Swiss asset manager Capital Dynamics quickly compiled one of the most ambitious energy storage pipelines in the U.S.
The firm is teaming up with Tenaska to develop and operate nine battery projects totaling nearly 2 gigawatts and up to 7.8 gigawatt-hours of grid storage in California. They will target the coastal hubs of San Francisco, Los Angeles and San Diego to provide the dispatchable capacity that is sorely missing right now as the state struggles with days of critical electricity scarcity.
The portfolio joins Capital Dynamics' earlier acquisition of the Eland solar-storage project, which 8Minute Solar Energy contracted to the Los Angeles Department of Water & Power. CapDyn also acquired Strata Solar's 100-megawatt/400-megawatt-hour battery near Oxnard in June, Greentech Media has learned. That system is under construction, expected online in the first quarter of 2021.
"It’s obvious to us that the energy transition will require a combination of hybrid plants — solar-plus-storage, wind-plus-storage — as well as standalone storage," said Benoit Allehaut, managing director for clean energy infrastructure at Capital Dynamics. But, he added, "there’s still plenty to be built before it starts to make a dent."
California has shut down nuclear- and gas-fired capacity without building enough new firm capacity to meet demand after the sun goes down. Capital Dynamics' investment thesis appears tailor-made to tackle the root causes of the grid drama unfolding this week.
The partners identified the densely populated coastal areas as places where emissions-free capacity would be most valuable. Those areas consume the most power but are losing local capacity as gas plants shut down. Permitting new gas plants has already become a challenge, and the state's 2045 deadline to eliminate fossil fuels from power production limits the payback period for new gas projects.
Tenaska chose the greenfield locations based on substation capacity and value for resource adequacy at both the system level and the local level, Allehaut said.
"The cost of real estate is far greater in the Bay Area or L.A., but the value to the grid is also much higher," he said. "It’s a very fine balance."
The projects range from 200 megawatts to 300 megawatts in power capacity, with discharge durations of two to four hours.
Unlike most battery projects in the past, but similar to the recently finished Gateway project by LS Power, Capital Dynamics isn't waiting for a utility contract to begin building.
"Most of the value comes from energy arbitrage," Allehaut said. "Resource adequacy is a portion, but not a majority portion, of the projected revenues. It pays for the [operating expenses] and a little bit more."
Capital Dynamics will fund development and plans to own the projects after they come online in 2022 and 2023; Tenaska will have an opportunity to co-invest. Tenaska Power Services will manage market dispatch optimization, a service it provides for gigawatts of generation nationwide.
Strata's Oxnard project offers an early glimpse at what these projects could look like. When local opposition successfully halted a new gas plant that was going to be built on the beach, utility Southern California Edison turned instead to a portfolio of batteries to keep the lights on in that area. That 20-year Resource Adequacy contract made Strata's project attractive to several long-term asset owners, Strata Chief Development Officer Joshua Rogol said in an email.
"We elected to monetize the project and invest the sale proceeds back into the market to advance projects with similar characteristics to Ventura Energy Storage in order to meet the significant and ongoing need for battery storage in CAISO and other markets with attractive fundamentals," he noted.
Capital Dynamics brought complementary skill sets and experience, Rogol said, adding, "We look forward to continued success across geographies, markets and segments."