Wall Street hopes to profit battery storage.
Sheldon Kimber recognizes a promising opportunity in the business of bottling sunshine.
An entrepreneur is strategically placing numerous large batteries, comparable in size to shipping containers, in sunny regions of Texas and California. The batteries recharge during the day when solar power is plentiful. During periods of increased electricity demand in the evening, which puts pressure on the power grid, Kimber takes advantage of the opportunity to sell the stored energy at higher prices.
Kimber believes that the combination of rising power demand and unpredictable weather patterns will contribute to a more lucrative trade.
“Volatility in the energy transition is bound to increase,” stated Kimber, the CEO of Intersect Power, a renewable energy developer.
Kimber is involved in a nationwide competition to capitalize on battery storage, which plays a crucial role in stabilizing the outdated power grid and ensuring a consistent supply of electricity from intermittent sources like wind and solar. This sector is experiencing rapid growth, driven by the surge in solar energy and substantial investments from both the government and financial institutions.
Intersect has secured a staggering $837 million in debt and equity for one of the most significant battery storage deals. This impressive funding is being provided by esteemed financial institutions such as Morgan Stanley, Deutsche Bank, and HPS Investment Partners.
The funds will be allocated to three large-scale battery storage projects in Texas. According to Intersect, the collective power of the 258 Tesla Megapack batteries will be sufficient to supply approximately 400,000 homes with electricity for a duration of two hours once they become operational in the near future.
The sector’s potential has garnered attention following Hurricane Beryl’s impact, which resulted in millions of Houston residents being left without power. Homeowners and businesses have been increasingly adopting battery installations to ensure uninterrupted power supply during blackouts and other grid disruptions that tend to occur more frequently in the summer.
According to S&P Global Market Intelligence, the storage capacity in the U.S. has experienced significant growth in recent years, enabling it to provide power to a substantial number of homes. California and Texas are major players in the industry, with projects also underway in Nevada, Arizona, and other locations to address the increasing power demand from artificial-intelligence data centers and manufacturing plants.
Cerberus Capital Management, a private-equity firm, has recently made a significant debt investment of $315.5 million in Eos Energy Enterprises. This startup specializes in the production of zinc batteries, which have the potential to store energy for extended periods of time. A developer named rPlus Energies recently secured more than $1 billion for a significant solar and storage project in Utah.
“There seems to be a sense of excitement and opportunity,” remarked Jacob Mansfield, a former power trader and CEO of Tierra Climate, a startup working on a financial product that aims to increase the earnings of battery companies through the charging and discharging of clean energy.
Established in 2016, Intersect Power has successfully secured substantial funding to develop solar projects for prominent clients such as Apple and Morgan Stanley, among others. Now the company is turning its attention to battery storage.
In a move that showcases a strategic vision, the company has made a significant commitment to purchase a substantial number of Tesla Megapack batteries. This decision will undoubtedly expedite the installation process in both California and Texas. Tesla is renowned for its production of electric cars, but its more recent venture into the energy storage industry is projected to experience rapid growth.
With a domestic battery supplier, Intersect becomes eligible for additional subsidies under the 2022 climate law. It is anticipated that the Texas battery projects will be partially funded by tax credits.
Kimber favors shorter contracts with flexible pricing, as opposed to the typical long-term customer agreements with low, fixed prices that are commonly used in the clean-energy industry. The strategy carries a higher level of risk, but has the potential to significantly increase revenue in the event of a surge in prices.
Power traders in Texas have a significant impact on the state’s deregulated electricity market, which could result in substantial rewards. In this particular market, the disparity in electricity prices between daytime and evening has become so predictable that Intersect is able to incorporate fixed prices into contracts with utilities and other customers.
Traders have provided the company with a secure payment arrangement for its battery projects, which is determined by the difference in electricity prices during the charging and discharging of batteries. When the spread exceeds that threshold, Intersect retains a larger portion of the funds.
In states with stricter regulations on electricity markets, storage companies heavily depend on alternative sources of revenue. This includes receiving payments from utilities when their batteries are utilized.
The sector continues to encounter obstacles. Alternative types of batteries with longer energy storage capabilities have the potential to render certain projects that currently depend on lithium-ion batteries obsolete.
The surge in storage installations may have the potential to stabilize electricity prices and impact the profitability of battery projects. Potential obstacles in connecting projects to power grids in certain states may impede growth.
Investors are optimistic that the rise in solar energy and declining storage costs will yield profitable returns.
“It has been a widely discussed subject in recent years,” commented Michael Bonafide, a director on the infrastructure and energy financing team at Deutsche Bank, which has made investments in six storage deals during this period.
