In October, we covered the unveiling of Alevo, a stealthy startup with claims of a new lithium-ion battery it says can outlast the competition in grid applications -- and $1 billion in investor backing to build the supply chain and manufacturing facility to churn out its GridBank systems at gigawatt scale.
Now the company is seeking to circumvent any doubts that it can compete for big gridstorageprojects against lithium-ion battery competitors like Samsung, LG Chem, Panasonic or Tesla’s Giga factory by backing up to 200 megawatts of projects by itself.
On Tuesday, Alevo announced a joint operational agreement with Customized Energy Solutions aimed at bringing 200 megawatts of battery projects to U.S. wholesale energy markets. The partners are targeting frequency regulation services, which offer high prices for energy resources that can provide and absorb electricity on a second-by-second basis to keep grid frequencies stable.
It’s an audacious goal, considering that the biggest frequency regulation market in the U.S., run by mid-Atlantic grid operator PJM, only has about 110 megawatts of such fast-acting energy storage systems connected today. Indeed, Alevo’s target would put it ahead of grid storage leader AES Energy Storage, a subsidiary of U.S. energy generator AES, which has spent the last half-decade building up its portfolio of 200 megawatts of grid battery projects.
And, in a move that’s “a little bit unique in the storage space,” Alevo is going to both provide the batteries and own and develop the projects, Jeff Gates, Alevo’s vice president of operations, said in a Tuesday interview.
In other words, it’s taking on both the technology risks of an unproven battery and the market risks of investing in projects that must earn their money back over a decade or more of successful operation. That’s a risky proposition for investors -- but it’s certainly one way for a new battery technology to prove its worth a lot faster than would otherwise be possible, he noted.
“We are building a factory in North Carolina with enormous capability to manufacture large volumes of energy storage,” he said. “Rather than waiting for third-party sales to drive that volume cost reduction, we’re driving it ourselves.” And while Alevo is open to selling its batteries to other project partners, “We’re not selling batteries; we’re selling energy storage as a service,” he said.
Gates, the former head of Duke Energy’s grid storage business, said that Alevo would target both PJM and other U.S. markets for its 200 megawatts of deployment. In PJM, which already has an estimated backlog of about 100 megawatts of battery-based projects seeking interconnection, Alevo will be looking at multiple ways to get its foot in the door, including working with other project developers that may find themselves tempted by Alevo’s promised technology improvements over competing lithium-ion systems, he said.
“There are a lot of things that could happen there, including acquiring development projects from third parties [or seeking] opportunities to do things to accelerate or avoid the queue altogether,” he said. “We think we have a way to get to the finish line ahead of other folks.”
At the same time, “we are not limiting ourselves to PJM,” Gates added. Alevo will also be seeking out opportunities with other grid operators that have set up frequency regulation regimes under FERC Order 755 that aren’t nearly as lucrative for energy storage systems as PJM’s, for one reason or another, he said.
For example, “we are going after other markets where the signal may be more aggressive, and thus other technologies may wear out faster, degrading the economics,” he said. That could include Texas grid operator ERCOT, which has set up a program that requires participating resources to inject more energy at a higher rate than PJM’s system does to deal with grid frequency emergencies, which could wear out batteries that lack Alevo’s ability to withstand deep discharges over tens of thousands of cycles without degrading, Gates said.
Alevo is also looking at California, New York and New England as potential growth markets, although each has its own problems that have limited growth. "We will be in at least three ISOs over the next year,” he said. Alevo’s partner, Customized Energy Solutions, has built a software suite to connect fast-acting grid resources into grid operator markets across the country, and will be providing similar services for Alevo’s new projects, he said.
As for how Alevo has managed to convince its investors that it’s ready to break open these markets, “the technology characteristics certainly help make the case, because the investors that are backing battery technology companies don’t want to just earn a single-digit return for taking project development risk as well,” he said. “You need to have returns that are supported in the market that satisfy an investor base that is now taking two kinds of risk.”
Just what those returns might be, and on what initial cost of battery systems on a per-megawatt scale, Alevo isn’t revealing yet. We’ve certainly seen a lot of skepticism from industry insiders who have questioned how this Swiss-based startup can back up its claims of greatly improved cycle life, durability and safety without any independent third-party testing.
As Ravi Manghani, senior energy storage analyst with GTM Research, noted, Alevo “wants to achieve in two years what it's taken AES five to six years to accomplish with what's to date a commercially unproven technology.” In that light, “it all boils down to Alevo's technology. If the firm can achieve the performance metrics and cost structures needed, then they'll be in the money.”
Gates noted that Alevo has done some independent third-party testing, though it hasn’t publicly released the results. It has also used that testing to secure a “creditworthy third party that is prepared to offer a 20-year warranty on the system” for developers interested in buying Alevo’s GridBank units for their own purposes, he said.
But in broader terms, “until we go out there and prove it, that’s going to be a valid criticism,” he said. “But 12 months from today, when people see we’ve done what we said we would do, it won’t be.” As he put it, “How many other battery technology people are putting their money where their mouths are?"