Private equity firm Energy Capital Partners has bought its way into the energy storage development business with Convergent Energy + Power, the companies announced Wednesday.
New York-based Convergent develops, owns and operates large-scale storage for industrial customers and utilities. It distinguished itself as a rare startup that chose to self-fund its projects, raising $70 million to do so. Convergent also took the title for largest commercial and industrial storage project, with a 10-megawatt/20-megawatt-hour system in Ontario, Canada.
Energy Capital Partners owns and invests in a wide portfolio of energy companies, including gas generator Calpine and residential solar company Sunnova, but this marks its first storage acquisition. The firm acquired Convergent as part of its multibillion-dollar Fund IV.
The companies declined to name the sale price, but noted that upfront acquisition payments and ongoing funding for projects will amount to several hundred million dollars of investment. Convergent will put that capital to work in what CEO Johannes Rittershausen calls a storage independent power producer, self-financing projects for customers and owning them for the long haul.
"The model we have now, moving forward with ECP, is much more efficient, and we can offer better value propositions," Rittershausen said. "Funding is of no issue to us."
From the buyer's perspective, Convergent stood out for its track record of operating projects and customer relationships, said ECP principal Andrew Gilbert.
"We've been pitched on pipelines, but Johannes and team have actually executed," Gilbert said. "Convergent delivers real savings to customers almost immediately, in material ways. The returns are quite attractive compared to other things we see in renewables or storage."
Notably, both parties expressed wariness about competing in the major utility-scale procurements, where big players like NextEra and First Solar compete on tight margins for massive projects. They described that market as more commoditized than the middle ground where Convergent operates, which is bigger than the typical commercial project, but still driven by private customer needs.
That's not a particularly crowded field right now, and Convergent's self-funded model differentiates it from the competition. Venture-backed developers typically hand off their projects to project financing funds to own.
Convergent took an early stab at non-recourse financing for standalone storage in 2016, but found the process to be cumbersome.
"That was such a hard and inefficient process that we realized we had to raise money into the company and deploy it as equity," Rittershausen said.
The acquisition, then, serves as a drastic scale-up of that infusion of capital into Convergent for it to spend building projects. The company doubled its staff in the last nine months in anticipation of the growth to come.
At the same time, it marks an early if not unprecedented step by a private equity firm to take pure-play energy storage expertise in-house.
"This is way ahead of the market for storage," said Elta Kolo, a senior analyst at Wood Mackenzie Power & Renewables who tracks mergers and acquisitions in the grid edge sector.
ECP's controlling stake in Calpine, which specializes in flexible thermal generation, raises a possibility of future collaboration. Certain Calpine plants have run into competition with energy storage in California. Power producer Vistra has started swapping out its old generators in California for battery packs, to continue delivering fast response power without local emissions.
Such an arrangement is not in the works just yet for Calpine and Convergent.
"This is really a separate platform for us, not that there won’t be opportunities to work together," Gilbert said. "It’s not integrated with Calpine, and the investors are different."
In the meantime, Convergent will chase more numerous and more ambitious storage projects thanks to the newly available capital, Rittershausen said.