for
one last
uh question and the question was about
the typical
length of the storage contracts being
signed
now in california i think it said which
is the most
uh which is the most mature market
uh in in the us for energy storage so
any like you know orders of magnitude
over the lengths of
yeah happy happy to i mean those i’ve
been
um public information so i’m happy to
you know um
diagnose that here so typically it
ranges between 10 and 20 years
there are contracts with 10 years there
are 15 and 20.
i have not seen longer than 20 years um
because the energy storage projects um
are considered to have
20-year life and then certainly um
there’s there’s like beyond that
it means to be um seen um
so that’s that’s the length of the
contract we have seen it’s either 10 15
or 20.
and there are shorter term contracts too
but that obviously involves more
uh financial risk about recontracting
right after you’re
if you enter into a five-year contract
then what happens after five years and
what’s the ability to recontract
and um as long as there’s need for
energy storage i’m sure the
recontracting risk is
less but you’re still that’s something
you have to address
but typically you see 10 to 20. and and
one more thing i’ll mention that there
is
i’m looking at the a lot of q and a’s i
think there’s one
question about hey what about pollution
risk about recycling batteries at the
end of
everybody’s talking about lithium ion
and is it environmentally friendly at
the end of
project life you’re throwing all these
batteries away that’s a very
viable concern um we are looking into
a lot of methods of recycling um because
the industry is still nascent
we haven’t really locked into a specific
recycling plan one of our battery
manufacturers um catr that’s something
we use we plan to use for
all of our future projects has a modern
recycling
company that is um so the recycling
is is a huge um corollary business to
energy storage that’s
that’s coming up i have even seen
um the um different types of recycling
technologies
coming up um by water
and fire based um recycling technologies
and you know the so that’s something
the industry must address and has to
address
okay i think we’ve lost uh great for the
the final part of
the webinar i think well uh locally was
like literally right at the at the end
and
just to continue what he was saying i
think
um that could even be a topic for a a
webinar
of its own you know the recycling of
lithium-ion batteries
particularly given how the rate at which
they will be installed and not only in
power generation but also
in transportation as well so um
but um yeah so i would just add
a lot to that uh very quickly i i think
just like with any technologies and like
we said like
you know 15 years ago we were financing
panels that
were had you know uh
maybe they were 15 percent uh
had you know capacity factors of 15
whereas you know
now it’s more than doubled so i think
there has to be a point uh that you need
to start financing technologies for them
to evolve
and become more efficient so definitely
it’s clear that storage is required to
to allow the integration of renewables
it once you
pass a certain threshold of of
renewables in your grid you’re
gonna require uh energy storage so
there’s definitely an
overall offset of uh of the impact of
the environmental impact when you take
into consideration all these pieces
but there’s definitely room to to
improve and to have you know
more efficient and cleaner batteries and
then more efficient technologies but i
think
what lithium ion will will definitely
prove is that storage
works and that will probably be be good
for
other technologies that will come in the
future
and just to emphasize on degradation and
uh battery uh
contracts uh we typically um
you know a lot of even though chris was
saying that
some of the contracts can go up to 20
years a lot of the financings are going
to be shorter term
more closer to a more of a 10 year time
frame
because the degradation of these
batteries typically show that useful
life around that range
so it’s it’s definitely shorter than the
20-year life cycle
right well andrew
jose miguel and everyone in the audience
who has stuck with us thank you very
much for today’s webinar it’s been very
interesting
um it’s been a pleasure being here with
you today
and um well i don’t know if you want to
have any uh passing words for the
audience um just thank you for uh
participating and we appreciate uh
listening in and we thank you uh ata for
uh setting this up and giving us the
opportunity
to share uh you know this battery
storage opportunity i had with chris
unfortunately he dropped off but uh you
know it was a really a pleasant
opportunity to
be able to work with the ezvolta team as
well as nadb
and and the rest of our bank group that
we really
was able to execute this successfully uh
really it was all
all parties involved that made it
possible
thank you i would just extend what
andrew said
thank everybody for their time and you
know i think it’s a great sector
if you guys are in this in this webinar
it’s because you you’re in the right
sector it’s
it’s definitely something that’s that’s
growing there’s a lot of opportunities
business opportunities that will also
have a positive impact in the
environment and will help with the
integration of renewables so
we hope to continue participating in
webinars like this and
and seeing more projects come to
fruition in in any country
but especially here in the us thank you
very much once again
and well see you here next time if you
like this kind of webinar you know where
to find
more go to adainsides.com and we’ll have
a lot more webinars coming up for you
and
well thank you everyone and have a good
day
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